As a self-employed person for better than 35 years — and as someone who has also worked as a small business and "solopreneur" consultant — I learned that a significant part of entrepreneurship involves agonizing over setting the right price for your product or service.
Red rocks, near Morrison, CO
99% of the world seems to take one of two easy options: Price yourself "somewhere in the middle" or price yourself "aggressively low" in service of attracting customers/clients via your price.
Experience also tells me that "Marketing People" and "Finance People" often struggle to see eye-to-eye.
I am predominantly a "Finance People," but I also happen to have been involved extensively in the advertising, promotion, marketing and PR fields. Add to that a lifelong fascination with psychology and human behavior, and I think you actually end up with pretty much the mix Business Schools should teach... but don't.
Surprisingly many people operate under the impression that price is the strongest competitive variable an entrepreneur can use.
Big Sur, CA
These entrepreneurs are usually surprised when I point out that price actually tends to be one of the weakest and least sustainable tools for creating growth and sustainability for your business. Think about it! A price reduction is the fastest and easiest thing a competitor can do to copy you!
Sure, on the surface everyone likes getting a great deal... and using the tagline "get _____ for FREE!" seems like a great way to get loads of people to flock to your product or service.
But as one of my business mentors once remarked "It takes no talent to GIVE AWAY a quality product; it takes talent to SELL it for the highest possible fair price!"
Pricing Matters!
One of the first things to really understand about pricing has more to do with psychology than business. And that is the crucial fact that people tend to value something about as much as they have to pay for it. That might be OK if you're selling something absolutely generic like plain business envelopes, but if you're in any way trying to differentiate yourself from your peers the message becomes a little different.
For all you business school graduates, this doesn't have anything to do with sales modeling and numbers on a page!
Case in point: Some years back, we went through the process of "repositioning" Mrs. Denmarkguy's counseling practice. Things really weren't going that well, and she often remarked as how she was disappointed that she didn't seem to attract any "serious" clients... and that it felt like the people she did see didn't really take her advice to heart, and often sought second opinion... somewhat to her irritation, because they tended to merely echo what she had told the client.
We had some long discussions about pricing, and she was concerned that people weren't interested because they thought her sessions weren't affordable enough.
Fact was, though, that she was one of the best in her niche while her session fees were also among the lowest in that niche.
Near Marble, CO
Psychology vs. Economics
In the end, what we ended up doing was not lowering her session pricing, but raising them from $75 for a 90-minute session to $120. We also instituted a strict budget on how much pro-bono and sliding-scale work she would take... and we adopted a strict "Family and friends get $25 off, no exceptions" rule because people we only peripherally knew had been abusing the "I know someone really good" angle to take advantage of Mrs. Denmarkguy's good nature to get a freebie (or near-freebie).
The outcome was very positive... her client load about doubled over six months and whereas the "freebie seekers" complained bitterly, we ultimately had to ask whether it made sense to try to please people looking for a free ride. Was that really who she wanted to offer her services to?
Obviously, the answer to that was an emphatic "no."
But the other positive outcome was that the desired "serious" clients who were ready to actually learn started booking sessions... and they brought referrals, as well!
Some years have passed, and most of Mrs. Denmarkguy's practice today is what she always wanted it to be: She's the "Healer to the Healers," for dozens of often high profile teachers, medical professionals and counselors around the world. As well as a few celebrities.
The takeaway: The prices you set aren't just "prices," they are also a statement about yourself and how much you value yourself and what you offer.
The second takeway, at the risk of sounding a little "woo-woo:" You tend to get back precisely the energy/image you put out there. So if you project that you're a "bargain basement," you're going to attract bargain basement clients.
Desert sunset, near Twentyninepalms, CA
A Very Different Case Study
In the mid-1990's, a friend and business colleague of mine opened an upscale "camping and outdoors" retail store.
Some months after opening, he wanted to have a "big splashy event" to bring in lots of people to the store because it was struggling to get much traction in the local market.
So he paired up with a local radio station to do a 3-hour "remote" from the parking lot in front of the store. One of the things to "generate excitement" was a giveway of a nice tent to the first 96 visitors (the station was FM-96) to the event.
Of course, a wild horde of people showed up! The problem? It was a wild horde of 100's of people looking for free stuff, not people looking for an upscale camping shop. It was a case of "mis-positioning" the type of promotion, relative to the product... a mistake often made with pricing.
All in all, the promotion cost my friend almost $25,000 while doing pretty much nothing to improve his business. Of course the radio station pointed to the success of so many people showing up and how quickly the give-away was completed... but the lesson is that "lots of people" mean nothing if they are not the right people.
Landscape in Joshua Tree National Park
Differentiation: THINK About What You're Doing!
Part of the problem with price setting is that we tend to not go deep enough in weighing all the factors involved.
What do you stand for? What is the nature of your product/service? Are you upscale, mass-market, innovative, traditional, reliable, fast? What's your angle? What differentiates you from the next person over?
For example, as a rare stamp dealer on eBay, my angle is that I'm a super-niche specialist who knows more about a narrow field than almost anyone else on the planet. Although my customer base (after 20+ years) still number slightly less than 1,000... those people know that they are going to get EXACTLY what I say they will get... no games, no gimmicks, no shady business. My prices are higher than most of my colleagues... and my buyer is not a "price buyer" but a "convenience buyer."
Those are the sorts of things you need to know, when setting your prices... and there are many instances when "lower" is definitely NOT the answer to improving business!
Thanks for reading, and have a great remainder of your weekend!
How about YOU? Are you self-employed, or otherwise involved with setting the PRICE of goods and/or services? What criteria do you use? Do you stop to consider the PSYCHOLOGY of pricing? Are you fully aware of what your "position" is, within your (niche) market? Comments, feedback and other interaction is invited and welcomed! Because — after all — SOCIAL content is about interacting, right? Leave a comment — share your experiences — be part of the conversation!
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Created at 20210220 15:17 PST
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Great article! Everyone self employed and especially artists of any flavor need to hear this again and again. I went throigh this when I tried to make a living as a fine art photographer, but then decided to pursue my my career. I am still an artist and pay off the community and it makes me sich to the stomach when I see people 'sell' there original art for $20. It usually makes them happy, which is good, but beyond that? Bad for them, their artist future and all artists' future.
Sorry for the rant, long comment, but your article hit a point 😊
This was a good and timely read for me as I was in the process of revamping my website and adding some exclusive instrumentals ( not for everyone but a niche that knows what to do with it).
I have always been one to set "high Prices" and I did get complaints from a few customers ( when my e commerce store was running right that is, can't get much goods in now because of rona). But then there were the loyals who knew what they were getting; hard to find, quality products from Jamaica, delivered fast.
Once again, reality demonstrates how shallow Marx's analysis of price and value really is.
I don't have a product so I can't really comment on marketing my own but as a buyer especially on ebay at one point, I used to be willing to pay a bit more for a seller I trust that the product will be delivered without drama. Canada is big and the collectable market isn't exactly the same across the country, sometimes paying that premium to a smaller economy can still translate into savings for someone from a bigger economy and both probably walking away happy thinking we did well. I think under pricing to try to attract creates a race to the bottom.