Expert Feature: Are You Sure You’re Charging Enough For Your Products Or Services?
Have you ever thought about this strange fact?
In every category of products or services that exists you will almost always find products or services on each of the farthest ends of the price continuum.
- On one end you will have a product that’s very inexpensive.
- And on the other end you’ll have a very similar product that’s very expensive.
How can this be? Why would people pay way more for the same basic product or service?
It all has to do with the power of “price elasticity”.
In the minds of most business owners price is a rigid thing.
But the surprising reality is that price is a very elastic thing.
I’ll prove it to you with the two stories you’re about to read.
The Price and Value Connection
Price is always based on value.
That’s true from both the business owner and the customer perspective.
Customers will usually pay a price that’s equal to or less than the value they perceive in a product or service.
They will pay higher prices for products and services, but they must perceive the value of the product or service to be least an equal value for the price they pay.
Let me give you an example.
The Story of the High-Priced Gourmet Popping Corn – The Consumer Side of the Equation
In 1975, Hunt-Wesson spent $6-million to advertise a new kind of popcorn they referred to as Gourmet Popping Corn.
Gourmet popping corn? Whoever heard of such a thing?
Not only did they give it a new, fancier sounding description, but they also charged 2 1/2 times more for it than the other leading brands.
Seems like a recipe for failure doesn’t it?
Well, the fact is that in four years Orville Redenbacher’s Gourmet Popping Corn became the number one brand of popcorn.
Why did this work?
Consumers were willing to pay 2 1/2 times more because Hunt-Wesson did a great job at increasing consumer’s perceived value for their popping corn.
The Low-Priced, Premium Cleaner – The Business Owner’s Side
Now let’s look at the other perspective: the business owner’s perspective.
Business owners usually price their products or services based on the value they THINK the consumer will perceive their product or service to have.
The problem is that many business owners (and consultants and freelancers) undervalue their products or services by offering them for too low of price.
Let me give you another example.
Pathmark’s Premium All-Purpose Cleaner appeared to be set for success.
It’s packaging utilized many of the elements of the popular cleaning brand Fantastik. In fact, not only did their packaging look similar, but their ingredients were also very similar too.
The only thing that was different was their price. Premium sold for only $.89. Fantastik sold for $1.79.
At that price it had to be a success right? Wrong.
From its very start in 1980, Premium was a failure. Six years later, Pathmark pulled the product from the shelves.
Why did it fail?
Because it didn’t seem logical to consumers that they could get a “premium” cleaner for almost a dollar cheaper than the top brand.
The low price discredited the value of the product!
Maybe Your Prices Are Too Low
Many business owners worry that their prices are too high. But not many think about the fact that they might be too low.
If you offer a valuable product or service that a decent amount customers buy and seem to really love – but you’re still not making enough money, then maybe you should think about raising your prices a little.
I know that’s a scary thought.
But remember Orville Redenbacher and Premium cleaner.
One succeeded because they positioned their product as a high-end product and then priced their product higher than every one else.
The other failed because they positioned their product as a high-end product and then priced their product lower than everyone else.
Learn from them and value your products and services wisely.
DISCLAIMER: You need to be wise about when/how much you raise your prices, so you don’t get any consumer backlash. Start slowly, in small ways, and test the waters first. (*Check out the “Related article” below for more ideas on how to raise your prices effectively.)
Source for Orville Redenbacher and Premium stories: Speaker’s Library of Business Stories, Anecdotes, and Humor by Joe Griffith (NOTE: This link is an Amazon affiliate link.)
Photo by StockMonkeys.com
Related article
- (Expert Feature) The 7 Lessons That Enable You To Offer The Highest Prices Without A Single Complaint (baybusinesshelp.com)
