In a recent article for Entrepreneur magazine, Mike Templeman writes that when it comes to pricing your product, “don’t be the cheapest, be the best.”
The author notes that founders of startups entering a competitive market are concerned about how to price their product against the competition.
Don’t be a bottom pricer
As a part of due diligence when considering going into business, you determine who the competition is and what they are charging. All too often new startups will price their product towards the bottom.
Be confident in what you have to offer
The reason is that they feel it will make them competitive and gain a foothold in the market. What is usually not well understood are their competitor’s costs or the fact that a larger competitor doesn’t mind losing a little money by lowering prices short term, in order to eliminate their competition.
In my experience, it is never a good idea to go into a market as a “me too” storefront, against established competition priced at the lower end. It is too vulnerable a position to be in. There is always someone who can be cheaper.
Quality and value rules the day
Actually, my husband taught me this from his years as an executive in the fiercely competitive housing industry. It is a better market strategy to differentiate yourself in a niche, offer quality and value, and do not be shy about charging for it.
Give your customers credit
Customers understand that you get what you pay for, and recognize value as they see it. Being lured into a price war against larger competition is a mistake for many reasons not the least of which is you never win.
Once the damage is done and the larger company disrupts the market it is very difficult to recover from.
Templeman’s advice is to instead offer something better. He’s right.
Customers are ready and willing to pay for an amazing experience. You can price toward the top end of the market if consistently delivering what customers expect- a unique, quality experience.
A winning formula
In business, if you keep costs under control while achieving higher price points, margins will be healthy resulting in a win-win for you and your customers.
This is how I have succeeded in the Princess Party business for the past 18 years. I offer one product at two price points depending on amenity choices, which enables me to focus on my core customers.
With this approach, I have differentiated from any competition and can charge more because customers have come to know what to expect when they book reservations.
Communicate reliability
In doing so, everything becomes streamlined and marketing is made easier because I am simply communicating that my brand means a quality experience with service.
I am in the business of making dreams come true for kids, which makes their parents happy because they provided for a unique birthday experience for their child. Clients will pay more for an awesome experience!
