Settling for the “average” price is based on two assumptions – you know what the average price is and your product or service is average.
In many cases, your assessment of average is flawed by a lack of knowledge of your competitors’ offerings and/or what is important to your customers.
By definition an average price means that there are a range of prices prevailing in the market – some higher and some lower than the average and it is often the case that the highest price is 2 or 3 times the lowest price. Now assuming that the economists are right and we all make rational economic decisions, customers who pay the highest price are confident that the value they are receiving is 2 or 3 times the value offered by the lowest priced supplier.
And value is always to be assessed in the eyes of the customer. It can be a higher quality product but it can also be an array of benefits such as convenience, customer service, availability, loyalty and so on which mean that, for this group of customers at least, this product is superior to the average.
So, when making pricing decisions for your products or services, you need to –
- Know your target market - If you know what’s important to your target customers, you can tailor your offering to suit and avoid being average to them.
- Know your competitors - You need to know how your offering and current pricing differs from your competitors. Knowing what you and your products do that your competitors don’t helps you justify a higher price provided the differences are important to your target market.
- Deliver consistently - Making sure that you consistently provide the level of quality/service to match your pricing is critical. Having to discount to compensate for shortcomings does not inspire customers.
- Be confident - If you have done your research to compare your offerings with those of your competitors, be confident that you are offering appropriate value and deserve to be appropriately compensated.
While I am sure that all small business owners are often mindful of the pricing issue, we need to make sure we don’t just take the easy way out with this important decision. Being a lazy pricer is unlikely to be an advantage for your business in the long term – and don’t we all want our businesses to have a long term future?