Is Price Really That Important to Your Customers?

A local barber had been giving haircuts, trimming beards and sideburns for 20 years in the same small town.  One day, he noticed a red, white and blue striped barber’s pole going up across the street.  Soon, a sign was placed in the window across the street advertising five dollar haircuts.  Feeling much distress over his competitors low price, the old barber called his daughter, who was studying for her marketing degree away from home.  His daughter, after hearing the details of his plight, told her father not to worry.  She would be down to visit over the weekend, and she would solve his problem.  The barber couldn’t stop worrying, and throughout the week, he watched the new shop across the street receive guests at a steady pace.  When the weekend arrived, he eagerly anticipated his young daughter’s solution, sure that nothing but going to $4.50 haircuts would rescue his lost customers from this new bargain barber.  The barber’s daughter arrived early Saturday morning at her father’s shop and quietly unrolled a simple sign that said, “We fix $5 haircuts.”  She and her father hung the new sign in the window together.  The competing barbershop across the street is now a nail salon, and our barber considered the money he spent on his daughter’s education a welcome part of his marketing budget.

This funny little story has a very important point.  Business owners often mistakenly believe that price is the primary consideration when a customer is making his buying decision.  Most business owners would be surprised to know that depending on the industry, price is often not even rated in the top 5 most important factors by consumers. Yes, money provides a constraint for most people, but often it plays much less of a role than business owners realize.

For example, consider all businesses that currently compete with you in your market.  Who is your lowest priced competitor?  If that competitor doesn’t have 100% market share, then the theory that price is the most important factor is wrong.  In addition, if price were the most important factor to your clients, then all you would have to do is find a way to lower your price below that of your competitor, and those customers would immediately convert to your business.  There are a variety of reasons that customers choose to purchase their goods and services from one business over the other, and these reasons differ depending on the industry.  However, some factors that remain important regardless of industry are:  ethics, customer service, reputation and product knowledge.  Knowing what factors are important to your customer will allow your business to stop cutting prices and start providing what your customer is willing to pay for.

There are many factors to consider when setting a price structure for your business.  You should know the costs of making your product or conducting your service.  You should also know your target customer, including what he or she wants in the product, and is willing to pay.  Research your competitors and understand what they offer to your customer, keeping in mind how you can differentiate yourself from the competition.  Another important variable to consider when determining pricing for your business is your local economy.  If your local economy is undergoing a real estate boom and you sell photography services to real estate agents, you may have enough business to warrant a slight increase in price.  But the same photographer should be well informed and well ahead of the curve when real estate sales figures begin to fall, so that he is not left with an empty appointment book in the middle of a recession.

Setting the right price for your product or service can make or break your business.  Too high of a price will leave your business with very few customers and not enough revenue to survive.  Set the prices too low and customers may perceive your product or service as having little to no value and choose not to buy.  It is wise to seek professional advice when planning your pricing strategy.  Many programs such as the Small Business Resource Network can advise you of relative profit margins and pricing structures within your industry.  A certified public accountant can also help you determine what your cost structure and revenue goals are.  Qualified and experienced General Counsel can rally multiple professionals together to give you well-rounded advice that will help you determine the pricing plan that will bring your business the long- term success that you desire.  If you have any questions about the pricing structure of your business, or any other business related questions, contact the attorneys at Blount Law, PL, we’re here to help!

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Written by blountlaw