I suppose it’s to be expected when the economy slows down, and it seems like business is tougher for everyone.
But I have to tell you .. I’m getting tired of the whiners who insist that they “just can’t find new clients“, and they have “no choice” but to lower their prices so that they can stay in business.
They say that “no one’s spending money” right now, and they argue that it’s better to get a little less for what they do, than to get none at all.
Is it tougher these days? Of course it is — I don’t think anyone’s debating that.
But here’s the key: Reacting to the economy by lowering your prices is one of the single WORST things you can do as an entrepreneur. In fact, there is almost NEVER a good reason to reduce prices.
Here’s why, and how to avoid getting stuck competing on price.
Why Most Entrepreneurs Compete On Price (And Lose)
As with many things in life, what seems “logical” or “common sense” is actually bad for business. You’d think that if times are tough and you’re looking to stimulate sales, reducing your prices would make a lot of sense. After all, that’s going to allow more people to afford what you sell, leading to higher overall sales. Your clients will appreciate the lower prices, and they’ll become more loyal and appreciative. Right? Good luck with that. In my view, there are 3 fatal flaw in reducing your prices:- Once you reduce them, it is very hard to justify raising them again in the future, when times are better or you’re not as desperate to generate the revenue. Reducing prices is a short-term solution to a long-term problem.
- The price you charge directly affects the perceived value of what it is you sell. We all learn early in life that “the more expensive, the better”. This is programmed into us, and while it’s not always true, this is a “short cut” our brain uses often. When your customers sees a low price, they subconsciously assume the value is lower as well.
- Reducing your prices or undercutting competitors programs your customers to ask for discounts, and to delay their purchases until a “sale” or discount comes along. Your customer become conditioned to wait for the best deal, and you have to keep giving them better deals just to get them to buy.
How To Get Paid What You’re Worth
As an entrepreneur, here are 3 KILLER strategies you must put to work if you’re going to earn what you’re really worth, and be able to justify higher prices. Strategy #1: Instead of reducing your prices, increase the value you offer.If you’re under constant pressure to reduce your prices, chances are that it’s because what you offer is very similar to your competitors, and you haven’t done a good job differentiating yourself.
For example, think about when you go to the grcery store to buy a bag of rice. You find 3 brands on the shelf, and they all seem to be very similar. Same size bag, same type of rice, basically they all look the same. How do you make your decision? If you’re like 97% of the population, you buy the one that’s cheapest. That’s because you’re buy a commodity – they’re all basically the same.
Your job is to determine how you can add value to what you sell, and do it in a way so that it separates you from everyone else and makes you unique (and builds your value). If you sell a product, is there some kind of value-add training or service you can bundle with it? If you are a service professional, what added service or convenience can you add that makes your offering more interesting or appealing?
When you identify what your client really wants and you begin to add value to your offering, you’ll find that not only do clients stop attacking your prices, but they’re actually willing to pay MORE — because you’ve taken the time to figure out what they really want from you (besides the commodity component of what you sell).
Strategy #2: Focus on what you deliver, instead of what you do.What most entrepreneurs, business owners, professionals and service providers do is focus on what it is that they actually “do” in their business. For example, “I’m a chiropractor”. “I’m a web designer”. “I’m a life coach”. “I own a shoe store”.
This is a major mistake, because it puts you in the same category as the thousands of others that are in that same business, competing for that client — which makes you a commodity. That’s bad. See #1.
Instead, what you need to focus on are the results or the outcomes that you deliver for your client. For example, if you’re in the pet care business, instead of saying “I’m a dog groomer“, you might say something like “I provide stress-free dog grooming in the comfort of your home, and guarantee the elimination of shedding and allergies.”
Wow. Hey, that sounds great .. when can you come over and groom my hound?
What is it that your customer is really trying to buy from you? (hint: it’s not the product or service you sell .. it’s the outcome or result they get from it!)
Strategy #3: Offer an “Outrageous Guarantee” to eliminate their risk.One of the main reasons people hesitate to buy from you is because of the perceived risk of making a bad decision. To the extent that you can eliminate their anxiety of making a mistake and wasting their money, you’ll be more successful in attracting clients (and not having to cut prices).
The concept of “Outrageous Guarantees” is something that’s fasinated me for years, and is the subject of some content I’m in the process of developing. I’ll have a lot more to say on this topic in the future, but for now, the key question is: What’s the most outrageous guarantee you can offer that will get attention and cause people to feel like doing business with you is a “no brainer”?
As a quick example, Zappos.com has become one of the world’s top online clothing retailers (primarily shoes) because of it’s seemingly crazy guarantee. Basically, you can order whatever you want from them, and they’ll ship it to you.
Order 10 pairs of shoes, try them all on. Send all the ones you don’t like back. And they’ll paying the shipping for you to do it.
Both ways.
Even if you don’t keep any shoes. And the shoes you do keep, you can send them back a year later if you want for a refund.
A truly successful “Outrageous Guarantee” causes people to say “how on earth can they make any money doing that?” That’s how you know you have a truly outstanding and attention-getting guarantee in place.
Okay, I gotta wrap this post up because I’ve gone on way too long .. but hey, I love this subject. So there you have it .. how to avoid competing on price, and finally begin to charge what the VALUE is that you bring to the table (instead of what people are willing to pay). I really hope that you are starting to see that you CAN get paid a lot more than you do now .. and that dropping your prices is a BAD idea. Post a comment below and let me know what you think!]]>
41 Responses
Absolutely this is dead on.
Absolutely this is dead on.
This is right on time as I begin the adventure of my new consulting firm for schools. I have pondered how to attract clients, keep them, offer a powerful product, and of course get paid the value of my services. Thanks for an on-time blog.
This is right on time as I begin the adventure of my new consulting firm for schools. I have pondered how to attract clients, keep them, offer a powerful product, and of course get paid the value of my services. Thanks for an on-time blog.
My #1 strategy for filling any tenant turn over I may have is to raise my rent $50! It does a couple of things: makes people think that I have a better product and sets me out from the crowd!
I had four tenants give notice this month (not a great Monday) Took out some ads and had 2 filled by the afternoon. I'll have the other two filled by the end of the week guaranteed!
Undercutting sucks for everyone! Get off your lazy butts and figure out how to market!
Great comments and thoughts Wade! Couldn't agree more.
My #1 strategy for filling any tenant turn over I may have is to raise my rent $50! It does a couple of things: makes people think that I have a better product and sets me out from the crowd!
I had four tenants give notice this month (not a great Monday) Took out some ads and had 2 filled by the afternoon. I'll have the other two filled by the end of the week guaranteed!
Undercutting sucks for everyone! Get off your lazy butts and figure out how to market!
Great comments and thoughts Wade! Couldn't agree more.
Hallelujah Greg.
I have been saying this (not as powerfully) for a very long time. It came up again yesterday along the lines of… my most valuable clients are my long term clients. Groupon came along and wanted us to do a promo for 70% off for new clients only.
Tell me what that would do to my existing (and long term) client base.
Yeah… not a great plan at all.
And to confirm – last year we had a "summer sale" and then this year, we had people asking and waiting for the "summer sale" again.
What a disaster… profitability goes down, client satisfaction does NOT improve this way.
Word to the wise (whoever might be reading this) take Greg's advice to heart – we have done the opposite and suffered the effects. It's an easy way to go, but it's not sustainable… lazy is a good word for it, now that I think about it 🙂
My two cents – build a solid referral program and reward your clients like that. It will work, and you won't have to worry about your profitability 🙂
Cheers all.
nothing new to me. I am trying to get the general Idea of business as of the whole system of human service, but cannot get any idea nowhere… sorry
Hallelujah Greg.
I have been saying this (not as powerfully) for a very long time. It came up again yesterday along the lines of… my most valuable clients are my long term clients. Groupon came along and wanted us to do a promo for 70% off for new clients only.
Tell me what that would do to my existing (and long term) client base.
Yeah… not a great plan at all.
And to confirm – last year we had a “summer sale” and then this year, we had people asking and waiting for the “summer sale” again.
What a disaster… profitability goes down, client satisfaction does NOT improve this way.
Word to the wise (whoever might be reading this) take Greg's advice to heart – we have done the opposite and suffered the effects. It's an easy way to go, but it's not sustainable… lazy is a good word for it, now that I think about it 🙂
My two cents – build a solid referral program and reward your clients like that. It will work, and you won't have to worry about your profitability 🙂
Cheers all.
nothing new to me. I am trying to get the general Idea of business as of the whole system of human service, but cannot get any idea nowhere… sorry
Strategy number 2 rocks. Great tactic for your elevator pitch too…
– thanks Greg, Cheers
Strategy number 2 rocks. Great tactic for your elevator pitch too…
– thanks Greg, Cheers
Wow! What a great way to think of business….From outside the box.
Wow! What a great way to think of business….From outside the box.
great article, thanks so much. I'm an artist and designer and one of the biggest challenges for me is pricing my work, striving for that magic number, when folks think that they are getting value for their dollar.
cheers
ross
ps; sorry to be a nag though do watch your spelling in your blogs
great article, thanks so much. I'm an artist and designer and one of the biggest challenges for me is pricing my work, striving for that magic number, when folks think that they are getting value for their dollar.
cheers
ross
ps; sorry to be a nag though do watch your spelling in your blogs
"I really hope that you are starting to see that you CAN get paid a lot more than you do now .. and that raising prices is a BAD idea." Did you really mean this? or did you mean reducing prices is a Bad Idea?
thanks
Damn.. that was a typo. Thanks for catching Dan, I'm going to edit that post!
“I really hope that you are starting to see that you CAN get paid a lot more than you do now .. and that raising prices is a BAD idea.” Did you really mean this? or did you mean reducing prices is a Bad Idea?
thanks
Damn.. that was a typo. Thanks for catching Dan, I'm going to edit that post!
Hi Greg, I appreciate what you are saying but as a producer having a wharehouse full of stock is no advantage as it costs me money. I have tried online business, a 30 day trial store, wholesaling and everyone loves my product but don't buy. So I lowered my prices and it didn't change their not buying so what else is there when you've got their attention and lowered some stock to cost to move it but nothing is working if they are not the big city yuppy buyers here on vacation???
Hi Yasmasheena:
A couple of major problems that I can see.
First, you say "everyone loves my product". Then you say, no matter what you do, no one will give you money for it.
Do you see a disconnect there? I do.
If they loved it, they would BUY it. Apple can't keep an $800 phone on the shelf. Not JUST because people love it.. but because they love it ENOUGH TO PAY for it.
Hope this doesn't sound too harsh, but you're fooling yourself to think that people love your product if you can't sell it even at major discounts. My guess would be that you've done what most entrepreneurs .. falling in love with your product, and ASSUMING that everyone loves it and will buy it, before testing the market.
Sadly, what you are doing now (after owning a warehouse full of product) is NOW testing the market .. and unfortunately, it's telling you "no thanks".
No idea what your product is so kind of hard to give you any suggestions, but I would tell you that the market is NEVER wrong. Either it doesn't want your product, or your marketing is not communicating the message of what it does, or your prices are still out of whack compared to what the market is willing to pay.
Hi Greg, I appreciate what you are saying but as a producer having a wharehouse full of stock is no advantage as it costs me money. I have tried online business, a 30 day trial store, wholesaling and everyone loves my product but don't buy. So I lowered my prices and it didn't change their not buying so what else is there when you've got their attention and lowered some stock to cost to move it but nothing is working if they are not the big city yuppy buyers here on vacation???
Hi Yasmasheena:
A couple of major problems that I can see.
First, you say “everyone loves my product”. Then you say, no matter what you do, no one will give you money for it.
Do you see a disconnect there? I do.
If they loved it, they would BUY it. Apple can't keep an $800 phone on the shelf. Not JUST because people love it.. but because they love it ENOUGH TO PAY for it.
Hope this doesn't sound too harsh, but you're fooling yourself to think that people love your product if you can't sell it even at major discounts. My guess would be that you've done what most entrepreneurs .. falling in love with your product, and ASSUMING that everyone loves it and will buy it, before testing the market.
Sadly, what you are doing now (after owning a warehouse full of product) is NOW testing the market .. and unfortunately, it's telling you “no thanks”.
No idea what your product is so kind of hard to give you any suggestions, but I would tell you that the market is NEVER wrong. Either it doesn't want your product, or your marketing is not communicating the message of what it does, or your prices are still out of whack compared to what the market is willing to pay.
Absolutely LOVE this post. It inspires an edge and reminds of the value we are each worth. The energy exchange of money to service is so clear and laid out wonderfully.
THANK YOU, THANK YOU!
Absolutely LOVE this post. It inspires an edge and reminds of the value we are each worth. The energy exchange of money to service is so clear and laid out wonderfully.
THANK YOU, THANK YOU!
Great post!! Very insightful.
Great post!! Very insightful.
An excellent strategy -apart from the mainstream – Why would someone agrees to get paid less if their service delivers result? And why would someone buy or pay anything without an assurance? Sensory evidence is the greatest guarantee of anything. Guaranteed – it will sell.
An excellent strategy -apart from the mainstream – Why would someone agrees to get paid less if their service delivers result? And why would someone buy or pay anything without an assurance? Sensory evidence is the greatest guarantee of anything. Guaranteed – it will sell.
Love it!! You have answered this question that i have thought about for a long time. And you are right about reducing price #1. That was one of my fear. After your explanation, i feel more at ease not to devalue my services. Thank you so much Greg. You have definitely enlighten me.
Love it!! You have answered this question that i have thought about for a long time. And you are right about reducing price #1. That was one of my fear. After your explanation, i feel more at ease not to devalue my services. Thank you so much Greg. You have definitely enlighten me.
this is fantastci info, would love to get more info, It seems every one is engaged in the rat race and no one is taking the time to re think their strategy
Sheriff
this is fantastci info, would love to get more info, It seems every one is engaged in the rat race and no one is taking the time to re think their strategy
Sheriff
Absolutely, ive been teaching this for years and almost never will lose a customer, business venture etc in fact my networking skills which were already tops have even become stronger with more trustworthy friendships.
Why give away anything if you have Honesty & Integrity providing TEAM work and service?
All I know is nobody questions my Morals work Ethics when looking after their own interest through my own business or network through a proven Trusted indidivual main reason for profitability.
It really is incredible.. if entrepreneurs just focused on the value they bring to their market, they wouldn't have to worry about attracting new clients and surviving. They'd be too busy with all the clients that would come to them automatically.
Absolutely, ive been teaching this for years and almost never will lose a customer, business venture etc in fact my networking skills which were already tops have even become stronger with more trustworthy friendships.
Why give away anything if you have Honesty & Integrity providing TEAM work and service?
All I know is nobody questions my Morals work Ethics when looking after their own interest through my own business or network through a proven Trusted indidivual main reason for profitability.
It really is incredible.. if entrepreneurs just focused on the value they bring to their market, they wouldn't have to worry about attracting new clients and surviving. They'd be too busy with all the clients that would come to them automatically.