07/ 25/ 2006
by Lee Gimpel
When Yvonne Shortt started Rego Park, N.Y.-based Waddevah five years ago, she knew how she was going to win sales: low prices. But slogging it out on the sticker price meant losing money in her wholesale and online retail accessories business.
Part of the problem was that her competitors charged dramatically less because they sourced cheap products from abroad while Shortt's pieces are handmade in the United States. Shortt's other realization came when she visited retailers who carried her products and saw how much they were charging. They didn't care about cost half as much as being able to count on trendy items. Up went Shortt's prices, along with a rethinking of her product line.
Price is perhaps the easiest way for a company to differentiate itself, but that doesn’t mean it's the best route, says Jay Lipe, CEO of Emerge Marketing and author of The Marketing Toolkit for Growing Businesses (Chammerson Press, 2002).
"The worst pricing mistake your company can make is to operate with the belief that, 'Right now, we need the business. Let's set our prices really low, then raise them as we get more business,'" Lipe says.
Price is, after all, the bottom line summary of your offering. To some, a lower price denotes lower quality in some form. Don't incorrectly assume that customers' purchases always depend on price. Businesses often forget the importance of value and don't explain why their prices aren’t rock bottom.
In marketing your product or service, Lipe suggests justifying your price with the phrase, "And here's what you'll get ..." Maybe you're promising better materials, more expertise, a long-term warranty or a faster turnaround.
Selling value also gives you room to negotiate if your price is too high. If you simply cut your price without cutting value, negotiations can easily spiral out of control. Rather, correlate a lower price with cheaper materials or a longer delivery time. Later, if you want—or need—to charge more, customers will understand if you provide something different; a higher price for the same service offering comes off as gouging.
Lipe says it takes courage to differentiate your business in other ways. Shortt's move away from low prices coincided with publicity campaigns to get her wares photographed on trendsetters and covered in fashion magazines, a strategy that reassured customers that her higher prices were justified. With slight changes in color, shape and material—and a dose of good publicity—shell earrings that Waddevah used to sell for $10 now command $17 to $30.
Shortt learned not to sell herself short because winning business is about delivering what customers want, which isn't always the lowest price.
Cheap Marketing Ideas
One of the most common reasons for failure in a small business is the lack of an effective marketing program, according to the Small Business Administration. Without big budgets for advertising, PR campaigns or sponsorships, small-business owners feel like their options are limited. Author Kim Gordon offers 50 affordable ways to market your business in her new book Maximum Marketing, Minimum Dollars (Kaplan, 2006). One of Gordon's tips—how to gather referrals—is available in an online excerpt in the "Web Extras" section of www.NFIB.com/toolsandtips.
NFIB.com
Find more tips on what to charge in the "Pricing" section of "Sales and Marketing" at www.NFIB.com/toolsandtips.
