When you start a new business, or are just wanting to look at your existing one, one of the decisions that feels the most crucial is pricing. How much to charge for your product or service feels like an everlasting debate that will never be satisfied. You strive to be competitive, and yet need to actually turn a profit. There is little point selling 100 of your gizmos at £2 each when they cost you £2.10 to make, market and ship.
I am a big coffee shop fan, and have read about a few of the business journeys of some of the large chains. I find them a fascinating example of how businesses can grow. Now, Starbucks, and the other chains to follow, didn't invent coffee. To be begin with, they didn't even offer anything new in terms of product, at all (this changed down the line of course). However they offered a new experience, and along with that, a new premimum price of a cup of coffee.
When I choose a coffee shop to visit, I don't look at the price. When I discuss my current favourite spots to sit with a book, I couldn't tell you which was the cheapest or the most expensive. A crucial reminder that not all, in fact I'd argue that hardly any buying choices are made on price alone.
I was watching an episode of Say Yes To The Dress (don't ask) and again, the complex relationship we have with pricing cropped up again. The show follows a wedding dress store, as each bride tries to say yes to her perfect dress. The dress consultation will start the buying process by asking the bride what price range she is comfortable in. The bride typically says something like, "Between 3 and 4 thousand."
She'll be sold a dress for at least $3,800.
However, what's interesting about that exchange, is that the bride doesn't even look at dresses which cost less than $3,000 - even if a cheaper dress would have saved her money, and perhaps would have been her dream dress. The bride wanted to spend about 4 grand, because she had saved that much, or believed that is what she had earned/was worth. She left the house wanting to spend about $4,000 and the shop just had to assist her in doing so.
The desire to spend a certain amount may also tie into a belief that we get what we pay for, which of course is actually often true. Many purchasers don't even want to buy the cheapest option, and will stay in the middle range, or some people will always want to choose the expensive gizmo. This means it can actually be dangerous to price yourself too cheaply, as you may put off the customers with more money to spend!
What makes a customer buy from you is so much more than price, and it can be dangerous to focus on being soley competitive with your pricing; you may end up missing focusing on the real reasons people buy from you.