At your service: Aug. 18, 2010
Have you noticed that 35 mph feels like a rapid pace when you are driving down Main Street; but move over to the Reservoir Road, where that is the posted speed limit, and it feels like a long, slow, slog? The standard highway speed limit of 55 mph feels like a reckless pace along stretches of Route 28 and like you are standing still on the Thruway. The experience of speed is completely relative to what is happening around you.
From this perspective, pricing is a lot like speeding. Your customer’s experience of whether your price is fair or not has everything to do with their expectations and unrelated things they are considering in relationship to your product or service.
When driving down Main Street, there is no end to things you must be alert to; children darting from behind cars, neighbors waving hello, finding a parking space, people opening car doors…it goes on and on. The slower you go, the easier it is to get from point A to B without incident. When the road is open and the scenery lush, you tend to relish the feeling of freedom and want to go at whatever speed feels right in the moment.
When people are buying in a congested market, there is lots of competitive activity to consider in your pricing. You can decide to have the most or least expensive products in your market, and everyone knows what your choice has been. The more common a product you are selling, the more likely your customers will compare it to others like it. This is one of the reasons that local businesses are challenged in their competition with the big box stores – their large volume makes it easier for them to get cheap pricing and pass it along to customers.
On the other hand, when what you are selling is unique or rare, you have much more freedom to set your own pricing. Then the question becomes, “What will the market bear?” It is important, however to remember that no product is ever alone in the market. The customer is always wondering whether the price is fair and; whether fair or not, does the price match the customer’s value for the item or service.
People are always comparison shopping, they compare the price being asked to other things they consider to be similar. A custom hand-woven dress is still just a garment. For someone to pay hundreds of dollars for it, they must value the quality of the fiber, the texture of the weave and the unique styling. Additionally, it must fit them (or the receiver when a gift) in a way that is believed to be fashionable. All of these are subjective factors that make the garment seem expensive or a bargain-at-any-price.
It is no less true when pricing services. If your service is commonly available, you need to stay within the range of competitive prices or have a defendable reason not to. When you are the only one offering a particular service in your community, you have more freedom to set a price. Your customers, however, will still compare your price to services they consider to be similar and weigh the price against their own expectation for what your service should cost.
If you exceed the speed limit along our byways, there are officers of the law to remind you to slow down. There are no pricing police. It pays to give careful thought to our pricing before we market our goods and services because the customer’s buying choices decide what is or isn’t fair relative to what is happening around them.