You've probably seen hundreds of businesses claim to offer the lowest prices in their marketplaces. Well, maybe they do -- but for most marketers, even making that claim is a HUGE mistake. People who focus on price will never be loyal to you, because the money is all they care about. They'll jump from supplier to supplier, the way hookers jump from bed to bed. You may hate that analogy, but I believe it's something you'll never forget -- which is why I used it. It may not be PC, but it's accurate and memorable!
Price buyers just aren't loyal, and you're looking for loyal customers who will stay with you for the longest possible time and spend the maximum amount of money.
One of my best business friends is my printer, Steve Harshbarger. I've given Steve millions of dollars worth of printing business for almost 20 years, because he's an extremely honest man and I trust him. He'll go out of his way to do everything possible to serve his clients in every way he can. If I had a huge problem at three o'clock in the morning, I have a very small list of people that I would call for help -- and Steve is on that list. He's become a friend as well as one of my most important suppliers.
Steve earned my trust when I first met him, because he told me the truth about my concerns. He didn't BS me, and that really woke me up. I was used to salespeople who told me what they thought I wanted to hear; but when I asked Steve if he offered the lowest prices in the business back in the early 1990s, he said, "Sometimes yes, sometimes no." Then he explained to me why that was.
If it was the kind of job that worked best on his equipment, he told me, he could definitely give me the best price; but if it was something that wouldn't be economical on his equipment, then I could get a better price elsewhere. He just flat-out told me, "Remember, T.J., you can have any one or maybe two of three things: the best price, the highest quality, or the fastest service. But you can never have all three." I never forgot that, and you shouldn't either. That was a valuable lesson; it woke me up like a cold slap of truth. He's been getting my business ever since.
Now, low prices are important to your best customers too; but what people are really searching for is the highest value for the lowest price. So it's up to you to do all you can to educate them on why your products and services are worth far more money than you're asking them for in return. Do all you can to build as much value into your products and services as possible. You can't do that and be the low-cost provider.
I started my first business, a carpet and upholstery cleaning company, in December 1985. I was dead broke at the time, and literally homeless. I was sleeping on the couches and floors of a handful of my friends. Otherwise, I was living out of the backseat of my car. I was cleaning carpets at the time to get by, and then a friend of mine said, "Hey, T.J., let's start our own carpet cleaning business!"
Even though he was dead broke, just like I was, we did it. And because we were so poor, our equipment was in terrible shape. The van we bought for $1,000 (by putting $100 down and paying $100 a week until it was paid off) was a wreck. The only way we knew to get jobs was to offer super-low prices. Over the next few months, we knocked on thousands of doors and practically begged people to let us come clean their carpets and upholstery for next to nothing. Our entire marketing strategy was built around doing the job for the lowest possible price.
We attracted quite a few customers, and slowly built up a reputation thanks to word-of-mouth and the fact that we did high-quality work. Yet, because we were charging such low prices, we never had enough money to buy better equipment or do the more expensive kinds of marketing that would have been more effective. We were prisoners of our low pricing strategies.
Although we did develop a lot of great customers who had us back repeatedly to clean their carpets and upholstery, there were many prospects who took one look at our beat-up van and equipment (and us!) and said, "No thank you." We were turned away by many more people than we actually attracted because we were the lowest-cost provider, and people equate low prices with things that are cheap and tawdry. People don't want cheap, tawdry things; what they want are valuable things for dirt-cheap prices. That's not just a play on words; there's a genuine difference there. So when I say price buyers are like hookers, please understand that it's only a metaphor!
All of my very best clients for my first business were wonderful people, and we gave them top-notch work; but we never had enough profits to build the business. We were stuck with being that low-cost provider, which is one reason to avoid the strategy. Another reason to avoid it is that eventually, someone will come along and offer even lower prices than you -- and then, if you want to compete with them, you start a race to the bottom. Either way, it's a zero-sum game. You never have enough profits to build your business as it could and should be built. In order to do that, you have to charge premium prices. Along with these premium prices, you have to deliver premium services -- and you have to educate your customers in every way as to why the extra money you're asking them to give you is worth it.
Now, fast-forward two decades. My current company is a premium-priced provider. Out of our thousands of competitors from coast-to-coast, we charge some of the highest prices in the industry. In order to start doing that, we had to break out of our comfort zone. It was very uncomfortable at first to charge five or ten times more money than our competitors were charging. Yet, we took that risk -- and once we broke through and made the transition, we made more money than we'd ever made before.
We've discovered some major advantages along the way. First, when you charge higher prices, you get higher quality customers. The people who spend the most money with you will give you the fewest customer service hassles, and tend to be delightful people to do business with. You should charge more money for that reason alone: you'll attract a better quality of customer. Also, you require fewer sales to make more profits. In other words, you can make big profits from bad numbers. What do I mean by that? Simply this: when the majority of your products and services sell for small amounts of money and razor-thin profits, then you need a high percentage of response to make any money. Conversely, higher ticket items mean that you require fewer responses to profit.
This also means you'll need fewer customers to make those profits. You can serve those fewer customers in a much better way than if you were a low-cost provider and were forced to serve a larger number of customers.
Charging higher prices is a risk. I'll never forget how scared we were when we held our first $5,000 seminar in 1996. Prior to that we'd done over three dozen low-cost seminars; so we went from charging hundreds of dollars to charging several thousand. It was frightening, and yet we took the plunge. We surrounded ourselves with a team of great joint venture business partners who helped us pull off that event, and we focused tightly on the audience. We did everything possible to make their experience truly life-changing. Our goal was to make it so that at the end of the event they said, "Wow! That was worth far more than $5,000." We channeled all our fear and insecurities into doing everything possible to give the customer the most valuable experience we possibly could.
That's another thing the extra profits you generate when you charge premium prices allow you to do. They give you the freedom and flexibility to serve your customers at a higher level, which you just can't do when you're selling for low prices.
So: never aim for the low price. If you must focus on price, utilize premium pricing instead. Use this secret well, and you'll end up with a smaller, more select group of customers who will spend large amounts of money with you over long periods of time, making you the envy of your competitors.
