Getting your prices right

Are you able to be the cheapest in your field? Do you want to be the cheapest? The answer to both questions is very probably not.

Naturally enough, very few small companies are able to be the market leader on price. That's a tactic used mainly by the big guys, because they can afford to make up for low margins with huge volumes.

So what about the rest of us? How do we price our products and services to achieve the best possible profit without excluding potential customers?

The exact answer to that question depends on the nature of the business you are running. That said, there are a few key points that any business can usefully apply. And here they are:

- To justify higher prices, you need to focus on unique features that only your company can offer. If you are a small company or a freelance service professional, for example, your added value to customers might be a closer, more attentive working relationship with your clients.

- Give more in actual use value, than you ask for in cash value. Offer more than competitors do and the perceived value of your product increases accordingly. You could be selling identical products to others. What makes you different is the added value that you include. Added value is about giving more in perceived use value to your customers than they get anywhere else. It's not the actual price of your product or service that matters most, it's the value buyers feel they get in return that makes it worthy of the price.

- Always test your prices to see what your particular market will bear. It may well be more than you think. Also, remember that it's normally easier to put prices down or offer special deals than to put prices up later on.

- Consider offering customers a special price on their first purchase if you can confidently expect to build a long-term relationship with that customer (you should be aiming for this anyway!). The first sale often absorbs most of the costs associated with acquiring that customer and each sale after that has a higher percentage of built-in profit.

- Low prices can sometimes reflect a low confidence level, especially for solo professionals. If you think there's a chance might apply to you, take action now by reviewing what unique benefits you offer your clients. Carefully consider each reason why you and your company are special, make sure your customers know about it, and take gradual steps to increase your prices. For an added boost, also ask your best customers why they love doing business with you, and ask them to write a testimonial. Then sprinkle liberally throughout your marketing activities.

- Many marketing studies over the years have shown that price is not generally the top reason that purchasers give for choosing a particular company. Price usually comes in at number four or five in the list. (The top reason given normally is trust, incidentally). Find out the real reasons why your customers buy and make sure you meet those criteria, then raise your prices!

- Finally, remember that there is always a sector of the market that is willing to pay Rolls Royce prices for a Rolls Royce service.

Based on this information, what actions could you take to optimise your pricing?