This is a great series of articles by Andrew Gregson of Pricing Strategies that I will be posting on my website over the next few weeks. Don

Always when I begin my speeches or my workshops, I tell the participants that I cannot instruct them to price their widget at $4.95. Rather, I plan to teach my audience advanced ways of thinking about pricing and several methodologies to help them make informed and intelligent pricing decisions.

Don’t follow the crowd!

For most small businesses, the everyday pricing regime starts with checking the competition’s rates and prices, and then following the crowd. This is even the recommended strategy in many popular guides for small business.

During the days of prohibition, 25 of Chicago’s top bootleggers were rounded up in a surprise raid. During their arraignment, the judge asked the usual questions, including the occupation of each suspect. The first twenty-four were all engaged in the same activity. Each claimed to be a realtor. “And, who are you?” the judge asked the last prisoner. “Your honour, I’m a bootlegger,” he said. Surprised, the judge laughed and asked,” How’s business?” “It would be better”, he answered, ‘if there weren’t so many realtors around.”

The upside is that this strategy is simple and easy. You don’t spend all that work, that time or your money to develop a unique selling proposition to command the full value for your services or product and you don’t have to go out of your way to be better than all the rest.

But following the crowd is a lazy strategy that leads to mediocrity.

Money is probably left on the table since the business is now just one in the herd and the product or service is sold at a price which is the average- where half of the competition is losing money. Remember that price is an indicator of quality in many customers’ minds. A standard service at a standard price does not compel a potential customer to buy from you.

Don’t get pushed around by the last customer you served. Being told that a competitor is selling cheaper can panic some business owners. Altering the price can lead to a permanent slide in margins and profits.

Rewarding the last complaining customer with a price reduction punishes the good customers who have supported your business by paying the full price willingly and uncomplainingly.

Remember that competing on price alone caters to the worst customers who show no loyalty and will hunt endlessly for the lowest price in town. My suggestion – find a way to make your company stand out and price accordingly.

Contact Andrew for your next meeting:

Andrew D. Gregson B.A., M.A. M.Sc.(Econ)
http://www.pricingstrategies.ca
101-1735 Dolphin Ave.
Kelowna, BC, Canada V1Y 8A6
toll free: (888) 959-0752
Andrew@pricingstrategies.ca