How To Charge Premium Prices For Your Products And Services And Get Your Prospects To Pay Them!

(part 1 of 2) by guest author Jon McCulloch

Who Cuts Your Prices?

How often have you heard people say this “I had to cut my prices! The competition made me do it!”?

More important: how many times have you said it yourself?

The truth, unpalatable though it may be, is that no-one makes you do it, in the same way as no one makes you angry or happy or sad or hungry. It’s from within. Quite simply: price cuts are a self-inflicted wound.

Period.

Unfortunately, as you will see below, like any wound, it can be fatal.

So how does this wound happen? And why? What kicks off the whole process? How dangerous is it? And what can we do about it?

I’m not sure what the roots of it are but it’s endemic in our society. We are constantly bombarded with countless marketing messages from a tiresome procession of “discount stores”. There are the cheap supermarkets, the discount DIY shops, discount clothing stores… the list is practically endless.

Yet the shocking truth – and it truly is shocking – is that there is no historical evidence to suggest that these discount stores have a long-term future. Many try. All ultimately fail.

You may say “what about places like Wal-Mart, Asda, B&Q and all those other firms?”. What about them? If you have deep enough pockets you can sustain a haemorrhage of cash for a long time… but history is littered with the bones of heavy discounters.

Look at the number of airlines that went to the wall in the US after deregulation. Look at Ansett in Australia. Freddy Laker.

Who Buys On Price?

It’s a common misconception that people buy on price. It’s so rare, it almost never happens. People will tell you they buy on price alone and they even believe it.

But they don’t. And nor do you. Do you wear the very cheapest clothes you could possibly have bought? Do you have the cheapest food in your cupboards at home? Did you have the cheapest wedding you could scrape together?

No.

Now, it does happen occasionally. There are some people who will buy in price only. Maybe one in a few million. And there are times when buying on price is mandated by law (as, I believe, in the case of the tendering laws enforced upon us by the European Parliament). But even then, businesses routinely get round it by drafting the tender invitations in such as way that only the preferred supplier actually meets the requirements and so is the lowest price by default.

Next time a customer or client says to you “I don’t care about anything else, I just want the best price!” tell them they can have it in March 2008, or you’ll sell them the “quality rejects”, and you’ll most get the answer “I can’t wait that long!” or “No, they’ve got to be good enough quality!”.

What they really mean is they want top-quality, top-service… but low price.

The only sane and rational answer to that is something like “If you want a low-price, you get a low-price-service; if you want premium service and quality, you pay the premium price”.

If you’re in a situation where you really want the business as part of your long-term strategy or you can see a good reason for doing the deal – other than fear of losing a sale – you can do this OK, here’s my best price. It’s for this quantity and it’s good for the next five minutes. Here’s the pen. Sign.”.

Scary, eh? Bet you don’t often talk to your clients like that, do you? I do, all the time, and they love it. People like to be told the way things are going to be – it saves them having to think. In any case, you’ll see shortly why it’s a pretty safe bet to do this when a client is haggling with you over price

Here’s Why People Do Not Buy On Price

Price makes a statement about quality. It might not be a true statement but it’s one that’s widely believed. A low price almost invariably confers an image of lower quality than a higher priced similar item.

And people usually value quality and service above low price. There are times when price is the only determinant, but those cases are very rare.

Let me tell you a true story.

Many years ago I used to work with Graham. And Graham wanted to be Gillian. Indeed, Graham became Gillian. After a fashion.

Anyway, some way into his hormone therapy I changed jobs and didn’t see him for ages. Some while later I was walking through Ipswich when I spied Graham/Gillian coming towards me. We spoke for a while and he told me he’d taken early redundancy and was using a part of his wedge to pay for The Op.

“Oh”, I said.

“Yes”, he said. “I’m going to Amsterdam to have it done.”

“Ah. OK… why Amsterdam specifically?”

“Because it’s cheap!”

Hmm. Now perhaps this is just my own small minded prejudices here, a kind of surgical price-snobbery… but I can’t help but think that if I’m going to have all that… stuff… hacked about, then I want quality not low price.

I mean, would you shop around and automatically go for the lowest priced dentist, cosmetic surgeon, paediatric heart-surgeon to operate on your 5 year-old daughter? I think not.

If you take the trouble to go out and ask your clients and customer the single more aggravating thing about their vendors or suppliers can do to piss them off beyond all sane and rational limits, nine times out of ten you’ll get this reply: “delivery problems”.

Don’t believe me? Just think back to your own experiences of rearranging your entire life to wait in for a plumber or a washing-machine to be delivered and the guy doesn’t turn up.

Maybe it’s just me, but when people do that, I could cheerfully eviscerate them and feed their entrails to the dog. And since I don’t even have a dog, I’d take the trouble to go out and buy one especially for the purpose.

And Here’s Why Sellers Sell On Price Even Though Buyers Don’t Buy On It

Fear.

It’s because sellers fear losing sales to price-buyers that they unconsciously keep prices low typically to the same level as their competitors. And this phenomenon is almost universal. It’s classic herd-mentality: one store lowers its prices, and all of a sudden everyone else is doing it, too. It’s called a “price war”, I recall. And it’s one of those wars no-one can win, a true Pyrrhic victory.

A few days ago I was consulting with a client in my office and I asked her about her pricing strategy. Her fees were probably half what they should be. “OK”, I said, “don’t tell me how you got that figure let me read your mind.”

So I put my fingers to my temples, closed my eyes and concentrated for a moment, then said “you looked at the range of fees charged by your competitors and picked somewhere in the middle”. “Close”, she admitted sheepishly, “I actually picked a price nearer the bottom”.

Think now how you set your own fees or prices. My guess is you’ve done something similar.

Most people look for three things when making a purchase: the finest quality, the best service and the lowest price.

I haven’t found a company yet that could provide the finest quality and the best service for the lowest price.

What To Say When You Are Challenged On Price

So what happens when a client or prospect challenges you on price? What do you say in response to statements like What?! I’m not paying that! Your prices are higher than so-and-so down the road! I can get the same thing from him for less money!”

First the best response you can make is this: “So?”

This does a number of things. First it acknowledges your price is higher. It’s an observable fact and no less than the truth. It’s a strong statement of where you are. You’re not justifying, apologising, or explaining.

Secondly, it puts the ball firmly back into his court. Because he’s then got to back at you, accept the price, or walk out.

And in truth, it’s only the first of these we need to worry about, Why? Because if he accepts the price, you’ve made a sale; and if he walks out, you never were going to make the sale at a price that would give you a decent profit.

So what happens if he comes back at you?

The chances are it will be with something like “Well what makes you think I’m going to pay those prices?” or “Why should I pay that much?”

And these are excellent questions – because they then give you the opportunity to say “Well, Sir, I’m glad you asked me that because here’s how we’re different from out competitors”, or some similar sales presentation that’s engineered to position you as the only logical vendor.

And do you notice something about this? How often do you find it hard to get the prospect listen to the long list of benefits of your services and products? And why is this? Because they’re not interested yet. But in the situation above he’s giving you permission; nay, he’s asking you to present it to him.

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