10 Startup Tips
Chapter 14: Right Pricing
Never low price. Add more value. – Aysa Angel
Pricing is of great importance.
Just 10% increase in product price can increase profits by 40%.
Setting the right price can be a complicated process
because pricing is closely tied to the concept of “value” and is emotional.
People often find it difficult to set a fair market price for their product/service
because they underestimate their self-worth.
To avoid this situation,
people (as many business guides say) often opt for a technical pricing solution.
The most common is the cost-plus pricing method
– that is, adding an amount
or percentage to the cost of producing
and distributing the product.
Although it sounds quite appealing and simple,
this method is not correct for one basic reason:
The fair price is the price the customer agrees to buy.
The cost only indicates whether you get good deals from the supplier or not.
When I published the yearbook,
I realized that I could make a hardcover for it
and therefore the cost would increase by a pound a book.
But as a result I was able to sell them for twice as much
– for eight extra pounds each,
the sales increased.
Everyone feels that they only have to spend a small amount of money to be able
to save so many memories of their friends
and school for many years to come.
This is also the reason
why I chose the title of the yearbook
as “Moments of Life”.
Six reasons to you don’t sell like a seller
There’s nothing sadder than sitting in the seat
of a funding review board
and hearing someone say,
“We’re going to get a lot of customers
because our prices are the lowest.”
In addition to implicitly showing the person’s low self-esteem,
this statement can cause a lot of other problems.
As a small business,
you will not have the economic potential
(like purchasing power)
to be able to lower prices than other competitors.
If you lower the cost,
you have to work hard
until completely bankrupt.
Opponents will also react.
If you start to find new customers,
you’ve started a price war.
Competitors may have greater economic potential,
more established customers,
and ultimately no winner.
Once you have offered a low price for the product,
it will be very difficult for you to raise the price later.
Imagine you increase the price by 30% to existing customers
– they will turn their backs on you and say,
“You think I am an idiot?”
This is similar to “lowering”
– when you discount too many products,
customers will wait
because they think the rest of the items will also drop in price.
Remember, customers often have the habit of talking to each other.
So if you’re giving a discount to one customer,
you have to make sure the others don’t find out.
Remember, customers often have the habit of talking to each other.
So if you’re giving a discount to one customer,
you have to make sure the others don’t find out.
Low price and good quality are not the same thing.
Don’t think that if the product is discounted,
customers will quickly flock to your store.
Cheap prices will make customers think your products are cheap
and they will stay away like avoiding a pandemic.
Your risk is ultimately only with low-budget customers
who will abandon you
when you raise your prices.
Many American credit companies are eager
to enter the UK market
with the intention of getting more customers
by offering 0% interest rates.
Their idea is to capture a large market share initially
and then be able to raise interest rates.
The problem is that the customers they get are mostly “mixed” customers
who are eager to get good deals like switching
to another company at 0% interest when they raise their prices.
Dangers of doing business beyond capital capacity:
“Our schedule is full of orders from three months ago.
We work day and night but customers
still leave because they don’t want to wait too long.
We did not have the potential to prove our efforts.
My husband is thinking of giving up the business.” (Michelle)
I was very moved when I read this letter.
She is too passionate about business.
But then I wanted to scream at her:
“You are cheap!”
The type of business that exceeds capital often causes many startups to sink.
It was a combination of enthusiasm and lack of confidence.
If you raise your prices, you’ll lose customers,
but maybe it’s just some customers who don’t like it.
Increasing prices gives you more money to expand production
and more confidence.
Old customers who have “gone” may return
when they realize that other services are not equal to yours.
Overpriced pricing strategy
You can show customers:
Your product is of good quality,
you can get it fast and you have a cheap price.
You can only choose two of these three factors,
not all three.
Which elements will you choose?
Offer different prices:
Different customers will pay different prices at different places,
in different seasons, at different times of day,
with different prices with
lots of different reasons.
People will pay double for a hardcover book just
because they desperately want to be the first to read it.
It would be ideal
if you could set prices depending on the individual customer and their level of need.
It’s hard to do, but that doesn’t mean you shouldn’t try.
Start by offering different prices depending on the type of customer (for example,
cheaper for wholesale customers than for retail customers).
Then offer different prices for markets
with different geographies and possibly at different times as well.
When I was new to marketing in Scotland,
I once sent an “offer” to a friend
who worked for a large advertising agency in London.
My friend called, laughed and said,
“Caspian, you are an idiot,
you sent me a copy of the cost
– when what I need is your quote.”
As you become more experienced in this area,
you can become a price expert
and be able to “read” the mind of the customer every time they enter the store,
then set the price depending on the level of the customer,
what they needs.
Don’t try to win them all:
It’s better to have five customers paying you £20
than ten customers paying only £5.
Pricing products based on the benefits to customers,
not based on the cost you spend.
For example:
A service business in the oil and gas sector
that specializes in blocking oil injectors
– thereby being able to control the amount of oil escaping from oil wells.
They often price services based on travel costs and hourly wages for workers.
One consultant showed them the company’s hourly costs were worth thousands of pounds.
So the company re-priced the service based on the value of blocking the oil injectors,
which saved the customer a lot.
This explains why plumbers charge a high price for the service.
Never underestimate a customer’s willingness to purchase additional merchandise
Attract customers to purchase additional goods:
You might normally buy a sandwich for 99 cents,
but do you remember the last time you bought it?
They make more money by enticing customers to buy extra meals like Super Dooper,
Extra Everything or Go Fat while still giving the impression that their prices are cheap.
Think of the times when you were attracted to cheap stores,
just because you obeyed the smart salesman,
you walked out of the store with dozens of expensive items in hand.
Another (seemingly dishonest) way is
to increase customer service such as extending the warranty period of electrical goods.
Have you ever wondered
why a razor with a spare blade is more expensive than a regular one?
You can get customers to buy once,
not a second time.
Tell customers about the “Buy One Get One Free” policy:
Just a change of previous strategies.
This type of marketing
or many other types of marketing (like 25% volume increase,
buy three get one free, etc.) are quite good ways
to give customers the feeling of buying a bargain
while being aware of the value of the product.
Yours is unchanged.
Fixed price or hourly rate?
“Should I set an hourly rate or a flat rate?” (Catrin, event organizer)
The advantage of hourly pricing is that
if work exceeds the allotted hours (which is always the case),
you will have to recalculate the cost.
At the same time,
it gives you the opportunity to negotiate.
Instead of saying,
“This is going to cost £800,” say,
“I do it for £80 an hour
and I estimate this to take around 10 hours.”
Very few people will argue with you about the price
they may just try to bargain to reduce the time to completion.
This is also good if you can really do it faster.
However, you can agree to shorten the working time,
but also have to agree that
if the work takes longer than the expected time,
the customer will have to pay more.
The downside to this pricing is
that the customer will feel the stress of having
to enter an open deal.
This will limit your profits
by being dependent on how long you can work
and how many employees you can hire.
If you offer a fixed price,
the chances of making a fixed profit are higher, but the risk is also higher.
As a result,
you may have to set prices using the combined method.
Make sure you always have an hourly daily job,
so you can pay your bills.
Then get another fixed price job for a chance
to make a lot of profit.
Entrepreneurial Secret:
Managing Customer Expectations
If you set hourly rates
but the work exceeds the customer’s expected time,
let them know when overtime will be charged.
The trick is that
while it can be difficult to tell your client
it’s taking longer than expected,
you still have to tell them to avoid trouble later.
For example, if you tell a client
that work was supposed to be about a week late,
but it was only four days late
– they will be delighted.
But if you don’t tell them,
even if it’s more than two days late,
they will feel very uncomfortable.
How should I price my first customer?”
(Rebecca, marketing consultant)
New customers know nothing about you
and often find it difficult to enter such an open-ended deal.
Therefore, the clever marketing trick here is to set a simple,
fixed price and offer a cheap introductory product/service.
Once you’ve established a relationship,
you have the flexibility to negotiate a slight increase in price.
What if the industry I work in is very price sensitive?
Customers are knowledgeable and willing to go to the price,
especially using the Internet for reference.
This can make some businesses quite price-sensitive.
So what can you do?
Focus on a market segment,
not mass production:
This may not sound great,
but in the long run,
having a small specialized market segment will be profitable
for you and is where you can keep the operation not too big
and have the opportunity to perfect the product.
The pressure of cheap Chinese footwear
It has gradually caused the British shoe manufacturing industry to decline.
However, a growing number of small UK companies are
still making a profit from hand-made shoes
that sell worldwide for £1,000 a pair.
Add in after-sales services:
See if customers can pay more
if you add other benefits like delivery,
special packaging,
installation service,
or after-sales support.
Commercialization in sourcing:
Consider new technologies or markets when sourcing.
If Chinese competitors stand in your way
– join them.
Ask them to be your supplier.
Things are much simpler than you think.
Emphasize your differentiated added value:
You can keep your price higher
if you can prove your product has more benefits than your competitors.
It could be after-sales service
or warranty service that customers value.
Get out: Maybe you inherited a business
or started a business in which you’ve worked for a long time.
If your company was a promising company yesterday,
it doesn’t mean it will be tomorrow.
However, many people complain about Chinese people
who accept to work 50 times harder just for a bowl of rice
but refuse to get out.
And there are 1.3 billion such people.
You may find a new market where the competition is not so fierce.
