What Business Owners Don’t Know About Price…..

By: Dan Kennedy on: May 17th, 2014 19 Comments

…would fill a shelf full of books.

For starters, they do not understand how elastic price is. Only a small percentage of buyers of anything make a small percentage of their decisions sole or predominately based on cheapest price. If more did, the Yugo’d be the car you see on the road most; no clothing store would exist but Wal-Mart.  One of my favorite stories has to do with a client in the business of helping divorced, frustrated American men meet up with foreign brides. At my urging, he raised the price for his service from $395.00 to $3,995.00 in one leap, with no change whatsoever in the percentage of prospects buying. He’d left millions on the floor in prior years.

Second, they do not understand people buy at different price levels. Yes, obviously, there is a Wal-Mart customer, probably in every category (although it is a big mistake to think Wal-Mart’s chief attraction to its customers is lowest price. It isn’t. It’s more complicated and clever than that. It has more to do with the social and entertainment experience.)  But there is also a Nieman-Marcus customer, in every category. You can get a steak dinner at Dennys, you can get a steak dinner at Mortons. You can sleep at a Marriott Courtyard or a full service Marriott. Or a Ritz Carlton. You pick your own clientele, so if you wish, you can certainly pick those for whom price is low on the totem pole.

Third, they try to compete on price. My preaching on this has been consistent for over 20 years: if you can’t be THE cheapest, there’s no benefit in being almost the cheapest. What kind of ad slogan is that?  No sane single guy goes into a busy bar at Friday happy hour, climbs on a stool and loudly proclaims he’s the 5th best lover there.  If you’re in a commodity business –get out. I mean: reinvent. Find another basis to compete on. One of my clients, who consults with the restaurant industry, just had me write an ad for him featuring one of his students; they own a gourmet pizza take-out and delivery shop, in a small city, where they compete with 127 other pizzerias. 127!  And they are the highest priced of all of them. They do no 2-for-1’s. And they doubled sales and more than doubled profit last year. Key word: gourmet.

Fourth, they pay too much attention to industry norms.  A lot of businesspeople look at what others are charging, the high, the low, and pick some place in between. Pfui. Most selling occurs in a vacuum, and if yours doesn’t, you should alter your entire approach to the marketing that occurs before the sale so it does. Understand that everybody else has arrived at their price decisions through the same foolish process as you might now. It’s price incest, which works like regular incest; over time, everybody gets dumber. Also, there’s ‘price’, then there’s ‘presentation of price’, meaning structuring what you sell, how you package it, how you deliver it differently than everybody else, so you can price it differently, with direct comparison impossible.

Fifth, they live in fear. Any business decision made out of fear is a bad decision. (Tweet this!) Most business owners needlessly under-price, raise prices too little too late, and ignore opportunities to sell premium priced versions of their products and services entirely out of fear.  Price paid is a result of target market selected, value built, value proposition presented, salesmanship, credibility, celebrity, brand, buying experience and many other factors. It actually has very little to do with objectively measured intrinsic value. If it did, diamonds would command no more than glass or coal.  Because you can control and manipulate all the non-intrinsic factors, you should approach price courageously and creatively. One good way to grow courage is to make yourself very aware of what else your clientele spends money on, and how much it spends. Another is to make yourself aware of really affluent customers’ (or companies’) spending on a variety of goods and services.

I work with a cosmetic dentist who routinely presents cases from $40,000.00 to $70,000.00 and enjoys an 80%+ acceptance rate, practicing in a community where he is the highest priced dentist. I think he’s pretty good dentist. But I seriously doubt he’s 400% better than his competitor down the street, even though his fees are 400% higher. This dramatic difference between intrinsic, objective value and perceived value exists in every business, industry, profession, city and town. There’s always somebody successfully selling at prices or fees dramatically higher than everyone else, with a difference far greater than the objective difference that exists in the quality, competence or delivery. If one can, so can you.

Note: Get “The 10 Rules to Transforming Your Small Business into an Infinitely More Powerful Direct Response Marketing Business” for FREE. Click here to claim your customer-getting, sales-boosting tactics.

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    ABOUT THE AUTHOR:

    Dan Kennedy is internationally recognized as the 'Millionaire Maker,' helping people in just about every category of business turn their ideas into fortunes. Dan's "No B.S." approach is refreshing amidst a world of small business marketing hype and enriches those who act on his advice. For more money-making marketing tips, tactics and strategies, go to www.GKIC.com

    19 Responses

    1. ali says:

      My grand father went from rags to rich just by doing the magic formula: X10 ,people started to believe the quality, when they swa the price!

    2. Garey says:

      Fantastic insight as always.

    3. How is it possible to raise fees in healthcare when fees are set by insurance companies?

      • Mike Stodola Admin says:

        Dr. Zmoos – We always get this question. But you and I both know there are “concierge” doctors where you pay a premium (out of pocket) just to be their patient. GKIC’s Dave Dee often talks about his concierge doctor who charges between $1,000 and $1,500 a year just for the privilege of being his patient. For that among other things he guarantees he’ll see you within one day of calling for an appointment, that you’ll never wait in the reception area or an empty examination room for more than 5 minutes and if you need a referral to someone else, they’ll provide the same guarantees. Then he sets his prices…not the insurance companies.
        GKIC members Jimmy Vee and Travis Miller constantly teach auto-dealerships how to charge more even as the very companies they buy from (GM, Ford, Toyota, Kia etc…) put downward pressure on price in attempts to get their dealerships to sell more. Instead, they sell on service and customers pay their dealerships more than ever to purchase the exact automobile they could get one town over for substantially less…and they do it happily and refer their friends and family.
        Don’t let set prices be an excuse…as a final example one GKIC member who is a speech pathologist struck out on her own after learning pricing strategies even though her competition can offer the service for FREE! Yes, her competition is the school system from which she came and it offers students her service for free. However, with proper positioning, messaging and marketing, she’s able to get clients to pay out-of-pocket for her services and in the process has more than doubled her income and is on the way to tripling it this year.
        Don’t give up the good fight!

    4. Very good article Dan. Fear is what causes prices to drop. Unfounded.

      Greetings.

    5. Vic says:

      How would you position a carpet store?

      I have been in this business for 25 years. I sell the majority of people we get to talk to (3/5) but the ones we lose are always to price.

      The competitors sell crap carpet to undersell us and we refuse to carry “builders grade”. Its crap, we won’t do it.

      I won’t do it.

      They also sell a cheap underpad we refuse to carry.

      We try to educate the customer and most get it, but the ones who buy cheap either don’t care or are believing differently.

      Are we just destined to lose 2/5 sales to price?

      The other issue is, once you put down a carpet, you don’t need us for several more years. We’ve been racking our brains to come up with add-on’s.

      Anyway, great article. Thank you for such wonderful information.

      Vic

      • Mike Stodola Admin says:

        Vic,
        You’re right on. First of all…great job on letting the 40% of bottom feeders walk away. Focus on the 60%…not only are they already the majority of your business, but they are where your profits lie. You might even try more to position yourself as the carpet store for “discriminating buyers” or those who favor luxury over cheap materials. A great add on for you is high-end carpet cleaning. You’ve already got a client base who knows, likes and trusts you…you could add hundreds of dollars of profit each year for each customer. Heck, you could even include a free cleaning when people purchase your “deluxe” carpet. If you don’t want to start this business, team up with a high quality carpet cleaning company in your area. There are other things you could do too so keep on thinking! You’re on the right track, now take it to the next level…maybe even go get some of the carpet and padding your competitors are selling and put that down next to yours and have people walk on it to really sell them on the difference. Anyway, great work.

    6. Pete Primeau says:

      Every Retailer Needs To Not Only Read This But Most Importantly Implement it!

      • Mike Stodola Admin says:

        Thanks Pete…feel free to share it (probably not with your competitors…though we both know even if you did very few would ever act upon it!)

    7. susan says:

      What are your thoughts on a B2B business?

      Specifically, we wholesale Bed & Bath linens to Brick & Mortar retail stores, Commercial properties and Interior designers and are always at a quandary of how to price our products.

      With our Designers and Commercial properties have no issues with our pricing as they see the service value they receive. but for our Retail stores (Brick & Mortar & E-Commerce), it always seems to be a battle. Any suggestions.

      Susan

      Susan

    8. I am part of 2 businesses. My primary business is a financial planner. I specialize in helping women in transition go from feeling overwhelmed and confused to empowered and confident about their financial future. How can I position myself as the luxury planner?
      The second business I am involved with is my husband’s organic soap company. This is a luxury item, hand crafted soap made from certified organic oils. I believe he is charging too little. How do we raise the bar without scaring away clients?

      • Mike Stodola Admin says:

        Terri – You have a world of opportunity at your fingers. All the answers to your questions are contained in Powerful Price Positioning. I can’t go over everything here as it’s not a few sentence answer, but 7 strategies are outlined in Powerful Price Positioning.

    9. […] What Business Owners Don’t Know About Price….. | Small Business Marketing Blog […]

    10. Bern says:

      I started a new product in a niche at $45. My competitors have quickly copied and devalue the price to $27. In a bid to kick them out I devalue my price to $24.99. They are now increasing their prices to $50. I don’t know what to do. I feel that they have stolen my price position. They experienced with over 10 years. I am now getting to my 2 years of online business. Selling and creating nothing in the first year and half. So really a newbie. Any advice?

      • Bern,

        What did You DO in that 18 months when You were “Selling and creating nothing”?? It’s Obvious that You sure didn’t Study Dan’s “Beginner” Marketing materials! Nor did You Read EVERY Word in EVERY Issue of DAN’s “No BS Marketing N.L.” Nor did You Study, Learn & Execute Dan’s Signature Product! The One that He’s Famous For: His “Magnetic Marketing System.” If You had, You Never would have found Yourself in the position Of feeling “… that they have stolen my price position,” because those 2 “competitors” were/are CLUELESS! They Weren’t the Cause of Your Problems– YOU WERE/ARE!! That’s Not Debatable! Because EVERY “experienced” Dan Kennedy
        Marketer KNOWS that It Is Stupid and Impossible to make any Profit, in the Current Economic conditions, selling ANY Product for $27. {Yes, even E-Books}, even If they did ‘Steal’ Your Marketing Position!

        So, in answer to your “Any advice?” — Here it is: (1) Be Thankful that They didn’t Do Their Homework either, and have spent a LOT of Their Time, Energy & Capital in a venture that is Preordained to Fail!
        (2) Before You Do anything else, Buy & Read these following Books, ALL written by Dan, and read them in this Order:

        (A) “No B.S. BUSINESS SUCCESS In the NEW ECONOMY” (c) 2010

        (B) “The Ultimate Marketing Plan” (c) 2011.
        In these first 2 Books, Dan will Teach You All the Basics that You Definitely NEED To Learn {You’ll Learn How
        to Figure-Out, In Advance, that You would Need a TON of Capital & a LOT of Time when trying to make a Dime of Profit selling a widget for $50! You’ll learn how all the Rules of Business Changed after the Obama Regime was Elected, and How & What to do about it! And that no Matter Who Is Elected President in 2016, nothing will get Better!

        (C) “No B.S. MARKETING TO THE AFFLUENT, NO HOLDS BARRED, KICK BUTT, TAKE NO PRISONERS GUIDE TO GETING REALLY RICH” (c) 2008

        (D) “NO B.S. PRICE STRATEGY, THE ULTIMATE NO HOLDS BARRED KICK BUTT TAKE NO PRISONERS GUIDE TO PROFITS, POWER, AND PROSPERITY” (c) 2011.
        This Last Book is, in Dan’s Opinion {I concur}, IS the Most Important Book that the G.K.I.C. Members Should Read; as Many Times
        as it takes each Member to Burn Its Contents into their Memories! This Book will Show You AND PROVE that those 2 guys & their $27 widget is Preordained to Go Broke!!

        AND, this Book will PROVE To You that {assuming your widget was a Viable product}, the ONLY way You Could have Made ANY Money & Profit, Was TO HAVE RAISED THE PRICE Of Your Product {regardless of what Price those 2 lowered it to}, NOT Lowered It!!

        And DO NOT FORGET TO
        {E} Become a “Gold-Plus” G.K.I.C. Member, and Read & Re-Read Each Issue of Dan’s “NO B.S. Marketing Letter” {Marking it & Hi-Liting It the Second Time thru}.
        And then Read & Memorize The Trends & Predictions That Dan writes, in the
        “No B.S. Affluent Marketing Letter”! It is an addition to & Part Of Your “Gold-Plus” Subscription!

        Last, but certainly Not Least, Don’t Waste Any Serious G.K.I.C. Member’s Time
        while Feeling Sorry for Yourself, and Complaining things like, “I don’t know what to do. I feel that they have stolen my price position.”

        Because, we Mature, Realistic G.K.I.C. Entrepreneurs who have Read ALL of Dan’s BOOKS & Newsletters and who have worked our Tails off Buying & Learning & ACTUALLY Implementing Dan “Magnetic Marketing System” and MANY of His Other Genius Products, Had It NO EASIER THAN YOU! WE worked our Asses Off to become as Successful as We Are!

        We don’t mind Helping Sincere GKIC Members WHO HAVE Done their Homework, and Have ACTUALLY Subscribed to & Read Dan’s Monthly Newsletters & His New Books, every time He Writes a New one.
        But WE have NO Sympathy for Fakers & Lazy Pretenders, who ask Dumb questions for “Advice,” because they were too lazy to try to Find the Solutions Themselves , and How to Do Things the Right ways!

    11. Adam Erhart says:

      Excellent insight. Fear stems from a lack of confidence in what you’re offering, or a lack of understanding what the market will support (market research). In my experience raising your prices often only means changing your clientele, and often receiving far more business!

    12. Chris arnold says:

      Just read Start with Why by Simon Sinek where he writes about there being only two factors influencing human behaviour: manipulation and inspiration..
      Fear being one of those factors where the buyer is manipulated along with peer pressure and others. This article re-enforced everything I had previously read . Great stuff and stands the test of time.

    13. […] On the one hand, I always remembered Dan Kennedy’s advice that you should not be afraid of raising your prices. But on the other, what I think contributed most to my freelancing success was following these two […]

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