As much as possible, you should avoid being the low-price provider. That’s a game that no one wins: The low-priced provider attracts bottom-feeding customers that have zero loyalty. (Check out what else I’ve written about price and pricing strategies).
You should set your price at a point you can comfortably operate at and then build a case for value around your price.
But I frequently hear people talk about the problems in their industry and then claim that the only solution is to be the low-price provider since that’s what “all the customers” seem to want.
But this isn’t true. Most customers don’t want to spend the lowest price. (A very small handful do but most customers don’t). Instead, customers want to get the most value. They want to spend a reasonable amount and get a lot in return. (And some are willing to spend much more because they get way more in return).
Your job as a business owner is to find ways to build value into your offer that eclipses the price the customer is able to pay.
Here’s a really basic example: If your industry tends to sell widgets for $5 each because of the sheer price pressure, it’s okay for you to set your price at $10 per widget if you can prove to the prospective customer that they are getting $15 worth of value.
There are three components that need to be in place to make this work:
COMPONENT #1: A DECENT OFFER
You need a core product or service that is as good as, or better than, what your customers can get from the low-priced provider. (If the quality is less than what they can get elsewhere then you’ll diminish your claim of value).
COMPONENT #2: ADDITIONAL VALUE
This is the biggest opportunity. Your low-priced competition might be churning out the products in an off-shore factory for fractions of a penny but what they can’t provide as well are some of the following:
These are very powerful ways to add value because they help the customer get more from your product or service by showing the customer how to use it better, by extending the product or service’s life cycle, by making the product or service more widely applicable in the customer’s life, and more.
COMPONENT #3: YOUR SALES FUNNEL
Your sales funnel’s job is to show the customer not that your offering is low-priced but that your offering is of such an amazing value that they would be foolish to shop anywhere else, even if the price is lower.
And you really can’t do this enough. This isn’t something to downplay. You need to tell it and then tell it again and again and again. By the time your customer reaches the point of sale in your sales funnel, they should be frothing at the mouth and desperate for your offering.