Pricing Based on Customer ExpectationsMay 26, 2010 • By Sarah Worsham
Pricing, when done properly, is one of the most difficult tasks any business faces. Yet it is usually only given a perfunctory once-over. Customers have a range in mind that they’re willing to pay, but if you ask them, cheaper is always better. Ask a customer what they paid for something after the fact, and they’ll probably have a hard time remembering exactly. Price something too low, and people wonder about the quality. Price too high, and you’re out of budget. How can you meet your customer’s expectations without directly asking them?
Price vs. Quality
Everyone has a certain quality vs price tradeoff that they’re willing to make for any given product or service. There’s a quality level below which no one will pay. Same as a high quality level. In order for someone to be willing to pay for your product, you need to be within their range.
Think about the different stores where you can buy groceries. There’s Trader Joes, Whole Foods, Kroger, Hiller’s, Walmart, Meijers, etc. There are also more direct sources such as farmer’s markets and co-ops. Each of these locations targets a specific price vs. quality niche. For customers willing to pay for top quality foods and convenience, Whole Foods is their store of choice. For those who are more price sensitive, Walmart is the choice (where there is still a certain threshold for quality). Even lower on price are discount food stores where people are willing to pay even less for less quality.
How does this apply to your business?
You need to think about your customers. Who are they? Are they looking for higher quality or are they price sensitive? For those b2b companies targeting smaller businesses and entrepreneurs, price sensitivity is probably very high. You need to provide lower priced services that have a quality they’re willing to pay for. But, you don’t want to come off as too cheap. Else you’ll be perceived to have low quality & value.
Take a look at your competitors.
What services are they offering at different price points? What is the highest price charged? Who is the target audience and what is being offered at that price? What’s the lowest price? What’s offered at that price? Where do you want to fit in?
Offer different price points.
If you can, try to offer different products or services at different price points. Offer a no-thrills price with very little in non-essentials. Offer a middle and a high-end price with more options. Think about the airlines. Many have first-class, business-class and economy. Each gets you to your destination, but they have different prices and different services.
How do you price to meet customer expectations?
(photo by Photos8.com)