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Premium Pricing: Cheap is not good and good is not cheap!
Ashley Burgess-Payne • June 8, 2020
Let’s start with a quick question. Would you rather have to sell 4 products at £2,500 per item or 500 products at £20 per items? Which do you think is the easier sell overall?
Although selling an item or a service at £20 may sound easier, trying to sell 500 of them along with managing the client relationship and expectations of those 500 is not. Working with a smaller number of higher paying clients is the way to a happier, financially healthier and more sane business owner.
The above example is an extreme price increase. However, a mere 10% increase in your prices could provide a significant benefit to your business. What would your business look like if you increased your prices by 10%?
Here’s some of the benefits of Premium Pricing:
• It will increase your bottom line and provide you with a cash injection
• Enhances the perception of value and will separate you from your competitors – provided you market your business/products/services appropriately
• Likely to attract the right kind of clients who are looking to buy on experience not price – do you know who your perfect client really is? (Who is your business designed to help and work with?)
• Allows you to spend more time on each client increasing the chances of you providing a better service – you don’t want to spread yourself too thinly, there’s no merit or benefit in this, just headaches and frustrations
• Gives you more time to work ON your business not just IN it – as a business owner you need to be the leader not just the technician. Your business needs a visionary and someone who can captain the ship not just someone who is constantly below deck (this is what ‘effective’ delegation is for)
What is Premium Pricing?
In short, Premium Pricing is putting your prices up so that you are slightly more expensive than your competitors.
Why would you do this, surely this will cost your business as your prospective buyers will run to your competitors who will be waiting with open arms to receive them? Not necessarily.
Let’s look at you as an example. Do you buy on price or is there another reason for your purchases? Granted there are commodities that are bought on price e.g. fuel, but is your business’ service/product a commodity? I hope not, because a commodity is extremely difficult if not impossible to attach any emotional pull to and thus makes it very difficult to sell on anything other than price, and we do not want your business to sell on price alone as that results in one thing – a race to the bottom.
Back to the question, do you buy on price alone? Although price may be a consideration, it is not the only determining factor in whether you make a purchase or not, and for the majority of your purchases it is likely to be near the bottom of your list of considerations.
As humans we tend to buy on emotion rather than logic. We have to feed our ego and our wants, needs and desires.
So granted, yes there those who are price buyers, but more importantly for your business there are those who want more, they want an experience and they are willing to pay more to obtain it (you’ll also be pleased to know that it would appear that there are more of this kind of buyer than there are price buyers).
Side note: Although there is a difference between the price buyer and the experience buyer, they do have one thing in common – that is a perceived value for money. Regardless of whether you’re at the top of the price range, at the bottom, or somewhere in between, the one thing you must do is offer value for money. The way to do this is manage and then exceed expectations (this is essential for client relationships & client satisfaction). See section below on ‘The Afters’.
To bring this section to a close, Premium Pricing is setting your prices at a level above that of your competitor’s so that the marketplace perceives your product or service as being of a higher quality and delivered to a higher standard than that of your peers. This is important as rightly or wrongly, perception is reality.
When you receive something for free, how do you view/value it? What about something that you have saved for and spent big on? Exactly. When a product or service is more expensive the perceived value is enhanced.
This is likely to attract a client who is not just a price buyer, and it is generally much easier and much more pleasant to do business with what I call an ‘experience buyer’.
What is the value in increasing my prices?
It will increase your bottom line.
A 10% increase to your prices provides a significant boost to your business. This boost will also make those operating margins look much healthier and will relieve some of the stresses and sleepless nights worrying about cash flow that many a business owner experiences.
To put this into context. If your product costs £250 with a profit of £50, a 10% price increase will make your new price £275 but more importantly it will mean your profit increase to £75 (approx. 27% profit margin)
However, a 10% decrease in prices will paint a drastically difference picture. Decreasing your profit by 10% from £250 to £225 means your profit is now only £25 or (approx. 9% profit margin)
The swing between a 10% decrease and a 10% increase in price is £50 in profit or 18% profit margin. That is a significant difference for a price increase that very few if any of your customers will notice.
So, why haven’t you increased your prices yet?
Many business owners are apprehensive about increasing their prices for fear of a backlash from their clients and losing business as a result.
From talking with other business owners and personal experience in our own firm, the majority of clients won’t even notice and those that do are unlikely to question it.
The thought of raising your prices is much worse than the reality.
If you raise your prices 10% each year just think of the head start you will be giving yourself and your business for growth in the coming twelve months. Why would you want to restrict and shackle yourself by not increasing your prices to represent your worth and the value you provide your clients? How much do you think your services are worth? Are you not worth the 10% increase?
There is a market out there for it and a market that will pay!
Remember, if ever there is an objection to price it is not necessarily a flat out no, it usually occurs because the value for money and the benefits of the ‘afters’ to the client have not been explained effectively. This objection is an opportunity for you to explain to the prospective buyer why it has been priced at that level and the benefits that are on offer for them.
How to do it: marketing ‘The Afters’
Always speak to the client’s ‘afters’.
People do not buy using logic and they certainly don’t buy the product for what it is. They buy on emotion and they buy it for the result it produces – ‘the afters’. Be sure to find out what you clients’ ‘afters’ are e.g. what they really want and where they want to be emotionally after having bought your product or used your service. This will make it much easier to market effectively and speak to their psyche and justify the price you are charging.
It is amazing what our true desires (the afters) will make us do. An immediate example that springs to mind is when I recently purchased my car. I opted for the larger wheels which serves absolutely no logical purpose other than to increase my monthly payments and use up more fuel when I am driving. There is not logical justification for it other than the fact that the decision was made on an emotional level and in short, I wanted what I wanted. The ego led the way.
The proposition was positioned to my psyche e.g. how it would look to the outside world and how would it make me feel – or even worse how I would feel if I pulled up to a set of traffic lights and saw the car next to me (same make and model) with the upgraded wheels on display…ouch! The decision was made by ego and me wanting to present a certain version of myself to the world.
Don’t think that this principle doesn’t apply to you or your market because it most certainly does.
That’s all marketing is (selling the dream/the afters and getting someone to take the desired action we want them to take). Good marketing sells the dreams and more importantly a credible business provides a product or service that delivers on that dream and afters.
But what if there is resistance to the price?
As mentioned above, an objection is very rarely a flat-out no. it is a request for further information that will help the prospective buyer justify their emotional want e.g. when the credit card bill arrives, they want to be able to look at that outgoing as something that was worthwhile and fulfils a want and desire/need. One way to avoid resistance from prospective clients is to offer a tiered pricing system e.g. Gold, Silver, Bronze.
Using the client’s afters to support your system, explain how you can deliver these ‘afters’ in various ways and to varying degrees. But be sure to make it clear that the Bronze level may only achieve part of their objectives/desired outcome, however the Gold would not only achieve but exceed their wants and desires by providing them with x, y and z that they may not have thought about.
As human beings we always want what we cannot have and when you introduce a tiered system you may be amazed to find how many people will go with the ‘Gold’ option because their desire to fulfil their wants and needs will not allow them to not have something that offers the potential to fill that void/need.
Help the prospect to see the real benefit and ‘after’ they would obtain should they choose to extend their budget and go with the Silver or Gold options.
I have seen it myself at the numerous live events I have attended and been a part of. People do not want to miss out and if there is something that is ‘off limits’ or ‘behind the curtain’ they want and need to have it. This is the tribe mentality taking over and the natural desire of humans to be a part of ‘something’/the inner circle, the tribe.
It really is all about how the offering is positioned and whether you’re presenting/marketing to the buyer’s logic or their psyche (emotional side). Remember, emotion is much more powerful than logic hence why we all wear different clothes and drive different cars etc.
Effective not just busy
The real beauty in raising your prices is that you are able to work with fewer clients yet still increase your profits.
More business from less clients means you become more efficient and effective as you can spend more time working with and for each client offering a fantastic client experience that exceeds their expectations rather than being pulled from pillar to post trying to cater to the needs of the many.
Price increases also mean you can manage yourself and your time more effectively and step off the ‘hamster wheel of busyness’.
Analyse your existing client list and see where the bulk of your time is being spent, then assess the return on your investment of time, effort and energy against your financial return. Does it match up? Not all things/clients carry the same weight and if like many businesses, when you perform this analysis of your business you may just discover that the majority of your profits actually come from only a few of your clients. This is known as the Pareto Principle/80:20 Principle whereby 80% of the profits or output comes from only 20% of the clients/inputs.
If you are unaware of the Pareto Principle it is worth researching it and conducting an analysis of your business to find out where your 80/20 is – you may find that you are wasting a lot of time on tasks and activities that are not bringing you the greatest return.
Raising your prices will leave you with more time to focus ON your business and plan for the future (the bigger picture) and not just work IN it.
To close, selling on price alone is not a smart move and often leads to your being over worked, under paid, undervalued and feeling unhappy with your business and clients. Remove this with one simple and easy to implement step – increase your prices.
Remember, cheap is not good and good is not cheap.
Written by Ashley Burgess-Payne
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