Dealing with Price-Sensitive Customers

Introduction

You seem to be in a difficult, but far from unique, position.

If your customers only care about finding the service provider with the lowest price, and your firm's offerings aren't the cheapest, you're going to be in for a rough ride.

Sure, you could try to trick your buyers by using hidden fees, or reduce the odds that shoppers will find cheaper alternatives by raising your own discoverability, but ultimately word will get out: less expensive options are available.

Many in your situation immediately look to reducing their costs of production. The lower your expenses, the lower your prices can fall without reducing your bottom line. Movement toward greater efficiencies, economies of scale and scope, and productization are all perfectly acceptable means of increasing profitability, even for firms that are loved by their customers. That said, I suspect that your future will prove far more secure, and far more profitable, if you can find a way to avoid competing on price altogether.

It's difficult to provide a precise solution without additional detail, but I'd be willing to bet that you're being pressured on price because you're suffering from one of the following conditions:

You're a commodity

Take a moment and think about who you are and what you're offering. Does what you produce really provide more value to your buyers than do the tens, hundreds, thousands, or millions of offerings being sold by everyone else?

We'd all love to believe that we're unique and unlike anyone else in this world. While such notions are occasionally valid, many people and businesses are often commodities without realizing it. This unfortunate fact became painfully clear to one man who prided himself on his unique appearance to such a degree that he was unable to imagine that anyone else could possibly look like him.

Fortunately, there are almost always methods to decommoditize your offerings. In one of my favorite articles, I examined how even the most clearly obvious commodity of all (white table salt) could be decommoditized with just a bit of thought. Even within a single store, the most generic offering could hold its own against free alternatives that were chemically identical, down to the tiniest molecule.

You're not a commodity, but you're perceived as one

Even producers of superior goods can be caught up in price wars. Sometimes, due to lack of knowledge on the part of shoppers, or poor signaling by vendors, products that would otherwise command high prices are nevertheless perceived as commodity offerings.

The means to address these problems are so numerous that I could probably write a book about them. Oh wait, I did. You can buy a copy of Premium on my site.

Long story short, sometimes it's not your product that needs to change, so much as the perceptions that shoppers have about it. If you'd like some concrete examples, you can read my article on restaurant pricing and characteristics. Suffice it to say, your signalling should align with your intended message.

Your category of offering is perceived as low value

Sometimes, even when you're seen as the best option in a category, your standing won't matter much to consumers.

Some types of products aren't considered valuable. I recently purchased a ladle, a product that I use to move soup from a pot to a bowl roughly six inches away. No matter how beautifully constructed the ladle, and how respected the manufacturer, I wasn't about to drop a ton of money on its purchase. The reason for this should be obvious: it's a soup ladle. More precisely, it's just a soup ladle. The best ladle in the world wouldn't provide me with any value over and above what I'd experience with a merely mediocre one.

If consumers are using the word just before describing your category of offering, you're probably going to find yourself competing on price. There is one tactic that you can use to remedy the situation, however. In some cases simply changing the category with which a product is associated is enough to change the perception of the item's value. I described this effect in an article examining the difference between Captain America and James Bond.

You're targeting the wrong customers

I hear it almost every day. No customer is willing to pay more than the absolute minimum. The thing is, it's a lie. There are plenty of examples of people who are more concerned with quality than cost. Look as recent sales of well-known artwork, souped-up cars, gourmet food, and even multi-ply toilet paper. For many categories of goods, there are many people who would be willing to pay a premium - if they have a reason to do so.

It may be that you're not connecting with your ideal customers. Your messaging might be attracting cheapskates (economists usually identify these individuals as price-sensitive shoppers). Trying to convince them to spend more can be difficult, and is, more often than not, an unwinnable proposition.

A re-targeting of your sales efforts to a different class of customers may be all that is required to change your fortunes and allow you to increase your prices.

Conclusion

You're not alone. Many people find themselves wondering how they can charge more when faced with customers eager for a bargain. The first step in solving your issue is to try to figure out which of the above possibilities most closely resembles your own circumstances.

It's impossible to predict the form and magnitude of investment that increasing your pricing power will require. In some cases, a skilled salesman may be able to correct your issue after a few minutes of investigation. In others, far more resources will be required. The key takeaway, however, is that the problem is unlikely to resolve itself without action.

Questions come from readers like you. If you'd like your questions answered, send them my way.