Entrepreneur highlight before pricing your products and services, you need to understand how customers perceive value A lot of businesses tend to price their products or services based on what they cost, rather than what their customers are willing to pay. The following steps can help you price your products effectively:
- Listen to your customers
You really don’t need to hire a marketing research firm to understand how your customers value your products versus competitors. Just take some time to ask customers questions and actually listen, versus just trying to close a sale. This is a good sales technique anyway.
- Know your competition
This can be an awkward question to ask a customer, but it is worthwhile to ask, “If you weren’t doing business with me, who would you go to?” How is the competition different, and how do your customers value what is different? Prepare yourself for surprises when you start finding out your real competitors, and the benefits the competition may have over you. You’re learning stuff you didn’t know.
- Be honest and fair in your self-evaluation
Brutal honesty — it’s very hard for people to do. I typically find that business owners and executives will overvalue the positive aspects of their business, and ignore the advantages their competitors have over them. Going back to the bicycle shop example, the owner might highly value that the store carries Continental tires — simply because one customer a month ago was happy they were in stock. At the same time, the competitor across town has a bike wizard handling repairs, something customers are willing to pay extra for. Simply charging what the competitor charges is going to miss the mark.
- Recognise that customers are different to othersSome people value a neighbourhood bike shop, while others might have no problem taking a bike off the rack at Walmart. What you charge becomes a question of who you really want to compete with and what type of customers you want to attract. The smart move is set your prices for a particular group of potential customers, rather than all of them.
Read more at: http://www.entrepreneur.com/article/220746