Despite the many pricing strategies out there put in place to potentially help your business to run more effectively, these often creates common pricing mistakes, which result in the loss of customers and drops in profit.
10 Most Common Pricing Mistakes You Should Not Make
Understanding the effects of these pricing mistakes will help you decide on what and what-not to do when it comes to the overall growth and success of your business:
1. Skimming over your product’s best features
The quality of your products reflects the overall view of what your customers think of your business.
Being able to say that your product could do all these awesome things that your competitors can’t, increases its value that could allow you to charge more for it.
These could be anything from better features to a more quality customer service, and through that, it creates this idea of the kind quality your business is trying to sell to your target market.
2. Pricing changes without justification
When your business starts to even slightly mess with your products prices, your customers will notice it almost instantly.
Increasing or lowering the value of your products and services creates different reactions from your customer base, but what they usually think is that changes were made just because your business wants to make a higher profit or that the product/service isn’t really that good at all.
To avoid this mistake, make sure that your customers are properly informed of the reasons why you are making adjustments to pricing to avoid the risk of losing them along the way.
3. Overvaluing your product
When it comes to your products, passion sometimes gets in the way because you know the amount of time and effort your business has done to make them, which makes knowing the difference between their “personal worth” and “market worth” quite difficult.
To avoid this, make sure that a reasonable price is made by looking at and comparing certain market trends and similar products to yours.
Overall, make sure to remember that your product is not worth what you think its worth, but rather what the market says its worth.
4. Undervaluing your product to suit market perception
Cheaper products and services don’t always mean it will generate a profit, the value of what your business sells is shown on how you price your products and making them cost less will lead customers to think that your product isn’t really that good.
To avoid this, price your products by comparing similar ones that have a higher or lower price and then set your price in the middle of those two.
Having your products priced in that way would lead to better sales without risking what the customers think of it since they would rather pay for something moderately priced than something extremely expensive or cheap.
5. Underestimating Competition
Your business competitors are always trying to gain the upper hand in the market and will often resort to using different pricing strategies in an attempt to boost their sales further than yours.
The constant struggle for sales allows your business to get a feel for that market you are in and allows you to be more aware and act faster if there are any economic shifts that happen in the market.
So make sure you don’t go in blind and always be on the lookout for whatever new strategy your competitors are using and take advantage of anything that they may be missing out on.
6. A half-baked market research
Most businesses determine their “ideal customer” as the people who are just willing enough to pay for their product/service so that they make enough of a profit from them.
Although it’s a sure way to earn a profit, it ignores those possible people who are likely more willing to make a purchase.
It pays to know your market, take time to research who buys your products and services to help you get a better idea of who you are actually selling to.
7. Using costs alone as basis for pricing
The price of a product isn’t only based on the actual cost to create the product. The market grows and evolves and your business needs to consider how prices will change as time goes on.
The number of sales your business will vary depending on certain events in the market. You’ll also see how your product sales change as your market grows and their needs change.
Remember to take all of these possible long-term effects into consideration. Make sure that you price your products appropriately to your target markets.
8. Ignoring varying needs of different markets
Product prices are never the same for any one product in any one area.
Certain products might be priced higher in one place, and lower somewhere else because the communities need/demand for it varies.
Take time to research about your potential business location – what its needs and demands are. This allows you an insight on what the community thinks your product or service is worth to them.
9. Too much automation
A business might be successful one day and down the next. Keep in mind that the market constantly evolves and this affects the prices of your products and services.
Be aware of what products and services out there that have the highest and lowest demand. Adjust your product prices accordingly to maximize profit.
Be alert on what goes on in the market so that your business doesn’t fall behind everybody else’s.
10. Not choosing your battles
Bigger businesses like Walmart and Target source their stocks in bigger bulk orders making their costs lower. Bigger businesses also often receive generous discounts as incentives from suppliers. This is how they can afford to lower their prices or give price cuts. This, in turn, means that poor product sales don’t impact them as much as it would a smaller business.
Pricing your products correctly is extremely important because you, being a smaller business, have very little room for error. Come to terms with how your business compares in scale to the larger ones. Instead of competing with them, focus on things that they don’t give much attention on such as personalized customer service.
Avoiding pricing mistakes is essential for making it in business. Remember to pay attention to your market because ultimately, it will be them who will cue your next price change.
There will be pricing struggles that you’d end up having to surrender to but those you do win keeps your business afloat and secures your business’s profitability.
Enjoyed what you read? Have any questions? Let us know in the comments below. Remember to download your copy of the 21 point business startup checklist.