Pricing Principles You Should Know

By: Dan Kennedy on: May 8th, 2015 3 Comments

Most small business owners operate in the dark when it comes to price.

They guess at and ballpark what they should be charging. When it comes to research, that usually means taking a look at what the competition is asking and try to slightly undercut them. Cost analysis? That’s usually a panic move that results in reduced prices, which leads to smaller profit margins and jeopardizing the future.

It’s time to shed some light on the mysterious and elusive topic of pricing. Here are a few things you should know:

Yes, it’s true – people buy at different levels. That’s just one reason why General Motors sells Cadillacs, Buicks and Chevrolets.

You can find a Wal-Mart customer in every category. But you can also find a Nordstrom’s customer in every category, also.

You can choose to spend the night at a Motel 6, or check in at a Four Seasons.

Looking to buy a men’s suit? You can get one off the rack at Sears. Or you can get fitted for one at Neiman-Marcus.

The lesson to be learned here is that as a small business owner, you can pick which clientele you want to work with. You can decide to cater to a “price is king” crowd. But that can be dangerous because there’s always going to be someone who can undercut you.

Or you can choose to work with customers, clients or patients who rank price low when it comes to doing business.

Competing on price can be hazardous to the future of your business. If you aren’t the cheapest, it makes no sense to be “one of the cheapest”. Because those who shop price only are all going to go to the cheapest. Which leaves you out in the cold.

If you are in a commodity business, you must reinvent yourself. Find something besides price to be competitive. Maybe your service is second to none. Or your delivery or follow-up time can’t be matched by the competition. Find something besides price that you can use to leverage your business.

Not long ago a client asked me to create an ad. The client is a consultant in the restaurant industry. And the ad was for one of his students. The student owns a gourmet pizza take-out and delivery shop. It’s located in a small city where they compete with over 100 other pizzerias. And they are the highest priced of them all. They offer no special deals or two-for-ones. They doubled their sales and their profits last year. Here’s the key word that differentiates them from all the other pizzerias in town: gourmet.

Don’t worry about so called “industry norms”. Most business owners take a look at what their competitors are charging. They make note of the high price, the low price, and end up setting their prices somewhere in the middle. As unscientific as it may sound, this is the way most businesses establish their prices.

Most selling occurs in a vacuum. If your selling process doesn’t, you need to change your marketing approach so that it does occur in a vacuum before an actual sale happens.

There is “price”, and then there’s “presentation of price”. This means structuring what you sell, how you package it, how you market it and to what audience, how you deliver it differently than the competition. These small, subtle differences allow you to set a higher price, because a direct comparison to lower prices can’t be made. Why? You’ve built in value-added benefits and features to your product and service – something the competition doesn’t offer.

Avoid running your business on fear. Most business owners needlessly underprice their products or services. They then try to overcompensate by raising prices – often too little, too late. They also make the mistake of ignoring opportunities to sell premium priced versions mostly out of fear.

The price your customers, clients or patients pay is a result of the target market selected, perceived value, the value proposition presented, salesmanship, credibility, celebrity status, brand and buying experience. These are just a few of the factors that play into the buying decision.

The buying decision has very little to do with objectively measured intrinsic value. If that were the case, diamonds would not cost any more than glass or coal. You can control and manipulate all the non-intrinsic factors. So you should approach price courageously and creatively.

A great way to build up your pricing courage is to do a little research and find out what else your clientele spends money on – and how much they spend. Also take a look at what the really affluent spend on a variety of goods and services. Items like an $800 putter for golfers or a home entertainment system that costs many thousands of dollars are common among those who can afford it.

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Dan Kennedy is internationally recognized as the 'Millionaire Maker,' helping people in just about every category of business turn their ideas into fortunes. Dan's "No B.S." approach is refreshing amidst a world of small business marketing hype and enriches those who act on his advice. For more money-making marketing tips, tactics and strategies, go to

3 Responses

  1. Dave Wardle says:

    This is SO true Dan. We have a B&B in a busy tourist town. We always price one room higher than the other two. Some people choose the higher priced room while others choose the lower priced room. It’s dependent on perception.

  2. David Hunter says:

    I used to always be about the “lowest price.”

    As I get older I’ve shifted gears into quality over quantity.

    I rarely shop at a Walmart anymore. I’m a GE Market District kinda guy now. Sure, the prices are more expensive but the experience is well worth it!

    Heck, I know Amazon isn’t the cheapest anymore. But, I’ve always had great customer service and never had any problems with the products I’ve bought, so why go anywhere else?

  3. Wow! That sure was an eye opener. All those different things to compete on besides price. Wonderful! I feel so much better now. Thanks.

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