Coming up with a pricing strategy is one of the biggest challenges in starting a business. There’s a constant balancing act between profits and customer satisfaction. On one side of things, your brain tells you to price services as low as possible to appease as many potential customers as possible. You’ll undercut your rivals, so surely all their customers will come to you instead?
Things don’t always pan out this way – to start, undercutting puts more pressure on generating sales to make a large enough profit overall. Secondly, customers still might pay more money for rival services, which then loops back around and creates even more pressure on the sales department!
Okay, so what about doing the opposite and sticking your prices as high as possible to make as much money as you can from each sale? A grand theory, yet you run into the customer satisfaction conundrum; will your prices be too high and dissuade prospects from buying? It might be harder to find new customers because your prices are too high compared to every other business.
And yet, many companies get away with this. They’re able to charge big prices for services/products and customers keep coming back for more. How do they do it – and how can you adopt this approach in your business? Read on to learn all about striking the balance between charging more without annoying customers!
Focus on the “value” your customers receive
The reason most companies can afford to sell things at higher prices without annoying customers is that they deliver value for money. We can see examples of this across many industries, but healthcare is probably the most clear-cut. In recent times, more and more private healthcare businesses are adopting a value-based care approach to their services. This revolves around the idea of delivering the best possible outcomes for patients while controlling the costs.
It doesn’t mean they offer services as cheaply as possible, but rather they ensure patients get everything they need from a specific service to justify paying more than they might at another healthcare provider.
For example, imagine you have two physiotherapy practices, both offering services for back pain. One provides a massage for $50 while the other offers a massage for $80. The difference is, that the more “expensive” massage utilizes modern massage tools, lasts longer, and includes some rehab exercises or stretches the patient can follow after at home. Yes, it costs more for the same service on paper, but the value you receive from the $80 option makes it far more worthwhile than the $50 one.
This is one example out of many across every industry out there – if your services provide the most value for what a person is paying, they’ll overlook the costs.
Deliver the best customer experience
One study found that 58% of consumers will pay more for a service when the customer experience is above average. Think about this for a moment; you can charge more money for your services, as long as you’re delivering the best possible experience to your customers. Yes, this links in with the point we made earlier – providing great value for money automatically enhances the customer experience.
However, you need to take it a step further to justify the extra costs of your services!
Show customers what they get when they choose your service over others. Again, we can look at examples from different industries and the world of computer software is the perfect place to be. You could pay x amount for a website-building service offering a very basic experience. It gives you the ability to create a website, edit all the pages, and publish it online. A pretty good package, but you could pay more money for another website-building service promising all of the above PLUS 24/7 customer support and access to Help Center resources.
Consumers will happily opt for the second option as they know they’re getting the best support. They can speak directly to an advisor if something goes wrong or they need help, so it’s worth paying extra. Of course, this only works if you genuinely provide great customer support – don’t promise it and fail to deliver!
Build trust in your brand
Establishing an authentic and trustworthy brand opens the door to some significant price rises. You see this all the time as small startups begin with very cheap prices, only for them to rise as the company grows and becomes bigger and more successful. Consumers start recognizing and trusting the brand, so it can afford to raise prices without upsetting anyone.
There’s data to back this up as well! Around 57% of customers are prepared to pay more to purchase from a trusted brand. It removes any worries from the purchasing process – what if you spent less money on a brand you don’t know about? Who knows how good the service will be; you could end up wasting money on something far below the standards you hoped for.
The best example of this is in the tech sector, particularly looking at smartphones or tablets. Look on Amazon and you’ll find endless brands offering smartphones with fairly similar designs and specs to the likes of Apple or Samsung. Some are probably made using the same materials – and yet they’re a fraction of the cost of these big brands. Nevertheless, customers always opt for Samsung and Apple because they trust the products/services these brands offer. They know the brands and don’t have to worry about their legitimacy. The fear of the unknown is more than enough to convince customers to pay more for your services if you can build trust in your brand.
Don’t be afraid to hike your prices or charge more for your services if you believe they’re worth this much. Justify these prices by showing the value your customers receive, providing excellent customer service, and building trust in your brand. You’ll be in the best possible position; your services are more expensive than your rivals, yet all the customers still come flocking to you!