In startup and established businesses, the need to maintain a consistent revenue flow is constant pressure on management. In responding to the demands of management, sales efforts for any shortfall are easily blamed on pricing. Claims of too high or non-competitive pricing do occur. They are less frequent than claimed and are an easy scapegoat for failing to win a sale.
For the long-term health and profitability of the business, when presented with the option, always price high.
When you do, you can decide to use the additional revenue to increase profits or increase marketing efforts.
The hesitation and failure to understand the critical importance of pursuing the opportunity to use price to increase revenues is a common problem among large and small companies.
Pricing Strategy Errors
It is a common and easy excuse to believe sales are being lost because the price is too high when the real problem is the product, service, or company is inferior to the competition. If a product or service fails to meet buyer expectations, the amount of buyer’s risk from failure is greater than the bid price for assurances of superior delivery and performance.
In most cases, price sensitivity is a myth. A business that delivers poor quality or inferior service has a short life span in the market. Every business has or should have a unique selling proposition that differentiates them from the competition. Discounted pricing cheapens the value of the company’s unique selling proposition.
Fear is a strong motivational factor in the sales process. The fear of not making a sale, lack of confidence in product and service, and fear of not making payroll and pay bills are prime reasons products and services are undervalued. In the case of the less seasoned salesman, unemployment from failure to sell is a constant companion. Lowering price is a perceived path of least resistance to winning sales. However, underpricing results in lost revenue and creates an impression that the company is struggling or inexperienced when a good, feature-rich product or service is being offered cheap compared to the competition.
Charging true worth enhances the buyer and market’s perception of the company while increasing revenues and profitability.
In avoidance of pricing challenges during the sales process, another path of less resistance is for the sales contracts to be written with vague specifications pushing the confrontation with the client over expensive changes and add-ons without proper reimbursement to a later date. It is not uncommon in less structured companies for anxiety over missing the sale to keep prices low and driving vagueness in delivery specifications.
Specificity in product and service combined with clear communication of charges for changes promotes strong client relationships by avoiding unnecessary confrontations and protects revenue and profits.
It is a fact that price drives perceived quality. Mercedes, BMW, and other “Quality Brands” have successfully executed the strategy for years. To be viewed as the best and superior to competitors, price higher. Pricing below that of a competitor promotes an inferior perception; pricing the same promotes a perception of no difference in product/service with competitors.
To protect against the erosion of revenues, price all new products and services above existing products and services whenever possible. Failure to do so erodes profitability and destroys sales morale with lower commissions.
A low pricing strategy weakens your market position and lowers buyer’s perception of your products and services. Price reductions allow competitors to raise doubts with potential buyers about your product/service quality, your market position, and business viability.
Competing by lowering the price is a characteristic of modest business expectations and short-term goals/objectives. A viable market position, consistent revenue, profitability, and strong market perception are reinforced by a higher pricing practice.