This post by Seth Godin really struck a note with me. I have often thought that the key to improving business is to drop my rates and, at the same time, attempt to improve my service levels. I was previously at a firm that charged really high hourly rates for their services, so much so that we generally turned away any cases that were worth less than R100 000 because the costs would soon equal the amount in dispute (this approach tends to irk clients and I have a couple new clients as a result of this attitude on the part of the firm in question).
Godin was asked by a reader of one of his books for some advice on how to persuade her bosses to reduce prices to help grow the business she was part of and, instead, he suggested that prices be raised:
When I responded that perhaps she ought to consider raising prices and using the extra money to create a remarkable experience, she got really angry with me. Of course, I refunded her consulting fee. Actually gave her three times back what she paid…
Here’s what I think: Cheaper is the last refuge of the person who’s not a very good marketer. Cheaper is easy and cheaper is fast and cheaper is linear and cheaper is easy to do properly, at least at first. But cheaper doesn’t spread the word (unless you are much cheaper, but to be much cheaper, you need to be organized from the ground up, like Walmart or JetBlue, to be cheaper). They are, you’re not.
Cheaper is a short term hit, not a long term advantage. Cheaper doesn’t create loyalty, because the other guy can always figure out how to be cheaper still, at least in the short run.
So perhaps being cheaper isn’t always being better. You could even be doing yourself a disservice. Consider that your plan works and business increases dramatically. If, like me, you are still on your way out of the self-employment quadrant (to quote Mr Kiyosaki) then the end result will probably be lots more work and much longer hours with a side order of not nearly enough time to improve your offerings.
Advantages of higher prices include the ability to focus on the kind of work you would prefer to do; giving yourself enough of an opportunity to improve your offerings and a perception that because your prices are a little higher, they must be worth that much more.
Give it some thought. Cheaper isn’t always better.