We’re all intelligent people. If you’ve learned anything in business; cheap attracts cheap. We've all had experiences with those types of customers. You make a service call, and all the customer does is try to barter you down arguing over every darn nickel.
But your (or your technicians) time is valuable. You don’t want or need those hagglers. So, let’s talk about making money…a subject we’re all interested in. Below are six reasons why you must charge your customer’s higher rates than your competitors in order to stay in business
1. More profits – More profits are simply basic economics – higher price; more profits. Other than Walmart, how often do you see low-price companies actually surviving. Sears couldn’t. Kmart disastrously failed. In fact, Walmart has been bringing in higher priced items.
2. Better customers – Price truly does a great job qualifying customers. The ones that pay $.99 for an ebook are the critical ones. Think about the past where you offered free advice to a customer, or perhaps they asked how to do something. How often did you get thanked, and how often did that advice generate a noticeable gain in income? Not a lot I’m sure. Mercedes or BMW owners don’t care what their new cars cost, and in fact they even brag to their friends how much the car costs! Cater to that market not those who drive 1998 Chevy’s. And, just stop and think for a moment…when was the last time you saw a Mercedes S65 in a Walmart parking lot?
3. Pricing psychology works in your favor – At the risk of using a cliché, it’s common sense; you get what you pay for. Often, cheap things are perceived as cheap. Myself, I never shop for price. As far as 1939, in Peter Drucker’s book The End of Economic Man he wrote that man no longer reacts rationally to financial challenges, and how true that is. By and large people don’t buy on price, especially in this day and age. Everyone needs 5 TVs in their home, everyone in the family needs smartphones, laptops, and gaming hardware.
4. The more you charge, the better value you can afford to deliver – If you battle for price, what’s left over to provide additional value. Makes sense doesn’t it? After all, it comes down to the customer. To truly be successful and keep them coming back, you really need to “WOW” your customers. With very slim margins, unless you’re running your company at a loss, the will be nothing left to provide great service that consumers demand these days.
5. You will dominate the market – We all know that acquiring new customers is more expansive than getting more business from existing ones. Unfortunately, if a company wants to grow, they must chase new accounts. If you’re scrapping by on small profit margins, there simply will be no money left over to seek new business. The great thing about charging premiums? It gives you needed cash to pursue new business. Then it becomes a snowball…you get more customers; provide them great service; they refer their friends; and the cycle continues. The effect will crush your competition.
6. Acquiring new business costs more, but you still win – Say you launch a direct mail campaign to install new air conditioning systems, and your competitor also does a mailing to tune-up old systems. They are going to be running all over town chasing nickels and dimes, however all you have to do is make a few hits and you’ll make whatever he does and more; less work; more revenue. It’s pure economics.
So, those are the six reasons why you can charge more and your customers will love you for it. In my next post, I’ll tell you how to justify those higher costs and your customers will love you even more! Look for it in a few days (by Wednesday, hopefully) I will explain how to give your product a higher perceived value.