Ten Commandments of Pricing


Pricing a product or service is one of the most complicated yet important decisions that can determine the fate of your business. Most small business owners tend to price their products and services lower than the customers are willing to pay for out of the fear that increasing the price will make customers flee. However, it is possible to increase your price, and have customers love you for it. It is not only desirable, but imperative that small business owners understand how to properly price their products. After all, it is much more fun to compete on value rather than price Look at how Apple is able to charge premium for all its products
Based on our own experience and feedback from our readers we have compiled a set of rules that will help you in pricing your products. Here they are:

  1. There is no one right way to price your product or services. Pricing is both an art and a science.
  2. The price customer is willing to pay is a result of the perceived value of the product in his mind.
  3. The ideal price of a product is the maximum amount that individual customer is willing to pay, however it is difficult to implement. EBay auction is one way to do it.
  4. Never price your product below variable cost unless you want to go out of business quickly.
  5. You will never be able to compete with large companies on price. Focus on value, customer service and differentiation instead.
  6. It is much more fun to compete on value rather than price.
  7. Don’t give in quickly to the temptation of price war initiated by competitors. Differentiate your products to avoid apple-to-apple comparison.
  8. Want to charge higher price? Make your customers feel good about buying your products by telling “stories” about them.
  9. Customers are willing to pay higher price for products associated with these words – quality, prestige, luxury, warranty, novelty, exclusivity.
  10. Unbundle your products to get higher price. A la carte always costs more than the packaged deal.

Feel free to add your own in the comments below.

Image Courtesy:   jbtaylor

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Comments

  1. I love #6 It is much more fun to compete on value rather than price.
    I ventured into business and naively thought that i could out price my competitors with discounts and offers but became apparent that value was more important price saving you tons heartaches & headaches.

  2. There were so many golden nuggets in this article! I especially loved:

    #6 – It is much more fun to do compete on value rather than price.
    I completely agree. While it may seem that offering the customer the lowest price is the best strategy, in many instances this is not true. It can become very difficult to have the lowest price, the highest quality and the best service while still keeping your doors open.

    #8 – Make your customers feel good about buying your products by telling “stories” about them.
    I love this idea and use it in my own business. I find the stories that convey how a particular product or service solved a problem for you or your other customers are the most powerful.

    Great article, I look forward to reading more.

    • SmallBizViewpoints says:

      Summer – Thank you very much for taking time and providing feedback. Looking forward to your additional comments and feedback in the future.

  3. Some great points here.

    I’d refine #2 to say that buyers care about perceived *differential* value– they are always comparing the value they perceive in your offering to an alternative, whether a direct competitor, and indirect competitor, or simply not buying anything.

    #11– Use multiple price points to reflect the different value your bring to slightly different customer segments. This can be through different product offerings (Apple’s differential pricing for different storage capacities) or different buying behavior (happy hour, matinee pricing).

    • SmallBizViewpoints says:

      Reuben – Good points. Thanks for bringing them up. Agree with your point #11. Multiple price points based on different value to target different customer segments are a norm these days.

  4. Commandment 10 re unbundling needs clarification in that bundling is often revenue maximizing, whereas unbundling increases price and reduces revenue. Example: a music album.

    • SmallBizViewpoints says:

      True most of the time. However, in some cases unbundling does result in higher overall revenue. It depends on whether unbundling leads to lower unit sales or not, which in most cases does.

  5. Great points — when small businesses obsess about being the most competitively priced, inevitably quality suffers. Much better to focus on a higher value and personal attention, setting yourself apart from the big-box competitors! And there’s quite a consumer movement toward small business, so making that a marketing point will help customers decide to go with you despite a cheaper competitor.

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  2. BizSugar.com says:

    Ten Commandments of Pricing…

    Set of rules all small business owners must be aware of and follow to improve sales and profit with premium pricing….