Most small business owners make the subject of pricing way harder than it has to be. And the overabundance of information and theories on the topic don’t help (Search“pricing strategy” on the Internet and you get over 6.7million results).
Pricing can be straightforward – but you need the right perspective. You need to realize that pricing is really just a mechanism to communicate value.
To help you get this communication perspective on your pricing, let’s look at three type of people you meet at any party and compare their style of communicating to the three common pricing approaches small business owners use:
They are the one who stands timidly in the corner; not engaging others in conversation, not asking other people about themselves, not joining the conversation unless specifically asked, and then they only answer in quiet, shy, short and non-expansive answers.
When it comes to your pricing, the Wallflower equivalent is “pricing emulation.” This is where you base your prices on what your competitors and your market are charging, what customers expect, and so on.
This approach communicates two main things:
- That your business and its products and services are plain, boring, and the same as everyone else.
- That your customer is the one in charge. They are allowed to control the conversation, and the relationship.
Obviously, when it comes to pricing, this is NOT the communication style you want. Yet so many small business owners use this pricing technique.
The Arrogant Jerk
The arrogant jerk thinks they are the only one with worthwhile opinions and thoughts. When listening to someone else, the arrogant jerk’s eyes glaze over just waiting for them to stop talking so they can start again.
You know how annoying this type of person can be (and if you’re reading this and are thinking that you have NEVER encountered someone like this, I can almost guarantee the people you talk to have).
The pricing equivalent to the arrogant jerk is the “mathematical” (or cost plus) approach. This approach takes a look at your costs, anticipated sales volumes and target profit and then mathematically calculates the price that should be used.
When you use this method you are communicating that YOU are the most important person in the sales/purchase transaction. It communicates that YOU believe your customers and prospects should care about things like YOUR costs and YOUR desired profits.
The Amazing Conversationalist
This person listens attentively, offers their thoughts where relevant and is often lauded as being very interesting to talk to (even though they often spend more time listening than talking).
These are the people everyone seems to gather around at a party and are almost always involved in the liveliest conversation groups. This is the way you want to approach pricing in your business.
Listen to what your customers and prospects want to achieve from acquiring and using your products and services. Then ethically set your prices based on the value you bring to your target customers.
In a future article, I will explain a step-by-step process for applying the Amazing Conversationalist pricing method.
For now, your homework is to ask yourself which of these three communication styles you are currently using. Observe other businesses you encounter each day and determine which type of pricing communicator they are.
It’s fun and gives you great perspective on your pricing.
Arrogant Businessman Photo via Shutterstock