In the world of business strategy, there are essentially two paths you can choose: be the cheapest option or become the premium player. Raving fans fall into the latter category, and they’re more than willing to pay full price for products and services they love. Let’s dive into why this happens and why it’s essential for your business.
1. Value Trumps Price:
The price of a product or service isn’t the whole story; it’s the value it offers that truly matters. Whether something is expensive or not depends on how valuable it is to the consumer. Think about it – a small granite rock priced at $1,000 might seem outrageously expensive, but a diamond the size of your fist for the same price would be considered a fantastic deal. It’s all about the perceived value compared to the cost.
2. The Perils of Discounting:
Let’s address the elephant in the room – discounting. Many businesses turn to discounts, coupons, clearance deals, and limited-time offers to boost sales. While these tactics can provide a short-term revenue boost, they erode the perceived value of your products or services in the long run. Every discount tells your customers that the item’s true value is the discounted price, making it harder for them to believe it’s worth the original cost.
3. The Psychology of Free vs. Discounts:
Giving away something for free has a different psychological effect than selling at a discount. When customers receive a free item, they don’t necessarily devalue it. In fact, they often see it as more valuable because it is a gift. However, discounts convey that the product’s actual value is the discounted price, making it challenging to convince customers to pay the full price later.
4. Differentiation and Premium Pricing:
To cultivate raving fans who willingly pay full price, your focus should be on differentiation rather than engaging in price wars with competitors. Legendary brands concentrate on serving their customers exceptionally well, creating products and experiences so remarkable that customers see them as worth the higher price tag.
5. Know Your Limits:
While it’s crucial to offer value that justifies your pricing, don’t go overboard by drastically increasing prices. Price still plays a role in setting your competitive strategy. Depending on your industry and offerings, your premium price may only be slightly higher than your competitors’. There’s a limit to how high you can raise prices before you lose customers, so balance is key.
6. Be Willing to Lose Some Customers:
Don’t fear losing customers due to higher prices. In fact, a challenge is to lose at least 5 percent of your potential customers because your price is too high. Those who are solely focused on finding the cheapest option may not be your ideal customers. A higher price can help position your service as above average and signal superior quality.
Creating raving fans who pay full price is not about offering discounts but about providing exceptional value and experiences that justify your pricing. While pricing strategy is a complex dance, the goal is to ensure your pricing reflects the value you deliver and aligns with your customer’s perception of your brand. When in doubt, focus on offering unique value that your competitors don’t, and be willing to charge a higher price for it.