One of the most crucial points of any startup or entrepreneurial business is how to price your products or services. During a recent radio interview with Kristin Tews she asked my thoughts about pricing your product and we got into a short discussion, but it needs to be clarified for those that listened to the interview what I was referring to. I was referring to the tendency to “drive toward the dirt of pricing” versus her thought about “no one will pay $80,000 for your services if they’re worth $40,000,” two ends of the sliding scale of the price continuum, not one side or another. So here’s an illustration.
“House for Sale.” One of the easiest ways of seeing pricing in action is watching the selling price of a house, so here’s an example:
- If the house is not desirable, no one will look at it.
- If the house is desirable, people will look.
- If the house is desirable but overpriced you’ll get people to look, but no offers to buy.
- If the house is desirable and you get an offer or two then you’re just about in the right price range.
- If you get multiple offers for the house, then you’ll have a bidding competition that will raise your house’s price to near the market’s view of the right price.
- If you’re priced too low there will be an offer frenzy and an ensuing bidding war on the property.
The house price will go up and down based on the market.
The same issue is true for just about anything that is for sale, whether it is a Mac, diamond ring, dirt, air, cleaning a house, cutting someone’s hair, changing your oil or tire on your car, etc. While there are lots of variables to selling a house the “window” of pricing a house depends on the market and their needs and wants.
There is an upper and lower “limit” to both the price and product.
Dirt can be priced at free, but dirt, such as compost for gardens, will cost you, because someone has added value to it and you’d probably pay for it. But if everyone is offering compost, then the price drops until you can add additional value to what you are paying for.
Watch out for “Super Size Me” pricing. This is where you “get more for less” when in reality it’s almost worthless in the long run. If I told you that I had a 2,000 lbs of rocks for $10.00 and a rock that weighed 0.2 gram for $5,000-10,000, which would you take? You might be suspicious, but the first “load” of rocks is the rock you get from mining, the second “rock” is a 1 Carat Diamond. Think VALUE, not price.
I could advertise an average priced sized house for $1,000,000, but probably no one would buy it, unless there is something about the house that makes it worth that.
Think of expensive iPhone cases. People who have the money are willing to pay for it, those that don’t, won’t. You can argue all day long with those that do not want to pay Mac prices, i.e. you could say “cheap,” but really they don’t see the value of owning a Mac for those of us that own one.
If you only look at the price, and not the value of what you offer, or your customer does not see the value, it’s up to you to change their perception through your marketing, or change your pricing.
What are your thoughts about pricing?