Pricing is the number one thing I get asked about lately.
Most of the time, I get asked in a kind of quiet way, like someone is embarrassed about not knowing more about pricing or having made a mistake.
The reality is that pricing is hard and that everyone makes a pricing decision that they regret at some point. You embrace the mistakes, work at doing better, and go again.
Here are 7 common mistakes that a lot of folks make:
Use Discounts as a Demand Generation Idea: Discounts don’t drive demand. The best you can hope for is that the discounts pull demand forward.
The downside is that you rob your business of profits.
Sometimes, you have to do that.
But, in the long run, you’ll likely find your position eroded because the buyer is likely going to come back to you for a discount the next time…if there is a next time.
Price Based on the Competition: First, it isn’t competition…it is alternatives.
The strongest competition you have is typically the status quo.
The other thing is that you don’t really know what your competition is doing. You don’t know how they made their decisions. You don’t know anything about their position, their brand, or their goals.
You are allowing someone else to run your business.
Price Too Low: There are a number of reasons for this like no research, no sense of the value, or lack of confidence in the price.
Just know that it is really hard to raise your prices when you start low.
Not using bundling or unbundling: You can raise your prices or justify higher prices pretty effectively if you use bundling and unbundling.
Unbundling a service into its component parts can let you raise your prices.
As an example, you might do market research as part of a project or offering. If the buyer only wants the research section, you might say, “The total project would be $100,000, but we can do just the market research portion for $50,000.”
The research may only be 25% of the total project, but you’ve charged a higher price due to the standalone nature: unbundling.
Bundling might look like the reverse.
“Sure. We do a full market research and that’s $50,000. But we can also do the research and findings along with a strategy design, implementation workshop, and 90 days of follow up for $100,000.”
Use them both.
Letting the Sales Team Guide the Pricing Decisions: An absolute in my time is that the first objection a salesperson is going to bring up is that “the price is too high.”
This is especially common in organizations that have bad sales incentives.
You can’t let the sales team guide the pricing decision. Too many sales teams and sellers are incentivized to make any sale or just sell revenue.
Those are both bad for your business in a lot of cases.
It is also likely that the sales team is going to fall off to the standard first objection that “I don’t have the budget” or “the price is too high”.
Which are always the first objections you get and are just standard in so many places to see if we can get a better deal.
Offering Too Many Options: This is a combination of bad product development and bad research, but too many people offer too many options.
Customers do get overwhelmed by choices, you can offer too many options.
I typically limit my proposals to three options: Good, Better, Best.
Sometimes, it is only one.
But I do know businesses that have 30 or more price points.
It is just too much.
Even if you have a substantial product mix, you have to filter the choices for your customers. If not, you are likely going to end up where your pricing is off and you create an environment where it is easier for your customer to just say, “no.”
They Discount!: Discounts are for dummies!
Discounts undermine your brand.
Discounts steal your profits.
Discounts signal that there is always a better deal to be had.
Discounts are the scourge of pricing.
When you discount, you really aren’t winning either because in most cases you are just pulling a sale forward that would have happened at full price or you are giving in to a knee jerk reaction that “the price is too high”.
Once you open the discount box, you rarely close it.
The damage of discounts is long lasting. I’ve looked at research that says that customers will view you as a “discount brand” for up to a decade after you stop giving discounts.
So just don’t do it.
Which one of these moves are you going to try first?