Why Having the Lowest Price Might Be Hurting Your Business

Frequently clients come to us with questions about their pricing - is our pricing too high, is our pricing too low, when should I raise my prices? One of the most common questions we get is if raising their prices will hurt their brand. Ironically, the reality is very often the opposite - a lower price may actually be hurting your brand and here’s why.

Price = Value

Let’s think about what goes into value. For most buyers and for most products and services, quality is the top consideration. They want quality materials and quality service. Very simply, they want to want to walk away from the transaction feeling as though they got what they paid for. 
But what about name and luxury brands? What really makes a Hermes scarf cost $4,000? Why does your teen daughter NEED that shirt from American Eagle, not the exact same one you saw at Target that’s half the price? That’s perceived value or brand equity. It has very little to do with cost of goods, and everything to do with what the market is willing, and yes, wants to pay. 
While it may sound crazy to some, there are many buyers who put great value into paying more because they CAN. Brands like Hermes, Mercedes, Louis Vuitton, Rolex and a glut of others have built entire businesses creating ‘statement pieces’ that are expressions of wealth and status. On a slightly different, but equally powerful level, is the brand-loyal consumer, a market probably best represented by the teen consumer. The ever-fickle, brand-conscious consumer who wouldn’t be caught dead in anything but the latest hot brand, right down to their underwear, socks and $65 eyeshadow palette. 
As you evaluate your pricing, think about these examples. Price doesn’t play a role at ALL in the purchasing decision of these brands. In fact, a low price to these consumers might even be considered a warning sign that the product or service could be inferior, undesirable or fake!

Are You Undervalued?

Despite our best hopes, most businesses are not in the position of delivering the kind of statement service or product discussed above. However, you DO deliver value and your prices should reflect it. While your offering may not be in the neighborhood of a $4,000 Hermes scarf or a $750 facial, your products and services have value that you need to accurately calculate and communicate to your customers for the continued health and growth of your business. 
So how do you know if you’ve priced your products and services correctly? Here are some warning signs:
  1. You never have enough time to work ON your business. If you’re so busy from the moment your day starts until you collapse in sheer exhaustion, you’re probably undervaluing your own time. You should have time to work ON your business as well as IN your business to help it grow. If not, sit back and consider whether you may be undervaluing your brand.
  2. You’re unable to meet your expenses. If your expenses are going up regularly (e.g. rent, cost of goods, salaries) and you aren't increasing your prices, you're going to put yourself in a hard spot. If you don't keep up, your business will suffer, which could make your product/services suffer... as well as your own income if you are the owner.
  3. Your customers ask you ‘Why?’ If your customers frequently ask you why you’re THAT much cheaper than your competitors, it’s not a compliment, that’s a warning you’re not keeping step with the market. Your customers are wondering what corners you’re cutting to keep prices so low and that’s hurting your brand image.

So How Do I Raise My Prices?

Very simply, you just need to bite the bullet and do it. You’re in business and raising prices is a part of it, plain and simple. In fact, your customers even expect it. That being said, here are a few tips to make the process go a little smoother.
Go Incremental. Whenever possible, raise your rates incrementally and regularly. Small, annual rate adjustments are the most common and as such, most widely accepted. When adjustments are small and expected, your customers are going to be less likely to be shocked or upset by an increase. It’ll simply become a regular part of doing business with you.
Explain Yourself. Most customers are reasonable people. When you notify them of a price increase, explain why. Everyone understands that the cost of goods increase, that it’s good business to pay your employees a fair wage for good work, so share your reasoning with your customers and they’re more likely to be understanding of the increase.
Give Advance Notice. Your customers have budgets to consider too, so whenever possible, try to give them as much advance notice as possible as to when the increase will take affect. At least one billing cycle is suggested, but if you can give a bit more than that, they will appreciate it.
For many small business owners, the financial part of owning a business can be the most challenging. You probably started your business to do what you love, not necessarily to get rich doing it. But the fact is, there are bills to be paid and if you don’t get paid, you won’t be doing what you love (and what your customers love YOU for) for very long. Don’t be afraid to ask your customers for your true worth. If you haven’t raised your prices in a long while, now is the time. If you’ve done a good job with your brand and built a solid following with your customers, you  don’t need to be afraid you’ll lose them over a reasonable price increase. You’ll only lose the ones who don’t appreciate your value and it won’t be long before they’re replaced by new customers who do.