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huggytree
05-25-2010, 09:42 PM
I just ran into an electrician and we discussed our prices...im just blown away at how low his prices are....they obviously below cost...he works 80 hours to make 40 hours pay w/ no profit.

he's happy...

when we discussed a trip charge he said he doesnt want to because he wants to establish a customer base first. he says that some day he will raise his prices....i feel he's about 1/2 price right now....

soooo many guys think this way....it has one big flaw...if people use a business for $50 per hour what will they do when its suddenly $100 per hour? they will leave....leaving you with no customer base.

he is choosing his customers...cheap customers....

i see this over and over in the building trades..is this common in all business?

i dont think any of them KNOW their costs.

vangogh
05-25-2010, 10:18 PM
Dave I completely agree with you. I can understand what he's thinking. He's hoping to build a customer list, but he's also acquiring customers who are price sensitive and just as likely to drop him when he does raises prices later. And the customers these people recommend are likely to also be price sensitive.

The way to compete on price is to do large volume. Walmart can do that. The local electrician can't.

I think it is common for a lot of small businesses in the beginning. They don't know how or where to find clients/customers so they think being cheaper will bring business. If it does it brings the wrong kind of business. The best thing I ever did was stop working for less than what I knew I was worth.

Patrysha
05-25-2010, 10:35 PM
I find it very common in the work at home industry - underpricing out of fear and lack of confidence.

I know I started out really, really low. But then with little overhead and seeing myself as just the second income...that was fine for then...

As I've learned, I've grown and discovered just how hard it can be to move up...

vangogh
05-25-2010, 11:46 PM
Patrysha you're right about the lack of confidence thing. That's definitely one of the reasons new businesses, especially service based work at home types charge too low at first. I think it takes some time to gain that confidence and realize what your value is and that you are worth that value.

Spider
05-26-2010, 12:40 AM
Okay. So, here you are - a new business - no previous experience as a business - no customers. You cannot get a Yellowpage ad for many months until the next printing. What is the best way to build a customer base quickly, if not to start with low prices?

Steve B
05-26-2010, 07:26 AM
Good point Frederick. I certainly started out that way - as I remember HuggyTree did also (it was almost a sport on the old forum to beat up HT about his low price mentality in the beginning).

You can do a lot of things once you get established and build a reputation, but, at first, low price is one of the few things you can offer.

The electrician doesn't have to go from $50 to $100 overnight. He can do it gradually as he builds up his clients.

huggytree
05-26-2010, 08:53 AM
i started out more mid priced...i knew my expenses....i kept going lower and lower until i bid a job 'at cost' and still didnt win it...i was $2k lower than my competitor (i heard he was bad mouthing me to my supply house..wondering who i was)....if $2k wasnt enough to get the builder to switch nothing else would.....so i went to where i wanted to be and i finally started winning jobs...you need to be in the 'sweet spot'...too low and the builders worried your missing something, too high and he cant afford you...

this guy is working for under cost.....he is driving around 2 hours+ a day w/o being paid.

when i started out i didnt know what other plumbers were charging...i thought it was extremely high....i thought id undercut them and win all the bids....i didnt realize the actual per hour price was like $30 less.....i couldnt find the sweet spot for a few months

ive tried giving advice to these low price guys, but have yet to have 1 listen to me...one of my other electrician friends spent $10k and flew to Texas for a class on how to run a business....he immediately came back and raised his prices by $25 per hour..i laughed at him and said my advice was free and told him the same thing.

im fighting the urge to give this guy advice...it seems to annoy people when they didnt ask for help.

Patrysha
05-26-2010, 09:56 AM
I think I have a permanent dent in my tongue from holding back advice from ppl who haven't shown an interest in hearing advice. I just want to rush in and share all my knowledge...but know that it would just lead to a lot of wasted time and frustration...

Spider
05-26-2010, 10:36 AM
I think it's almost a 'given.' When you start in business, you have to start with a low price. It's the only advantage you can create for yourself at that stage.

billbenson
05-26-2010, 02:57 PM
There is another aspect to the low price strategy as well. For most there is a big learning curve at the beginning. Not just the service or product you provide but all the accounting, time management, marketing, etc. While working for nothing does seem kind of like a hobby business, it does provide the ability to evaluate what you are doing and has educational value.

vangogh
05-27-2010, 01:41 PM
Okay. So, here you are - a new business - no previous experience as a business - no customers. You cannot get a Yellowpage ad for many months until the next printing. What is the best way to build a customer base quickly, if not to start with low prices?

Are you suggesting that your only 2 options when starting out are a Yellowpage ad and offering prices below what they should be? Even if your prices are low you'd still have to advertise or market yourself in some way. Just because you have low prices doesn't mean everyone will suddenly know about you.

Low prices is certainly one way to get started, but it's also going to attract customers you'll wish you didn't have in time. Low prices are not the only thing advantage you can create for yourself when starting. It depends on your prior experience. If you're doing something brand new then maybe you do want to take on some low paying jobs in order to build a portfolio to show future customers and clients what you can do. If you have experience at what you do you likely do something pretty well, well enough that it can be used as a competitive advantage.

Even if you don't have experience you can find a segment of the market that's not being satisfactorily served and you can start serving that market.

You don't need to start off with low prices. You can, but you don't need to.

KristineS
05-27-2010, 04:38 PM
I don't necessarily agree that low prices are the only way to get started, or that a yellow pages ad is the only way to get noticed locally. There are local search engines. There's Twitter and Facebook. There is networking through the local Chamber of Commerce, your kid's soccer team or whatever it is that you do.

It's all in how you present yourself too. If your confident in your skills, you can sell your prices. Granted, you'll have to pay some attention to the pricing structure in your industry, but I don't think being the lowest is the only way to get your foot in the door.

Brian
06-01-2010, 10:34 AM
Surveys regularly show that price is not the consumer's biggest concern. Customers want value, and even a new business can offer that.

Certainly it is hard for a new business to get the word out. But that should be part of the planning before the business is started. A solid marketing plan and a sufficient budget will build a customer base, and they will be the type of customers you want.

When I started my business, if I didn't have a job on a particular day my job that day was to hand out door hangers. It wasn't fun, but it worked.

Spider
06-01-2010, 10:46 AM
I am of the opinion that surveys show what the respondent thinks the survey is trying to show. And price as a deciding factor is a little unpalatable for many people. They just don't want to believe how much price affects their buying decision.

How the questions are worded also affect the results.

I would take with a pinch of salt, all surveys that say price is not a prime factor.
.

KristineS
06-01-2010, 03:27 PM
I would take with a pinch of salt any survey at all. As Frederick pointed out, they can be slanted.

That said, I think different people are motivated by different things. Some people will be motivated by price, others will be motivated by ease of use, or reputation, or keeping up with the neighbors, or how the customer service person sounds on the phone. What makes a customer choose one business over another is as unique as each customer is unique. You can't put all your eggs in one basket. If offering bargain basement prices is your only Marketing option, then you're leaving customers on the table.

huggytree
06-02-2010, 06:59 PM
from my experience 50% of the people make their decisions solely on price

the other 50% look for a combination of price vs value.

that 50% which base their decisions solely on price never seem to learn that you get what you pay for.

Spider
06-03-2010, 10:28 AM
Oh, I think everyone understands that they get what they pay for - and they are prepared to take the risk, because it's a risk either way. High price does not always mean high quality and low price does not always mean low quality.

I think we make a mistake in thinking that high quality can never be delivered at a low price, and that low quality is never overpriced.

Caveat emptor!

huggytree
06-03-2010, 11:10 PM
i think you rarely get anything good for a low price and io think you typically get something great at a high price...is it 100% ...no....but its over 95%

i dont think something can be the cheapest and the best.i think were talking less than 1% chance here.

i dont think alot of people believe you get what you pay for...i think people continue to search for bargains, get screwed....then do the same thing over again the next time they need something.. i have people complain about the quality of their last plumber constantly, but then admit they are shopping for the lowest price again..they just want a different plumber to do a poor job. they wont pay $10 more per hour to get someone who knows what their doing.

i dont think you can sell value to the bottom 50%..low price is it

if anything that 50% has grown to 60% in this economy

Small Biz Break
06-08-2010, 11:52 AM
Obviously, there are various ways to build a customer base. I believe low pricing / free works if it is a discount or giveaway for an add-on or lead-in to your core business and not on your primary product or service.

For example, in the case of the electrician, if he builds a customer base on a 50% reduction in prices on his primary services, he puts himself at high risk for losing a majority of his base when he has to raise his prices to make a profit. However, if he were to give away a free 1-hour inspection and report that identifies how a homeowner of business can reduce its utility bill, he may have the opportunity to get in front of prospects, build a rapport, identify opportunities and offer out his primary services at full price.

vangogh
06-08-2010, 12:11 PM
Good points. It's interesting how two different ways to give a discount can work so differently. The 50% off offer ends up hurting the business while the free 1 hour inspection can easily be seen as a small investment in acquiring new customers.

Zatch
06-22-2010, 04:47 AM
from my experience 50% of the people make their decisions solely on price

the other 50% look for a combination of price vs value.

that 50% which base their decisions solely on price never seem to learn that you get what you pay for.

Yeah, that's true. Many people are being blinded of the low price. That's why some businesses used this as an advantage. if you will notice some establishments that priced their items like this $99.99 this will look more cheaper than $100 but they don't know that these are just the same.

prova.fm
06-26-2010, 03:44 PM
Good points. It's interesting how two different ways to give a discount can work so differently. The 50% off offer ends up hurting the business while the free 1 hour inspection can easily be seen as a small investment in acquiring new customers.

Agreed. I've heard & learned that discounts lower the perceived value of your business. On the other hand, free addons/upgrades increase the perceived value. Both can end up costing you about the same, but it's far better to increase the perceived value in your customer's mind.

vangogh
06-26-2010, 06:43 PM
On the other hand, free addons/upgrades increase the perceived value.

Yep, a lot of it comes down to the perceived value the buyer sees. I've seen people jump at 10% sales without realizing that on $50 it's only a $5 savings. Had the original price been $45 they wouldn't have cared.

It's funny when you look at it in one way, but in another it gives us a lot of flexibility in how we price and generally market things. You want to set a price or write your copy in a way that maximizes the perceived value.

Rzacny
07-21-2010, 02:29 PM
Huggy Tree, I'm just now getting on to the forum, and find some quite interesting info here. Vangogh is right in that if you start out 'cheap' you're just about cheap forever. All referals will be to the lower economic customer base since the people who use the 'cheap' guy generally have a circle of friends that encompass their economic situation. When starting out, the best course to get a customer base build up is to offer 'discount' coupons for initial use. the customer doesn't know you, so they are taking a risk that you are worth a rats. To help them overcome that 'risk' you should consider offering a 'one-time' or initial use discount, but you should always charge what you believe you are worth and let the discount be the inroad for the new customer to take. Patrysha and Vangogh have given some darn good advice.

Four94
07-21-2010, 04:02 PM
Obviously, there are various ways to build a customer base. I believe low pricing / free works if it is a discount or giveaway for an add-on or lead-in to your core business and not on your primary product or service.

For example, in the case of the electrician, if he builds a customer base on a 50% reduction in prices on his primary services, he puts himself at high risk for losing a majority of his base when he has to raise his prices to make a profit. However, if he were to give away a free 1-hour inspection and report that identifies how a homeowner of business can reduce its utility bill, he may have the opportunity to get in front of prospects, build a rapport, identify opportunities and offer out his primary services at full price.

I 100% agree with this line of thinking.
We are in the process of creating a Goal Management Tool called "GoaleeMS" (For now) that allows a company to keep track
of projects, todo's, task, etc.

We plan to offer the product with a 30 day trial.

If the customer likes it, they can continue to use it at a cost.
If the customer hates it, we will ask them what they didn't like about it and let them out of
using the product at no cost to them.

This allows a win-win situation for us.

vangogh
07-21-2010, 06:24 PM
It's interesting you both mention the idea of discounts or free trials. Yesterday I was reading an article about blogs as loss leaders (http://www.chrisbrogan.com/blogs-as-loss-leaders/). Similar concept in the sense of doing something at a loss for the long term gain.

30 day trials are great. They eliminate much of the risk in a purchase as they allow you to use something before making a commitment. Even better is that during the 30 days you might find yourself using the product so much you have no choice, but to buy when the trial runs out. That's happened to me with a number of applications I downloaded. One I'm still using in trial makes the 30 days, 30 days of actual use. So I can use the program today and then once next week and I've only used up 2 of the 30 days. By the time the trial ends I'll be so used to working with the program that a purchase will be a no brainer.

huggytree
07-21-2010, 10:39 PM
i prefer to give my return customers better deals or help w/ emergencies w/o an extra emergency trip charge..

i want to build my customer base with people who will pay extra for quality....those people dont care about discounts....i gave out hundreds of $20 off coupons to existing customer to hand out to friends...i got 1 back...i through the rest out...people dont choose me because of discounts...they choose me because of my reputation.

i do think cheap people have cheap friends and family.....same with people who want quality...all their family/friends are like minded....it seems to divide almost perfectly between middle class and upper middle class....

andru77
01-13-2011, 02:27 AM
Okay. So, here you are - a new business - no previous experience as a business - no customers. You cannot get a Yellowpage ad for many months until the next printing. What is the best way to build a customer base quickly, if not to start with low prices?

How do they know of your low prices? If your putting out flyers anyway, why not charge full price?

For me, every dollar spent on business yields about twelve in profit. So even reducing my price $50 is costing me $600. No thanks!

It's business. Don't be timid. You MUST BELIEVE! Go forth and dominate!

954SEO
01-15-2011, 12:26 PM
I agree for new, NEW businesses that a period of moderate pricing gives you time to feel around and work out flaws. I've also learned that a unique service offering is a great way to differentiate your business and justify prices when maybe you don't have the "20 plus years experience servicing so and so." Offerings are different obviously for every industry, but you can't beat making somebody feel like they are part of an exclusive group. Maybe making them a "member" that receives discounts for your business (discounts, NOT cheap prices), free quotes, reduced prices at another related business (preferably a partner of yours), exclusive emails or newsletters, anything really. I've always tried to be my own customer first, with every bit of speculation in the world towards my business. "What is it I want?.. Is this business going to do it for me?" and after you've satisfied that need you can WOW them by going above and beyond any expectations and delivering something they weren't expecting.

Someone told me once to "underpromise, overdeliver" and that works SO WELL for keeping customers and getting WOM business.

bHIP Energy Blend
01-15-2011, 03:31 PM
By starting at a low price, he is setting a standard for his customers. If those customers stay loyal to him, they will be upset when he raises the prices. It is a tough call but I understand his intent.

Spider
01-15-2011, 11:27 PM
I do not accept that initial low pricing with cause initial customers to become upset when prices are raised. They might not accept your raised prices but that means they will get what you sell from someone else or go without. Or come back to you when they find no-one who is cheaper, or no-one with as good service as you provide.

People aren't all or nothing. The point of low initial pricing is to get a start in the marketplace. Low prices will get the keen shoppers. They won't bring other companys' loyal customers, but neither will high prices. You have to start somewhere. Sure, you can start with high prices, but that is a more difficult start than starting with low prices.

When you start a business, the first thing you need is a few sales. You need those initial sales to; a) give you confidence that you have a product or service that people want, b) test and allow adjustment of your procedures; c) let the market know you exist. The faster you can accomplish those few things, the better it is for you. Even if initial sales result in a loss.

Once you have a few sales under your belt and your busiess is actually operating, then is the time to adjust your prices to whatever level you choose. But to start you have to get started!

vangogh
01-16-2011, 04:00 AM
I don't think the issue is really about angering people when you raise prices. I think it's more that by having low prices it becomes part of your brand. You attract customers looking for a lower price who also recommend more customers because you have a price that's low. It sets who you are as a business. Your selling point as a business becomes low prices.

If you later raise prices so you're now more expensive in comparison to your competition you've changed your brand and run the risk of your customers leaving to a competitor who charges less like you used. You attracted people in large part because of your pricing. Change your pricing and you've removed the reason people chose to buy from you.

And by changing prices I don't mean you can't raise something the price of something from $1 to $1.10. People understand prices will sometimes go up. It's about changing your prices in relation to your competition. You can't go from having the lowest price in your industry to having the highest price or even a price consistent with the average without churn in your customers. That's not necessarily a bad thing as your brand will also attract new customers, but you have to expect to lose a significant portion of your existing customer base.

Spider
01-16-2011, 11:51 AM
When looking at this in terms of brand, I think one must be careful not to attribute too much to branding. Sure brand is important but it is not created this quickly. It takes a long time to be branded as the low cost resource. Wal-Mart has been around for nearly 50 years, remember.

Also, remember, your brand is what people determine, not what you determine. You can act in a certain way in the expectation that people will respond as you wish but, ultimately, it is your customers that determine your brand. So, a year of exceptional service and low prices could just as eaily brand you as a great service provider as the low price provider. Changing pricing policy is a decision that may or may not affect your brand - if it does, then change your brand strategy. Brand is not locked in forever - and after only a year, your brand is hardly well enough established that a brand change would be difficult.

vangogh
01-17-2011, 11:41 AM
I completely disagree. I think brand is the most important part of any company. You have a brand from the moment you open your business. Walmart had a brand of being a low cost resource the moment the first few people shopped there and saw low prices. What takes a long time to grow as a brand is the reach of your brand. When Walmart first opened in Arkansas(?) people in New York didn't know about it. It's brand hadn't reached the people in New York. So Walmart didn't have a brand in New York. It probably didn't reach across the entire state of Arkansas either. So it had no brand for the people who couldn't shop there anyway.

However for the people living and shopping near the first store Walmart most definitely did have a brand and that brand is what attracted those early customers to the store.

I understand that brand is what people determine, which is my whole argument here. If you start out being the low price option what do you think people are going to think about you and tell their friends about? They're going to think low prices when they think of you. If at a later time you raise prices so you're now in the same range as your competition then what people think about you and what you actually are is no longer the same. People walk into your store looking for low prices, discover you don't have low prices, and switch to the store that now has the lowest prices.

None of that means your store can't do well. It does mean that you're going to lose the customers who shop in your store for low prices. You'll have to work to attract a different group of customers, which in some ways will be like starting over. It won't be as hard as if you've grown to the size of Walmart today, but you're still going to have to rebrand your business with all the people who know about you.

Spider
01-17-2011, 12:59 PM
I can only agree with you as long as the only thing the business has going for it is low prices. And that would be rather unusual - every business has more than one attribute. If - as you agree - a brand is determined by the customers, low prices in a low priced store may or may not form the brand. Let's say I sell scuba diving gear in a small seaside community - my prices are the lowest prices in the state, but there are no other scuba shops within 100 miles. I am lower than all my competitors but all my competitors are too far away to be of much consequence. My brand will quickly become "The only scuba diving shop in town" not the "The cheapest scuba diving shop in town." People will tell their friends about me as being the only place to buy scuba gear.

So, later, I raise my prices. That will have no effect on my customers as far as brand is concerned.

Nothing is so simple in business, and everything is attached to everything else. Low prices do not necessarily create a low priced brand. But they will, if you have nothing else going for you.

vangogh
01-17-2011, 01:17 PM
That I agree with more. I still have some differences of opinion, but I absolutely agree that business will usually have more than one thing going for them and associated with their brand. I think we could apply the convenience thing to Walmart. There's aren't many places where you can shop for groceries and buy a tv or computer at the same time.

I'm not suggesting that raising prices means all your customers leave. I am suggesting that those customers who are choosing you mostly because of your prices will leave. I'm also suggesting that changing prices does change your brand. It doesn't necessarily change it 180 degrees, but it absolutely changes it.

Walmart is a convenient place to shop for low cost items. If they raise prices it becomes a convenient place to shop for (something other than low cost items). Thats absolutely a change in brand, which I think you'd agree. Some people likely shop at Walmart mainly for the convenience. Those people probably don't switch stores immediately because the prices go up. They might if another stores is just as or nearly as convenient with lower prices, but in general those people are still Walmart customers after the price change. However the majority of people who shop at Walmart mainly because of price are probably leaving.

That's all I'm saying. If you start your business as the low price option and later raise your prices, those people who have been buying from because of those low prices will move on. Like it or not your low prices have become part of your brand. Maybe not your whole brand, but certainly a impactful part of your brand. You run the risk later of losing a significant portion of your customer base if you later raise prices. That's neither good nor bad. It just is. It's possible you'll keep enough customers or acquire enough new ones while you transition to a new brand. And transitioning to a new brand isn't always easy or quick. Your reputation for low prices probably sticks with you longer than you'd like.

Spider
01-17-2011, 01:44 PM
My only real problem with your approach, VG, is it tends to discourage a starting business from using low prices to get the ball rolling. I think the absolute most important thing in starting a business is getting started. Those first few sales are terribly important. If one is more likely to get initial sales quickly by standing on one's head in the middle of the nearest intersection, then I'd say, Do it! You can adjust any aspect of your business - prices, opening hours, level of service, location, anything - but you have to get started - you have to make those first sales. And anything you can do to make those first sales quickly is uppermost in my book.

Low pricing is an easy thing to do. Call them Introductory Prices, Incentive for First Time Shoppers (which is everybody at this stage), Grand Opening prices, Look-Out-We've-Arrived-In-The-Area prices... anything but get those people in the store and START! Get the cash register ringing. Adjustments can come any time after you have started.

Pricing yourself high or even mid-range as an introduction is no introduction, at all. Pricing yourself average or above average when people don't know if you are worthy of that pricing, is to delay your start. Start with a bang. Prove you are worthy of high prices before charging high prices.

billbenson
01-17-2011, 03:10 PM
Do most business's really end up being successful from where they started? I really doubt most small businesses end up successful at their initial business model. Low pricing gets you out there and doing it, even if you don't make money. Then you can refine your business.

As to price increases, there are plenty of ways to increase prices. Tell your initial customers that your pricing will stay the same for a year (in the case of a plumbing business example) in appreciation of their help getting started. Now they know you. If you did a good job they will probably come back to you. They may even give you more business before that one year period ends.

Not being able to handle a year of no income is why many small businesses either fail or start as hobby businesses. Some fail, some make it. Its a valid method of getting started though.

vangogh
01-17-2011, 11:18 PM
Why does a business have to start by pricing low? That's not the only way to get the ball rolling. If anything if could lead to frustration since you work hard for little return early on. I agree it's important to make those first few sales, but by your same logic you might as well price things for free at first since that way you'll make those first few sales quicker.

I'm not saying you can't start with low pricing. I'm simply saying that doing so brands your business in a certain way. I think the brand of a business is the most important thing it has and I think it's important to start thinking about your brand and building from the moment you conceive of the idea to go into business.

billbenson
01-17-2011, 11:55 PM
If you are responding to me VG, I'm just saying its one way. Certainly not the only way. You are familiar with what I do. No branding and priced high. Go figure :)

If I remember correctly I started with list price and kept moving prices up until I hit kind of the top of the bell curve. I'm thinking about upping the price a couple of percent again actually.

vangogh
01-18-2011, 12:32 AM
I was responding more to Frederick's post above yours.

I disagree with you about branding. I think you use brand to sell most of your products. Just a different way from what's common. Brand is definitely involved in the sales wouldn't you say?

And again I don't want to imply you can't raise prices. My rates have doubled since I first started. I'm only suggesting that a pricing strategy is going to affect your brand. I know when I first started my rates were low. I didn't have clients in the beginning and would think it better to take a job at any price than to turn work away. What happened though was many early clients sought me out for my price and weren't willing to pay more. I had set expectations with them and either had to continue to work for little pay or lose them as clients. For awhile I worked for low pay and before long found myself working a lot and not making much money.

So I stopped working for low pay and many of those clients left. When they did I found myself with nearly 0 clients. I did have some, but for the most part I was back where I started. In fact I made less money in my second year in business than I did my first. A couple or months toward the end of that second year I wasn't sure I'd make it to the month after. My marketing channels at that time so my value as having a low price, which not longer reflected my business.

Had I not started so low with pricing it might have taken me longer to land my first few clients, though I don't think it wouldn't have taken that much longer. I suspect that several sales I didn't close early on were because I was priced so low and some questioned how good I could honestly be if I was charging so little.

I do understand wanting to encourage people to get started in business. I also think it does them a disservice to encourage them by only telling them the positive and holding back on some things that may be less than positive. The whole pricing issue and how it relates to brand is something people should be thinking about before they start. Most of the people I see just starting out think they'll succeed by offering their product or services for less than the competition. That's generally not a good strategy for small business. Companies that do well with low pricing do so by selling in greater quantity. That's usually not the path for small business. I think small business have a better chance competing by adding value which allows them to charge more.

And again I don't want to say you can't start with low pricing. I may have struggled for it later, but it is the way I started and I am still here. It's more that I think people should understand what pricing low means for their business.

billbenson
01-18-2011, 01:47 AM
When you put it that way, I have to agree with you on branding. I agree with your post as well. In particular the paragraph below:


I do understand wanting to encourage people to get started in business. I also think it does them a disservice to encourage them by only telling them the positive and holding back on some things that may be less than positive. The whole pricing issue and how it relates to brand is something people should be thinking about before they start. Most of the people I see just starting out think they'll succeed by offering their product or services for less than the competition. That's generally not a good strategy for small business. Companies that do well with low pricing do so by selling in greater quantity. That's usually not the path for small business. I think small business have a better chance competing by adding value which allows them to charge more.

Spider
01-18-2011, 03:17 AM
Why does a business have to start by pricing low? That's not the only way to get the ball rolling. If anything if could lead to frustration since you work hard for little return early on. I agree it's important to make those first few sales, but by your same logic you might as well price things for free at first since that way you'll make those first few sales quicker....Except that free won't test your processes, but if pricing under cost gets you faster initial sales then do that. I don't think that's generally necessary, though. You just need to be noticeably lower than everyone else -- to start with, not as an ongoing strategy. (Unless that is going to be your ongoing strategy.)



...I'm not saying you can't start with low pricing. I'm simply saying that doing so brands your business in a certain way. I think the brand of a business is the most important thing it has and I think it's important to start thinking about your brand and building from the moment you conceive of the idea to go into business.I don't agree that starting with low prices creates a brand. Branding takes longer than I anticipate low pricing. Branding doesn't happen overnight. I do agree that branding is important, though, and one should decide on one's intended brand along with deciding the name of the company (the two are very much interlinked.) But brand has to be developed and developong a brand takes time. Initial low pricing will not lock in your brand as a low price supplier. The level of your pricing and the level of your service (and everything else about your company) will become part of your brand as your company grows. Brand does not come fully developed straight out of the box. Some considerable assembly is required.

vangogh
01-18-2011, 12:12 PM
if pricing under cost gets you faster initial sales then do that

So your recommendation would be for people new to business who are probably nervous about money and trying to figure out how to get some money so they could advertise, to start by taking a loss on ever sale. That strategy could work well for a larger company or a small one with a lot of cash reserves, but I don't think that's how most small businesses should start out of the gate.


I don't agree that starting with low prices creates a brand.

Everything helps create a brand. You have a brand from the moment you go into business. The name you choose brands you. The color in your logo brands you. The first words someone reads on your website brands you.

If I know only one thing about you that one thing is your brand to me. If I'm scanning through a list of new businesses in the paper and come across your company called Acme Widgets you now have a brand. At that point all I know about your business is it's new and it's name and yet I'll already have some thoughts about who you are. I assume you make widgets so anything I've previously learned about widgets is now associated with you. When I hear the name Acme I tend to think of Wil E. Coyote and guess what? A lot of the things I think about that cartoon I now start thinking about you as well. Another person might not associate Acme with the cartoon and that person would view your brand differently. In either case you have a brand based solely on your name.

You've been suggesting that new businesses should start with low prices to help make early sales. If the low price is helping those businesses make sales then price is absolutely associated with the brand of that business. Now it may only be part of the businesses brand for a small group of people, but among those people are the businesses early customers. If that business then raises it's prices it takes away the reason those early customers made a purchase. Your business which held a brand that included low prices for your early customers no longer holds the low prices part and you stand a good chance of losing future business from those early customers.

That doesn't mean the rest of the world has associated you with low prices. What takes time with brand is growing the reach of your brand. Brand itself happens instantly. Your instant brand may not be overly strong yet, but it's there and the longer people see you in a certain way the more it sticks. It's the reason why people say first impressions count. People who previously didn't know about you aren't going to see you as a low price business, but your early customers will, especially as you've used price to attract them to you.

I'm not suggesting that a business cant raise prices. All I'm saying is your initial strategy is to attract customers with low prices and then you later change from low pricing to mid or high pricing you're going to mostly start over again and have to attract new customers. It's possible some of your early customers stay on, because they found other things about you besides the price that they like, but most probably won't. You set out to attract them to your business using price and that price no longer exists.

I'm also not suggesting you can't change your brand. Those early associations even when based on one or two minor things will still carry a lot of weight as most everything else will be seen in the context those one or two things. Yes you can change your brand, but the longer someone associates anything with you the more it's going to take to think something different.

huggytree
01-18-2011, 08:53 PM
im big on creating a 'brand'....everything i do is about being seen and noticed...and yes it works......everything you do creates your brand...a brand means something reliable and steady...if you start cheap and turn expensive your screwing with your brand...people choose a brand because they know what to expect..brands dont do big changes (typically)...

good story Vangogh about your beginnings...i hear new guys over and over saying the HAVE TO BE CHEAP BECAUSE THEY ARE NEW......i think this philosophy is why most businesses fail....they never get out of the hole........almost every new business tells me the same quote and story...i argue it out and it always ends with them saying that im wrong..once they get a steady customer that customer will stay with him when he finally raises his prices....i know the truth about low end customers....almost every business that went under that i personally know has been low priced...a few have been on the other end of the spectrum (too high priced)...probably 10-1 though cheap to high

yes it takes longer to start when your mid priced, but you will be way ahead in 1-2 years than someone who started out at cost and is struggling to get above cost

my advice is to skip the bottom 50% of customers. anything you can do to get away from them will make you more successful...let them go to Sams club and Walmart type businesses

Spider
01-19-2011, 01:25 AM
So you recommendation would be for people new to business who are probably nervous about money and trying to figure out how to get some money so they could advertise, to start by taking a loss on ever sale...C'mon, VG. You know that is not what I said.



... Everything helps create a brand. You have a brand from the moment you go into business. The name you choose brands you. The color in your logo brands you. The first words someone reads on your website brands you...I don't agree. These things start to brand you, but they don't brand you yet. Branding takes time. It does not happen instantly. Wikipedia has a good article on Branding and what it is - Concepts (http://en.wikipedia.org/wiki/Brand#Concepts)

vangogh
01-19-2011, 02:11 AM
It may not be what you meant and I know it's not what you'd recommend, but it is what you said.


if pricing under cost gets you faster initial sales then do that

Your quote, not mine. I know you also added you don't think this is necessary, but you did say it.

I've written a few articles about branding myself. Here's one I think came out well. Branding For Small Business And Bloggers. This thread has also inspired me to revisit the topic so I'll have another post about it on Thursday.

We obviously disagree about brand. I absolutely do think branding happens instantly. People form impressions of you and your business from the moment they encounter it. Those impressions become your brand to that person. Early on there's going to be a limited amount of impressions, but those impressions are there and they do influence everything that comes after. Your brand can become stronger over time. It starts to form instantly though.


good story Vangogh about your beginnings

Thanks huggy. I certainly made the mistake of pricing too low early on. I was lucky that I learned quickly. It was scary when for a time I was turning business away while staring at unpaid bills, but I'm very glad I did. I think you're right about why a lot of business fail. I think people are too often focused on the immediate and don't think about how things will be in 6 months or a year.

Places like Walmart and Sam's Club can price things low because of how many sales they make. They aren't as concerned with the profit per each sale. The larger sales volume also means they can buy cheaper since they're buying more. Small business generally can't profit that way, because we aren't going to make as many sales. It's more important for us to maximize the profit we make per sale. That's not to say every single sale has to make as much profit as possible. Some sales can lead to others and be considered part of a marketing expense. In general though we're better off figuring out a way to add some extra value that the Walmarts of the world can't, which allows us to charge a little more.

Spider
01-19-2011, 03:17 AM
It may not be what you meant and I know it's not what you'd recommend, but it is what you said.

if pricing under cost gets you faster initial sales then do that
Your quote, not mine. I know you also added you don't think this is necessary, but you did say it.You took me entirely out of context. I also said that would generally not be necessary; I also said, you just need to be noticeably lower than everyone else, and I also said this was to start with and not as an ongoing strategy. I certainly did not "recommend people new to business start by taking a loss on every sale." You acknowedged then that I said I did not think it necessary, and you say now that you know I'd not recommend it, so you intentionally quoted me out of context. I find that completely unacceptable and not up to your usual high standard of debate.

vangogh
01-19-2011, 03:42 AM
I'm not quoting you out of context. I realize you said other things, but you very clearly said


if pricing under cost gets you faster initial sales then do that

Saying that it's generally not necessary and you just need to be noticeably lower doesn't alter the meaning of the above. Your statement isn't being altered in any way by the text around it. There's no other way to interpret that statement other than it's ok to take a loss on initial sales. If there's another interpretation please share and accept my apologies. I don't see how there could be any other interpretation though.

I also think that's a perfectly acceptable strategy for any business that has money saved and can afford to take a loss in order to get the ball rolling. I don't think most small businesses start out with enough saved money to do that. Some probably will, but most won't.

Spider
01-19-2011, 05:25 AM
When you strip away qualifying words from a statement, you take the remainder out of context. The context are the very words you removed. I don't know of any other way to interpret "taking something out of context."

I certainly did say the words you quoted - it was part of a sentence. I said that partial sentence within the context of a whole sentence and within the context of a complete paragraph. By separating those few words, you changed their meaning.

What I did not say - and what you had me saying - was
So your recommendation would be for people new to business who are probably nervous about money and trying to figure out how to get some money so they could advertise, to start by taking a loss on ever sale. (...which I took to be 'every sale.') In short, I did not recommend for people new to business to start taking a loss on every sale. I said:
Except that free won't test your processes, but if pricing under cost gets you faster initial sales then do that. I don't think that's generally necessary, though. You just need to be noticeably lower than everyone else -- to start with, not as an ongoing strategy. (Unless that is going to be your ongoing strategy.)

huggytree
01-19-2011, 09:45 AM
i lowered my prices on waterheaters for a few months...hoping to increase my sales dramatically....what happened? i didnt sell any more and i lost $100 on the ones i did sell....in the end lowering my prices hurt me.......the lesson i have learned over and over is..'people have a set price they are willing to pay for something...they will not raise that price to meet reality...they will just keep searching for someone who will do it for that set price'....they called me with a set price around 1/2 of what my price was...saving $100 wasnt enough....it needed to be $250-300 less to capture them.........this is why i blow off the lower 50% of customers...50% of people buy on price alone...they dont care about quality/service

vangogh
01-19-2011, 11:09 AM
Frederick I understand where the difference is. My bad. I didn't mean to imply you were suggesting you should do that on every sale.

huggy ironically some people will avoid low priced good because the low price sends a signal that the product must not be worth buying. The price sets an expectation of the value of the product. It's like when you're shopping for something and most everyone prices their version near $100 and then you come across someone selling something similar for $10 you stop and wonder how can they sell it so low and assume it must be a subpar version of the product.


people have a set price they are willing to pay for something

I've seen that too, maybe in a slightly different way. One client of mine who I hear from maybe once every 6 months or a year will never spend more than a certain amount no matter how much work she wants done. Now when she approaches me I look at her requests and figure out what I'll be able to do for that price. Usually I'll break down her requests and price each individually instead of trying to put a price on everything, which would come to more than what she's willing to spend.

She'll pick a choose a few of the items that total her price. The odd part is she'll often come back a few weeks or a month later to have me do the rest. She doesn't mind paying for everything, but there's a limit on how much she'll pay at one time.

Jessica
01-20-2011, 05:04 PM
:mad:Interesting reading this debate. Do you think the price issue and branding is across the board for retail also? I'm co-owner of a fairly new store. We sell new jewelry, used clothing and antiques. My partner and I disagree a lot on the price issue. I started thinking we should have pretty low prices, but then seeing how few customers we have, I can see how they need to be higher.
Is there anyone who has had to deal with customers that ask for a lower price, even though it's clearly marked? I don't go into a retail store and try to haggle. It's not poor people either, and they can be quite rude.
I am finding that we have to start over with new customers, because when we first opened, we had an estate of vintage clothing and we were able to sell a lot of it for really cheap, so all those first customers keep coming back to see if we have any low cost vintage clothes. We find ourselves constantly explaining to people that none of our merchandise is donated.
I even had a regular customer ask me why a pair of earrings were $7.00. What kind of question is that? Did she think they should be $2.00?
I know it's partly the stigma of used goods or a "thrift store". We've mostly come to terms with being called a thrift store, but can't stand it when people straight out ask for a lower price on something that's already low cost.
OMG ! That one of those people just came in my store!

Spider
01-21-2011, 11:46 AM
:mad:Interesting reading this debate. Do you think the price issue and branding is across the board for retail also? I'm co-owner of a fairly new store. We sell new jewelry, used clothing and antiques. My partner and I disagree a lot on the price issue. I started thinking we should have pretty low prices, but then seeing how few customers we have, I can see how they need to be higher....Without knowing or having seen your store or merchandise, I must remind you that basic economics says that a lower price increases demand, higher prices reduce demand. It is often counter-productive to increase prices in the face of low demand, but that's not always the case.



...Is there anyone who has had to deal with customers that ask for a lower price, even though it's clearly marked? I don't go into a retail store and try to haggle. It's not poor people either, and they can be quite rude...I spent a lot of time in a part of the world where haggling was the usual mode of doing business. Here in the US, that is not the case, except that there are certain arenas of business where price negotiation is the norm - real estate, antiques, secondhand merchandise of all types. You are in a business where haggling can be expected.



...I am finding that we have to start over with new customers, because when we first opened, we had an estate of vintage clothing and we were able to sell a lot of it for really cheap, so all those first customers keep coming back to see if we have any low cost vintage clothes. We find ourselves constantly explaining to people that none of our merchandise is donated.
I even had a regular customer ask me why a pair of earrings were $7.00. What kind of question is that? Did she think they should be $2.00?...When someone starts out asking for a lower price, that tells me they want to buy something - either that particular item or something else. That is exactly the peson you want in your store - someone who wants to buy something (as opposed to Looky-Lews!) Treat them right and you will win the sale.



...I know it's partly the stigma of used goods or a "thrift store". We've mostly come to terms with being called a thrift store, but can't stand it when people straight out ask for a lower price on something that's already low cost.
OMG ! That one of those people just came in my store!If you are going to get offended by customers trying to barter with you, then I recommend you find a different line of products where haggling is not the norm. OTOH, I would learn the skills of negotiation and barter - this can be a great deal of fun, if you are so inclined. Get a part-time job in a pawn shop to learn the skills involved.

vangogh
01-21-2011, 12:37 PM
I think what you're seeing is really exactly what we've been talking about in this thread. You say


We've mostly come to terms with being called a thrift store

People have branded you as a thrift store and most people don't walk into thrift stores wanting to pay much money. You go to a thrift store to spend less money. You probably can't raise prices significantly as is, though there are ways you can alter your brand some to allow for higher prices. I'll get to that in a moment.

Basically you either have to make more sales or find a way to make more per sale.

Lowering prices probably will lead to more sales, however, you have to ask if it's enough sales to offset the lower pricing. Take those $7 earrings. I don't know what they cost you so I'll just use the price. You really should do this with profit though. If you sell 6 of those earrings at $7 the revenue is $42. Say you drop the price of the earrings to $6 to increase sales. You would then need to sell 7 to make that same $42.

7 / 6 = 1.17 so you need to sell 17% more to be able to bring in the same money. If lowering the price increases sales of those earrings more than 17% then go ahead and lower the price. If not you're better leaving the price where it is. You can do the same math in reverse. If you raised the price to $8 you'd could sell about 12.5% less and still break even to where you are now.

A better way to sell more will probably be to get more people into the store through marketing.

Back to being able to raise prices. If your current customers are complaining about the prices now they probably aren't going to pay more. You ether have to figure out how to get those people to buy more or find a different group of customers. You could when someone asks if you'd sell those $7 earrings for $2, apologize and say you can't, but show them a less expensive pair they might like. I disagree a little with Frederick that just because someone wants to buy they're automatically a good customer. An indication to buy doesn't guarantee they'll buy enough or at a price that keeps you in business. Some people are not good customers regardless of whether or not they want to buy. Plenty of people approach me wanting to pay me about 10% what I normally charge to build a website for them. I could go out of my way to treat them well and close sales, but I'd be out of business in a few months selling my services so far below what they're worth.

To alter your brand some you have to change the perception people have about you. For example don't call your store a thrift store. Instead you sell antiques. People are willing to pay more for antiques even though they're still someone else's used goods. Now you can't just call everything an antique and expect people to see your products that way. You would need to actually have some antiques of value in the store.

You could also do everything to keep the store as clean as possible. Give it some decoration. Don't carry every item you currently do. Eliminate those you don't think can make much of a profit. Have a little less in a clean store with more elegant decorations and you change the perception of the value of what's inside.

I'm not saying that's going to be the best option for you. It's more an explanation about how to change perceptions.

A practical idea you can try is to take those $7 earrings and place them next to another pair of equal value that's priced much higher say $20. on the other side place a cheap pair of $2 earrings that are clearly not as valuable as the $7 pair. Now when people look at all 3 the $7 pair becomes the best value. It's clearly better than the $2 pair and not as expensive as the $20 pair. More people will probably pay $7 for them than if they sit alone on the shelf.

Spider
01-21-2011, 01:24 PM
...Plenty of people approach me wanting to pay me about 10% what I normally charge to build a website for them. I could go out of my way to treat them well and close sales, but I'd be out of business in a few months selling my services so far below what they're worth...Jessica, No-one ever went out of business because they sold goods or services below what they are worth. You get into financial difficulty by selling product for less than it costs you. If those earrings priced at $7 cost you, say, $3, you will make a profit at any price above $3 (Gross profit - I am aware that you have other costs to your business.) So, this is the question you must ask yourself - Is $4 profit the minimum I will accept, or would I still benefit from a $3 profit, $2 or even a $1 profit?

In some cases, it benefits a seller to sell product below cost - because the value of the storage space, shelf space, and other comsiderations, is worth getting rid of the product at below cost to free up the space for other more profitable product. This is the constant balancing act business people have to consider.

The mistake business people make with pricing is putting a value on their products in excess of the value the buyer puts on them. Until you know what value the buyer places on your products, you are selling blind. You seem to be in the position at present of discovering the value your customers place on your merchandise.

Jessica
01-21-2011, 02:30 PM
Thanks for the responses! The issue is more haggleing with me. I've seen plenty of people buy my earrings at $10 dollars with no comment, so it's just that personality that pushes to see my limits to see if they can get a bigger discount. It's really only a couple people, one of which happens to spend a fair amount, so I really can't just say no if I want to see her again.
One of the other ones is a guy. From day one, I told him I don't haggle. He didn't like it, but has since returned many times. He is still really cheap and trys to see if I cheated him on the tax. I can see I made the right choice with him. He came in yesterday and tried on the same ring he tries on each time he comes in here, but does not buy it. The exact ring sold easily to a 20ish year old girl for the same price of $10.00. I've never had anyone in their 20s question any prices. He also checks out the same vintage shirts to see if any went down to $2.00. But, I've had yunger guys come in and buy those shirts at 9.00 and I sold a lot on ebay for more. He wants me to get in fadoras and more vintage men's clothes, but it's clear he's willing to pay zip.
Yes, I do need to practise some haggling skills. We're pretty much set on offering 10% off if they ask, but I find the wealthier ones can be very rude. I know, that's how they got wealthy, right? (By not paying sticker price) People try to trade also. I feel a little stupid when I give a discount and make almost nothing, then see what their driving and realize they are pretty well off. This one lady wanted this $6.00 ring so bad, but was only willing to pay $5.00. I listened to her go back and forth with my boyfriend (business partner) for 20 minutes. Finaly she was leaving, and he gave in. It was painful to listen to. This was the second time she came in to look at it from way across town. The first time she tried to get me to give her it for less and I didn't give in.
I do give deals if they are not rude, and it makes sense, like buying multiple items. Now we're setting our prices so we can give at least 20% off and still profit. I know when I go to the Goodwill, they absolutly WILL NOT haggle, so I don't think it would be so odd to refuse to haggle. And, at flea markets here, you can get a discount only on single items priced over $20.00. The problem, is that people know we own the store and can give them a discount if we want. I think I could have a problem if word got out that I can be talked down on every sale. I can't stand the thought of a customer overhearing me haggle and then assuming they can also have a discount. They also go tell all their friends that I can be talked down. Fortunately it's only a small percentage of customers that ask for a discount.
We have been working on our brand by adding new beads and sterling silver jewelry. The used clothes are pretty much in your face when you walk in the door, so the thrift store image will be hard to shake until we can afford more antiques.
Thanks for your comments!

vangogh
01-21-2011, 02:36 PM
You get into financial difficulty by selling product for less than it costs you.

I didn't specifically mention cost in my case because the cost to me to make a website is $0. The cost to me is mainly in time plus the overhead in running a business, the marketing, etc. For me all those things are still mostly time. If I only charge 10% of my rates I would soon go out of business even if technically that 10% is more than the cost in dollars to me to build the site.

huggytree
01-21-2011, 10:38 PM
Thanks for the responses! The issue is more haggleing with me. I've seen plenty of people buy my earrings at $10 dollars with no comment, so it's just that personality that pushes to see my limits to see if they can get a bigger discount. It's really only a couple people, one of which happens to spend a fair amount, so I really can't just say no if I want to see her again.
!


I just cant stand people who try to bargain my prices down...they never just ask once and let it go....they always try over and over....the ones i cant stand are the ones who ask when the job is done and it was a signed contract.....i get rude with them...i say 'could i raise my prices if the job took longer than expected?'

they never have a come back for that one...its a bit rude and it throws the question back at them.....

start a policy of no haggling...put up a sign next to the cash register......'all prices are firm...no haggling'....your the boss, you create your business and by the policies you adopt you create your customer base....

i never work or sell anything for a loss....my worst case scenario is break even and its only happened 2 or 3 x's....i understand that you may have to sell at cost to unload some product and i think you should....

you could offer your repeat customers a 10% discount card...give it to them for Christmas....I cant remember the last time i went into a store in my personal life and haggled....in business i work 1 supplier against another to get a better price, but its rare i even do that and it only gets me a percent or 2 lower....

your rude comment for hagglers could be 'this isnt a flea market, sorry we dont haggle'

Jessica
01-22-2011, 01:09 PM
Yes, I would like to nip it in the bud, because they do tell their friends. (Haggeling) I think haggeling may be appropriate if they are buying a high ticket item or several items that add up to a high amount. It's ok to ask if they want, but an a small ticket item, it's rediculous.

Harold Mansfield
01-22-2011, 02:15 PM
Every time I take a job for cheap it always turns out to be more trouble than it's worth. I don't know if it's that people respect you less and feel like they can get away with more because they have deemed you desperate, or if there is just a personality flaw with people who constantly look to beat people down from their rates.

I lean more towards a lack of respect. If you go too low, people will not respect you and try to take advantage of what ever they can.
I've seen this in a few industries that I have been in. Every time you try and give someone a deal, discount, or help them out, it seems to be opening the flood gates for them to keep asking for more or not respect your time.

I've even seen this with "friends". Inevitably you will do work for friends at some time or another to help them out and give them a good rate. More than once I have had friends assume that they can get that same rate for others. Not only is it disrespectful, but it shows how little they value your time because you made the mistake of giving them a $1200 job for $400. So they have no respect for the value of what they just received.

I don't believe in going cheap. It's never worth it. I believe in being competitive, but that's going to be dictated by the situation and the industry. There is no one answer fits all.
I do believe if you can't make it on competitive pricing then it's more of a problem with the business and the market. If the only way to can move products or services is by selling below cost, then there may not be as much demand for it as you thought.

I also don't believe that you can tell a start up with limited funds to sell below cost or at a loss just to get a few sales. Unless you are Walmart ( and don't pay for anything until it sells and get everything cheaper than all of your competitors), that does not sound like sound business advice. There are other ways to generate sales without giving away the house.

I've seen other "just do it" type advices given but one thing that is never covered along with that advice is where do you get the money to compensate? I've seen the suggestions of things like "pay yourself a set salary", but where do you pay it from when there is no money coming in?

How do you restock supplies if you are buying at one price and selling below cost?
If you have determined that you need a markup of a certain amount just to keep the lights on, where do you get the money to do that if you sell below that amount?

It's easy to give that kind of advice when you aren't responsible for paying the bills, but from where the actual person sits, the math just doesn't work and no amount of back seat logic can make it work. Either you have the money or you don't.

billbenson
01-22-2011, 08:47 PM
Everybody complaining about "cheap" here is really in the service industry. That is they are contracting for their time. However, everyone or at least most are applying the "cheap is bad" to all industries. That is simply not the case. There are valid business models that work around cheap.

vangogh
01-22-2011, 11:34 PM
My business may be a services based business, but that's not where my thinking here is coming from. Business that succeed by pricing low do so by selling larger quantities. Small business generally don't sell in larger quantities. Think of the difference between the supermarket and ma and pa grocers. Ma and pa don't try to price lower than the supermarket. They'd go out of business. The supermarket can buy in greater quantity and because of that can buy at a lower cost. Ma and pa can't do that. The supermarket will always be able to sell for less than ma and pa and still do well.

For ma and pa to succeed they need to offer more value. Maybe they're more conveniently located a little closer to a residential area or they know their customers by name and the value is in the friendship. Ma and pa could deliver or they could buy special items for customers, etc. What they can't do is compete on price.

Success with low pricing is usually accompanied by selling in greater quantity. If you can increase sales enough to offset the lower price then you can go with the lower price. You can also use a lower price to bring people in, usually to sell them something else that isn't priced so low. You can also use low pricing to attract people to you or a product, though in those case you generally expect to make your money with another product or perhaps later by increasing prices. The danger there is that if you've been attracting people to buy something because of a low price and you remove the low price you may very well hurt future sales.

It's not that you can't start or even continue with low prices. It's that small businesses generally do better by charging more for more value. I'm sure there are exceptions, but I think there are better strategies for small businesses to succeed.

Jessica
01-29-2011, 07:39 PM
Yup, I just put up my no haggling signs. Hope they enjoy them. They say "Prices are not negotiable" My worst fear did happen with a line of customers and the first one wants a deal on a $3.00 book, then his wife wants a deal on some leather shoes from Europe. I told her no and she was p-ssed. It's embarassing for everyone.

I'm thinking about handing out prefered customer cards to my regulars who spend a fair amount of money every 2 weeks. Like 10% off all purchases. Some of them have some haggling tendencies, but they are always buying in quantity.

What do you guys think? Would a 10% off eternal discount make them feel special or is it unnecessary?

That way, if another customer saw them getting a discount, I could explain to them, that they can have a discount card with a $50.00 purchase, so it is fair.

Jessica
01-29-2011, 07:46 PM
Huggytree, that WAS your idea! I think I should do that.

aaravdeeak
05-04-2014, 02:45 PM
This is for people like me who are also facing his dilemma.

From my personal experience of running a business for four years I would support starting with low prices and when customers turn up to give a smashing service. This will avoid you being branded as low priced business and also get you customers who like quality.

Someone said that people who come because of low prices a business is offering have similar associates who are price conscious. This is not always true. If a person is price conscious he/she will also have quality conscious associates whether they are associates or bosses - everyone as some boss, supervisor or manager, don't they?

From my personal example:

Started a business in publishing industry, kept the initial price of Product 1 $100 when competitors were charging $900 for similar product, and also kept the cost low. Started as a single person working on a laptop. Got the first sale in 10 days. and made $100. Was on top of the world on making my first sale. Second sale was 2 days later. Gave greatest service that was possible for me to give. After three months increased the price and kept increasing it regularly. Current price is about 70% that of the competitors. Now after 3 years have built a company, staff of 10 and my own office, all from this one product...get average 2-3 sales a day...and all this was achieved by working part time after office hours.

Started a second independent product about 4 months after the first one. Kept the price $500, while the competitors was charging $800. There was no link between the two products. Got first sale after 2 months. Got about 40 sales in 2-1/2 years

Started a third independent product about 3 months after second one. Kept the price $1100, while the competitors was charging $1200. There was no link between these three products. Got first sale after five months. Got only 3 sales in 2-1/2 years.

Why didn't I decrease the price of second and third products....for the exact reasons everyone gives....not to be perceived as cheap, to build a brand, to be in the top. Also probably the first product was going well and I wanted to build a brand using the other two. Maybe initial sales with decreased prices would have helped.

I would support starting with low prices and when customers turn up to give a smashing service and keep increasing prices regularly so that a business is not branded as a low price option. It is important for business and for psychological confidence to get the cash register ringing as fast as possible.

shadojake
05-04-2014, 09:23 PM
I just came across this thread when it was bumped up by the previous post.

WhenI started my at home business in Dec. 2012 I started too low, but I was quick with my first price increase. Yes, even though I've been in business only about 15 months, I have had two or three price increases. I think i have found the sweet spot on my main product. Even though the price has almost doubled since I started no one bats an eye at paying the current price. I sell customized travertine coasters for $20 per set of four. When I started out I sold the first few sets at $12/set.

Others sell coasters but they generally are not as nice as mine. I know that sounds cocky but it is what others have told me. I have actaully walked around at craft fairs where others have sold them and looked at their work. Here are some differences ...
1) Mine are left unsealed so they can absorb moisture when a drink condensates. Others seal their coasters, causing the condensation to bead up then run off on to your table.
2) I use a waterfast ink so that when your drink condensates, you do NOT lose your design.
3) Due to using a waterfast ink, I can save time. I do not have to bake them so seal in the ink.
4) In comparison to most I use a better tile to begin with.
5) I have seen some use designs that I am 99% sure are copyright infringements.
6) I take time to explain our products and how they help and when I educate potential customers on the issue of sealing vs. not sealing they seem very glad to learn about it.

I think part of the branding that many have referred to is what you provide in service such as educating your customer/client on what sets apart your service or product. Can you do that in a simple and concise way?

I do agree that it can be hard for a new business owner to find the sweet spot in pricing. I think it can be a lot of trial and error. However, doing some calling around can help a newbie see what others are charging for the same services. When I see coasters similar to mine for sale I do check out the prices. Usually they are lower than mine. However, I have never had anyone say, "Well, so and so is selling theirs for $xx.xx and are much less than yours." (Some have been anywhere from $8-$10 less than mine per set.) Only once has someone asked if I could "do a better price". I said that I was already offering the best price that I could. They chose not to buy. Their loss.

I heard a lady at another craft booth recently say that she does not charge for her time when pricing crafts. I have a total opposite mindset. I include mark up for my time.

For my other products I suppose I am still tweeking the sweet spot. I may be slightly high on one of my products and need a slight decrease. For yet another product, I still might be slightly too low. It is still a learning game for me in some ways, though I have been doing this for 15 months.

I must say this has been quite a lively discussion! :D