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Pricing Concept #3: Avoid Pushing the Price Envelope and Over Pricing

“The simplest suggestion to avoid overpricing is let your customers show you the true value in your product.”

It should be rather obvious to most business owners that if you are guilty of pushing the price envelope with your products, it will eventually come back to bite you. Consumers today are not as naive as some might think. And, they often have many options available to them that were not logically or technologically possible in the past. For example, if you wanted to buy a car 20 years ago you had to travel to your local dealership. You were limited in your options and in the local car dealer’s inventory. Today, you can purchase a car from literally anywhere in the world and if you are willing to pay, have it shipped right to your door.

Making the assumption that you are targeting the right market if you overprice your products you will see a much lower response in interest. And, if you are marketing to the right buyers but still see a significantly lower sales rate than expected, the problem typically involves the pricing itself, quality versus value, or brand awareness as it relates to the cost.

Let’s start with pricing alone

If you have existing customers it’s much easier to figure out where your price ceiling is.

For example, you could periodically raise the price of a product until customers begin to raise concerns. Is that the best approach? Probably not if you want to keep your customers! And it would probably take quite a while to really determine where your product becomes out of reach for your most common target buyer.

Alternatively if concerns about alienating your paying customers would deter you from this approach you could talk to customers about current pricing and the value received. You could even do polls or surveys directed at a typical “buyer persona” for your company. Perhaps even ask for suggestions or why they buy from you. The information received may be extremely enlightening and informative. In addition, look at the competition. If all your competitors are selling a similar solution for $500 and you are trying to sell yours for $1000 there is probably going to be a sales issue. Even if your product is twice as good or has a unique feature that makes it considerably higher in value, you may have issues with consumers seeing the value, understanding the value, or even seeing your brand as worth the cost.

I run across “understanding value” often in the services we provide. Take SEO (search engine optimization) for example. This is such a widespread, well-known service but there is rarely a true understanding of what it entails. And just about every marketing company has their own opinion about what SEO today looks like or the services included in optimizing a website. So, its safe to say if the vendor’s selling the service have a hard time agreeing, it’s most likely that consumers will have a hard time understanding the service or seeing the value. My job as a marketing provider and business consultant often starts with developing an understanding of the products we provide.

“Communication about the product and understanding how it solves a particular problem establishes the value.”

Every industry is different and every business handles the financial aspects of it’s services differently. Digging deep to learn more about pricing is critical. This may also allude back to Pricing Concept #1 where dispelling misguided beliefs about personal worth or about money in general can make it challenging for some business owners to even discuss finances and costs with customers. Let’s face it, some business owners are great at providing a service or producing a product but are not good at sales or running the busines at all.

And, since many business owners avoid the money conversation when possible, we see a lot of companies struggling unnecessarily to maintain their solvency. This seems especially prevalent for companies selling virtual products who often fix their prices for too long a period of time which means every year they make less and less for their efforts. For example, I’ve been paying the same price for our Cloud Accounting Monthly Subscription with Freshbooks ($24) since 2009. Not only does $24 today buy a hell of a lot less than it did six years ago, it also does not take into account that Freshbooks has undoubtedly tripled or quadrupled the features and tools at my disposal since we first signed on with them. So how can they afford to keep my price the same? The only way is to continually sign more and more customers. The problem there is obvious. The profit margin shrinks with every new client they sign if the price is not adjusted to meet increased costs, inflation, etc.

So back to my point, if you do find a level of comfort in discussing rising costs with customers, you should explore those opportunities. Find a tactful way to bring up your concerns and you’ll find many customers will be honest with you. For example, our project or hourly rate has tripled (at least) in the past 12 years. Like many businesses starting out I of course undervalued my time and what it was worth and over the year I’ve come to appreciate what it is worth and the value others see in it. Therefore, raising prices gradually worked well for me. Plus, when starting the business I was the only employee where now we have a considerably larger team all contributing to every project. Pricing for us has been easier than some business models for our customers who typically purchase one large product every couple of years. Websites for example… the prices continue to rise every year, as they should since the technical needs and functionality continues to grow.

Customers understand this, typically anticipate this, and are generally receptive to the reasons behind the cost when they see what a massive undertaking a website project can be, especially if they have been through it once before. Other services we’ve been much more price conscious and do our best to minimze cost increases for on-going services such as website maintenance, hosting, support, etc.

If you asked the majority of my customers if what they spent on our products and services was worth it most would say they have seen great returns on their investment. Even if the cost seemed high to them at the time, if they gauge what was spent versus what was gained it is a drop in the bucket. Therefore the value we provide far outweighs their investment cost.  In addition, if a lot of your customers were with you from the beginning they can appreciate that your costs go up as the value of what you provide improves and is in higher demand. Just make sure you are continually building and improving what you started with otherwise it just seems like price gouging.

Quality Versus Value

I’ll get into Value based pricing in a later article, but it is good to touch on this here as well.

“Pricing is often a direct reflection of quality.”

Why does, and how can Walmart charge such cheap prices for their merchandise? Most often the obvious answer is the quality is sub par. They use cheap materials, mass produce, and limit the options available.

Your price should be a direct reflection of quality. And if your product is high quality, the value will be readily apparent. Consumers are not stupid. They can smell a gimmick from a mile away. And if your product is not up to par, be prepared to face the consequences. Therefore, if you want to charge more, be sure you are delivering something better, faster, more dependable, more aesthetically pleasing, functional, or any other possible positive and unique feature that would set your product apart from competitors. Develop your selling strategy around these variables since being able to explain why you charge what you do, has to be grounded in the benefits the customer will receive by choosing your more expensive version of a competitors product.

As mentioned above about Understanding Value, this point holds true here as well. Take the time to genuinely communicate why your product or service comes with such a price tag. In business, and in life in general you’ll find that when you choose to make calculated decisions and think things through instead of haphazardly slapping something together, you will find that the ability to articulate the reasons behind any decision or choice becomes simple. Therefore, think about why your product holds a certain value and be able to justify that and show customers first hand.

Building Brand Awareness to Control the Market

Quality 9 times out of 10 will define value but there are times when value is assumed based on other factors as well. As mentioned with Walmart or discount stores in general, there is a reasonable expectation that the quality might just be “good enough” but certainly not great. The alternative is true as well. When people buy brand name items they have an expectation of what that means.

Ask any fashionable woman what they think of Coach leather hand bags and wallets, and probably every single one will all rant and rave at the quality, craftsmanship, and aesthetic appeal of their products. And I have to admit they are nice, having been nudged to purchase a few over the years for my wife as well. I’m sold and my wife is happy, so kudos to them! Now, when we see the name we inherently expect a very well manufactured product.

Brands which have established such a powerful reputation are not built overnight. They also create “brand advocates” which means their customers are far more likely to be forgiving or give them a “pass” over a few missteps than a brand which has no presence or one that has established no sense of brand loyalty.

Brand building is a slow process and usually requires a great deal of communication between you and your customers. You can, however, fast track this a bit if you find ways to get your product in front of the right people sooner. For example:

  • Explore trade shows or other in-person opportunities that involve groups of consumers who are interested in the types of products you provide.
  • Find speaking opportunities, perhaps at a local or regional chamber of commerce or other business group
  • Search online forums or even join some user groups on Facebook, LinkedIn, or Google+ that would be an ideal fit for your product.
  • Look for celebrity or local “big name” endorsements you could possibly use to promote the product. We’ve seen this work for several customers who gave away a high value product in exchange for an endorsement which they were then able to use to build name recognition quickly.

Taking the time to develop a brand that can be connected back to a line of quality products can be monumental in building any business. Well-known brands also have the luxury of charging a far higher price even if the quality or value is no greater. For example, you can compare lesser known computer monitor brands with that of Samsung or Asus. On paper the specs look nearly identical but in terms of cost what might cost $250 for the generic model, will probably cost $350 with the Asus name, and possibly $500+ to carry the Samsung name. People pay for the name and so long as that brand identity remains intact, they’ve earned it. And with certain items like a car, a better made, higher priced vehicle will resell or retain its value for far longer than a cheap, economy model.

Well-known brands are also known for more than just the product itself. For example, a retailer such as Best Buy is often praised by customers because of their knowledgeable staff, support and maintenance plans which are serviced in house, and wide selection of quality products.

“Consumers buy the product, also because of what comes with it.”

Wrap Up

Play with caution when you explore new or revised pricing for your business.

  • Being overly confident in the value of your product versus another without doing the research will probably not end well for you.
  • If your product or service isn’t better, don’t waste your time trying to convince others that it is.
  • Take the time to talk to existing customers to get a sense of their perceived value of your product and look for opportunities of how value could be better articulated.
  • Find ways to establish value and to communicate the benefits, features, and differences with your product that make it higher quality and hence, of higher value to the end user.
  • Consider your brand identity or lack there of and find ways to make it more meaningful and significant to the end users purchasing decision.
  • Look for ways to make your product more appealing by building a better business around it, i.e. customer service, support plans, additional and related products, tutorials, training, etc.

Be confident and know that not only your products but you are worth what you are asking. If you don’t believe that to be true, or perhaps you actually are not worth the price, than customers will pick up on that and you will hurt your relationship with them. Also, don’t beat around the bush or try to justify pricing. Be direct, be confident, and show real-world examples of why your service or product is worth what you are asking. Customers buy into that much more than long-winded over-justification of why they should pay you more.

That to them just sounds like bullshit.

This article is part of a 7 part series I’ve put together to help you effectively price small business services:

  1. Getting Rid of Limiting Beliefs About Money
  2. Creating a True Cost Analysis of Your Business
  3. Avoiding the Pricing Push (overpricing)
  4. Avoiding the Pull to Cheapen Your Worth (underpricing)
  5. Pros and Cons of Time-Based Pricing
  6. Pros and Cons of Value-Based Pricing
  7. Monitoring & Grow While Maintaining Pricing

If you want to learn more about pricing or are interested in a no-obligation marketing assessment reach out to us anytime!


Gerald D. Vinci

Gerald D. Vinci

Gerald D. Vinci is the CEO of Vinci Digital with over 20 years of experience in marketing and advertising. He partners with mid-size, established businesses as a growth and scalability consultant and strategic branding advisor as well as offering a full-suite of agency services. Gerald calls Carmel, CA home with his wife Safira and two children. He has co-authored two books, and is working on his own upcoming book titled, “Small Business Pricing Mastery – Creating effective pricing and defining value for today’s products and services.”