Are You Underselling Yourself?
In the age of cheap
goods and services, some people may be reluctant to charge a premium price for
their product. Is this a good idea?
I had a client who wanted to take over the business of a
good quality buyer from one of his competitors.
He researched the buyer’s needs and put together a strong argument for
them to change over to his business.
One of the points which we discussed was pricing,
specifically, how he had worked out the fee schedule for the service, based on
his costs of doing business and the additional investment that would be
required, along with the fact that this particular buyer was very demanding and
that therefore the management team were likely to spend additional time on dealing
with them.
The answer was that he had to give them pricing that would tempt
them. Trouble was, it was 50% lower than
what they’d been paying. Of course, they
took it, but then things unravelled as the expected business volumes didn’t
materialise and my client found that he was barely breaking even on the
business.
What went wrong? A
number of things combined to cause the situation:
- Not examining the costs of delivering the service.
- Pricing: did he need to give a 50% cut?
- Little sensitivity analysis - what if anticipated business volumes didn't materialise?
Had he spent more time on costing and focusing on his
bargaining position, would the buyer have accepted a higher price?
The thing was, this client provided a top quality service at
reasonable prices. He had (in my view)
the right to charge a premium price
for this reason. By charging the low
price that he did, he left himself:
- No room for bargaining;
- No “cushion” in case business levels dropped;
- No room for offering discounts or reductions later as a sign of “goodwill”.
In other words, he focused too much on securing the
business, without considering what it could cost him.
Ask yourself:
- “What is my product/service worth?”
- “What makes me different to the competition?”
- “Would this justify a higher price?”
- “If not, what would?”
Remember, the only person you're underselling in the end is
yourself. The key is knowing why you’re different and then making sure that
buyers appreciate that.
I have spent more than half my life delivering change in different world markets from the most developed to “emerging” economies. With more than 20 years in international financial services around the world running different operations and lending businesses, I started my own Consultancy to offer solutions for improving performance, productivity and risk management. I work with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email . My website provides a full picture of my portfolio of services. For strategic questions that you should be asking yourself, follow me at @wkm610.
Labels: Customer Care, Financial, Selling, Strategy
posted by William Martin @ 08:51
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