August 23, 2019
Pricing expectations in established markets
People have pricing expectations for established products and services.
For example...
Paperback books are an established thing. They’ve been around for a long time. Therefore, I have an expected price range for paperback books.
For something like a new paperback book, I’d expect to spend maybe $10 at the low end and $20 at the high end.
Given these expectations, three things can happen pricing-wise when I walk into a book store and see a book I’m interested in:
- Less than the low end—If the book is priced much less than the low end of my expected range, I would assume that it is a bad book and I would need to somehow be convinced otherwise before buying it.
- More than the high end—If the book is priced much more than the high end of my expected range, I would need to be convinced that the book was exceptionally valuable to me in some way before buying it.
- Within the bounds—If the book is priced within the bounds of my expected range, I am not going to need to be convinced of anything - I’m just going to buy it without objection.
So...
If you’re selling something in an established market, your buyers are probably going to have strong expectations about what your price should be.
Which means you’ve got three pricing strategies to consider:
- Cheap—If you price below their range, you’re going to appear shoddy and cheap, and won’t land the deal if the client is looking for quality work. Profit margins here stink.
- Luxury—If you price above their range, you’re going to be the most expensive option, and won’t land the deal unless you have a killer value proposition. Profit margins here are great.
- Safe—If you price within their range, you’re going to be a safe option, and you’ve got a decent chance of landing the deal. Profit margins here can be good, but only if you figure out how to deliver at a much lower cost than your competitors.
Any of these strategies can work, but each implies a very different business and type of client relationship. Which one is right for you depends on several factors.
Yours,
—J