Pricing

How should you price your product or service? It is normal for entrepreneurs to want to price low to try and get sales to get started. This is understandable and sometimes the best approach at the start. However, you must focus on what the ongoing sustainable price will be.

You have done a lot of research to date. You should have a good idea of your target customer, the problem you are solving, the competitive landscape, the marketing utility you are providing and your “point of difference.”

These are the key components of pricing. While being competitive, do not underestimate the value you are creating. Why are the prices at Whole Foods higher than at other supermarkets? It is because they are perceived to provide premium, higher quality products that satisfy the functional, social, and emotional utilities of their customers better than the competition. Would lower prices lead to more sales? In the short run perhaps, but in the long run it would diminish the value of the brand.

Why is a Mac priced higher than a PC? A Rolex buyer does not want to buy the $100 Rolex that can be found on the streets of New York. They want something different – the “real thing,” the one that gives them an excellent product, social standing and a feeling of “I have made it.”

You should experiment with pricing. But always remember: a low price is rarely the right answer. Only one business – Walmart, McDonald’s, Amazon – can be the low price leader in a category. Find ways to increase value and then price to reflect this higher value.

Verinder Syal, Author: Discover The Entrepreneur Within

Written by Verinder Syal
Verinder is the Principal at Thoughtful Simplicity, an award-winning teacher at Northwestern University, and the author of Discover The Entrepreneur Within.