In the continued focus on improving the financial aspects of your business, will raising your prices really impact on your business negatively? It is a question many ask and in my experience, incremental rises will have little or no effect on customer/client retention. However, there are many things to research and consider.
Naturally, there are those industries that it is nigh on impossible to raise prices, although unless you ask you will never know whether you can. However, most industries and especially companies in the service industry have a great deal of scope to increase prices. This can either be through adding value to your proposition, or carrying out some sales & marketing analysis to compare your service offering to your competitors against the prices charged. Providing a great service certainly creates the opportunity to retain clients, which in turn can leverage an increase in prices and profitability.
It’s about the value to your customers, not the price!
Perceived value is a very important to understand when pricing your products and services. If you as a business owner explore the buying traits of your customers, you will often find people purchase either out of convenience, trust or familiarity. Only a small percentage of the population, especially in a business purchasing environment will continually shop around for every buying decision. In many cases the minor saving they may make is far outweighed by the time it takes to find that better deal, or should I say perceived better deal.
Purchasing by brand and reputation
The value you provide to your customers or clients as a brand has a great deal of meaning. As consumers we are typically brand loyal, we are loyal to certain food brands, vehicle brands, technology brands and this mentality extends to business to business brands. Your reputation you build within your market place is not just a perceived value. it is true value. So if someone recommends your products and services, that has much greater purchasing appeal, and instigates a sense of loyalty and brand values immediately.
Building a brand, reputation through your marketing and sales is key to charging more for your products and services. How you communicate emphasises your professionalism, expertise and reasons ‘why’ the prospective customer or client should buy your products and services.
I was having a discussion with friends recently about Pet Insurance. The perception in the pet insurance market place is Pet Plan provides the best cover, but you do have to pay a little more for this cover. The same can be said about BUPA in the health insurance market. I am sure both provide some of the best insurance cover available, but they have both ‘built a reputation by charging more’, adding the value and assurance to the customer. Both are extremely successful in their individual fields of insurance.
Differentiating yourself from competitors is a highly important marketing activity. What makes your service or products better than the rest? Why should the prospective customer pay a little more for that service. Educating your clients around the ‘reasons why’ they should pay more is paramount to maximising the prices you can charge, and the profits you make.
People don’t buy on price they buy on value. Buying on price really isn’t a sensible purchasing decision, and those that do, you probably don’t need as customers anyway. So show that value in your proposition to the customers you do want!
You already have the value
Probably one of the biggest areas businesses overlook is their true value. It is almost hidden from public view. So they battle it out with the competition who supply an inferior product or service, and forget to inform the customer of the value in their proposition. This is something they could change immediately and start to reap the rewards by educating their customers.
Market forces impact on prices
In 2007 we saw the start of the biggest financial meltdown in living memory, and this most certainly had a significant impact on confidence and the prices we charged. Luxury goods were deemed exactly that, and we saw the typical recession traits of the consumer, purchasing small inexpensive luxury items over big luxury expenditure, better known as the lipstick effect.
However, market forces can change at a drop of a hat, consumer and business confidence is very reactionary to global economics and media influence, but we as business owners have a subconscious understanding of the current market situation, and also a tangible understanding with the real time performance of our businesses. We also communicate or listen to industry peers or other business owners, and it is common to hear most businesses are very busy at present. This is also a time to consider price rises, as the demand increases. You may have a fear of charging more, but in real terms market forces and demand dictate you should consider increasing your prices. Those market forces also influence costs, like wages, rents and general business costs, so above all else there should be a natural increase first and foremost to protect your margins.
Undoubtedly, there are a great deal of factors to consider, and understanding the true value of your proposition is one of the key areas I focus on. I have helped business owners to increase their prices, demonstrate the true value, and retain their customers in doing so. Never fear putting your prices up, it will have an immediate positive impact on your bottom line, and could also see additional opportunities ‘and funds’ for your business to grow.