This is part 2 in a 5 part series: Big Picture Ideas for Small Businesses.
Pricing is a touchy subject. It dictates your marketing strategy, your target demographics, payroll, staffing, and day-to-day expenses. It’s what brings revenue into your company and what crafts an image outside of it.
Whatever you’re asking the customer to spend, there is one particular rule of thumb that every business should abide by; Don’t Cheapen Your Product. I’m not necessarily talking about price, which can and probably will fluctuate over time. More accurately, I’m talking about perceived value or how much a customer thinks your product is actually worth, irrespective of price.
Omega watches have a high perceived value because there is an expectation surrounding their craftsmanship that precedes their name. The price is set accordingly, and the brand being around for 150 years is a testament to that. Another example is Linux, the free and open-source operating system whose kernel was created by Linus Torvalds in 1991. Despite being completely free, Linux has a tremendously high perceived value; so much so that corporations ranging from IBM to Novell have embraced it as a cornerstone of their respective business models.
So, how do you avoid a low perceived value? Here are two general cues to help you streamline and communicate the value of your product or service in an age where competition can come from anywhere.
1. Don’t Discount for the Sake of Discounting
When I walk into a bookstore I see signs that say 30 or 40% off of brand new hardcover books, this communicates two very distinct messages to me. The first is that this book is new and apparently popular, and the second is that this book is worth considerably less than the discounted price…much less the price printed on the jacket.
Promotional discounting is critical to staying competitive; it provides a call to action for the consumer, it can help you clear inventory (for physical goods at least), and it provides critical information on guiding your pricing and marketing. Keeping your product in a perpetual state of discounting, however, is counter-productive for finite goods and can be suicidal for services.
If customers only buy your product when it’s discounted, that means they don’t feel it’s worth what you’re charging.
2. Don’t Be Afraid of Free
A lot of service providers are terrified of big companies (think Google and Microsoft) for their recent forays into Saas. I spoke to the founder of an online software company not too long ago that was worried that Google Wave would put them out of business.
The truth is, large companies ALWAYS do this sort of thing, they have to. If Microsoft didn’t dive into cloud storage then the entire market would be dominated by Linux. The larger market forces actually forced their hand.
There is no reason to fear a big company stepping into your space if you have your head on straight. In fact, you could take it as a compliment! The utility of your product has just been validated by a successful competitor…and you already have a head start!
If you have any ideas or insights on ‘perceived value’, tell us in the comments!
Stay tuned to The ServInt Source for our next tip, Find Feedback Before It Finds You, soon!
Photo by Diana Zuleta