I am sure that you have heard that some grocery stores “force” producers to package some of their products under the grocery store brand and then they sell it at a lower cost. Now, you may think that would mean that nobody would ever buy the original brand anymore. But that is far from the case.
The truth is that the original brand does sell greatly because some people associate the cheapest with the lowest quality and sometimes we don’t want the lowest quality. In fact, the grocery store is doing the brand a favor by creating a “bad quality” choice so that they are making the decision even easier. Soon, you will see grocery stores not only providing the low cost choice but also the high cost choice. However that is a topic for another day.
Imagine what would happen if people only bought the cheapest in every industry. Nobody would buy Mercedes Benz, Nike or Nautica. Nobody would eat at fancy restaurants. Nobody would buy Prada purses. And yes, everybody does.
So the main important thing to understand is that next time that you are deciding how much you will charge for your Web 2.0 services or your freelancer services or whatever you do for a living, is that price carries information. I am going to say that again: “Price carries information.”
A second point to understand is what information do I want to send? Depending on the strategy that you are going to adopt, you may consider sending different messages. I recommend reading what Michael Porter has to say on this very subject. The competitive advantage, according to Porter, will consist of a successful strategy. One successful strategy can be “lowest cost” but another one can be of “differentiation by attribute.”
In other words, you may be different from your competitors and therefore your clients will be willing to pay a premium for your service or product. The fact that they are willing to pay a premium means that there is a created expectation that now you have to fulfill. If you sell a true commodity, obviously a lowest cost strategy is very difficult to compete against. However adopting a differentiation strategy you may not only allow your true ideas to add value to your particular service, but also attract a higher price point that provides even more room for innovation.
Finally, in order to determine a good price point you have to determine your internal costs. How much does it really cost you to produce and distribute your product or service? Once you have determine that number, it should be used as an indicator of how efficient you are and how to improve your capacity in the future.
Please remember, everybody, even big corporations, has problems pricing correctly their services for maximum profit. Remember that as a business owner or freelancer your main goal should be to maximize your revenue and not just to be “fair” in your own mind. Many factors such as self esteem and confidence can actually change your views of fairness and therefore render your own estimations useless. So forget about your own views and beliefs. Do your homework in measuring your competitors and their offerings. Modify your product or service so that your value proposition is much stronger based on your target niche’s desires and finally charge accordingly.
I hope that this gives you a better idea on how to price your services in the future.
For more information about how to effectively implement your internet business strategies make sure to contact Merkados™ today.
Until next time,
Alex Centeno MBA.
Creative Director & Digital Media Strategist
Merkados Interactive Partners