A secret about pricing strategy learnt from a busker

English: Busker in Arles, France

English: Busker in Arles, France (Photo credit: Wikipedia)

The other day I saw a busker next to the parking pay station playing on his guitar and singing a popular song. In front of him was his black canvas guitar case and on top were several R2 coins. After I had paid for my parking, I gave the musician R2. As I did this I remembered what a musician had told me while she had busked her way through Ireland. I suggested to the musician that he place a R10 note or two on top of his guitar canvas carrier. He smiled and said he would try it out.

I don’t know whether the busker tried the approach or not but I do know that pricing products and services is based on perceptions. You see if you price too low people don’t place a high value on your product or service. If the busker put out R10 notes, passers-by would notice that the musician placed a high value on his service.

Are you using an effective pricing strategy in your business? Are you pricing your products or services correctly in your start-up?

If you give a little intelligence thought to your pricing strategy in your business you may be able to get it to work for you. An example of a business that has done so is one I came across recently that places expensive items at their front entrance to deliberately project a perception of quality and exclusivity. It works. The instant you walk into the entrance of this retail outlet you get the impression that you are entering an establishment that sells quality goods. If a potential customer wants cheap and nasty, they can go elsewhere.

This retail store also places the discounted items at the checkout rather than at the front entrance. The reason: when customers get to the checkout, they see discounted items and many can’t resist a bargain.

Pricing policy or strategy in your start-up or small business plays an important role in projecting the image you want in your business. A small business adviser who I have enormous regard for says, pricing a product involves striking a balance between giving it the best chance of being sold while at the same time giving your business an acceptable gross profit percentage. Always remember that what a product costs and what it sells for are related issues, he says, but they are not directly linked. Pricing depends on competitive products, the price that customers are willing to accept, the type or quality of the products sold, demand and availability.

Although pricing is part of an important psychological strategy, remember that whatever you price your product at if the quality is poor no one is going to buy it and if they find out afterwards that it is of poor quality the bad news will spread. For example, I saw some fresh pickled fish at a local supermarket that looked appetising. This product was selling at a 40% premium to that of another quality supermarket. On eating the pickled fish I discovered that it was bland, insipid and tasteless. The cheek of it to charge such high price. This supermarket’s image in my mind has gone down.

When you start a business from scratch beginning with a mere idea, you need to know how to develop it, test your prototype and come up with a rock-solid business plan. Pricing will be an important issue in your marketing strategy like distribution employees, sales projections, your value proposition and customer service.

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By Chesney on December 1, 2014 · Posted in Main Content

1 Comment | Post Comment

Dave East says:

Hi Chesney,

Nice article. It takes me back to the early eighties when I was invited to pitch for the advertising business for The Center for Developing Business (part of the Wits Business School).
They briefed me on courses that they were doing that were similar but better put together than one of the leading Educational institutions in the country – their main competition. They had worked out that they could undercut their price by a significant margin and they were ready to roll.
I went away and thought about it and came to the conclusion that the opposition would simply drop prices and put them out of business in a few weeks.
My recommendation was to offer their courses at R1200,00 – the opposition was charging R800.
My argument was that they were part of Wits Business School – the leading business educators at that time.
They did it. It worked and I worked on their business for a number of years.

Regards,

Dave East

Posted on December 3rd, 2014