Is Your Thinking Keeping You Poor? Article 48: Pricing and perceptions of value
by Douglas Kruger
Are you expensive enough to be taken seriously?
Many entrepreneurs undercharge. In doing so, they create a chicken-and-egg scenario. They argue, ‘My customers can’t afford to pay more. They’re not rich.’ My counterargument is, ‘No, by charging so little, you have attracted the wrong type of customers. You need to attract the ones who are rich.’
If you sell Chappies, your market is going to be made up of the lower LSM. If you sell iced lattes, or branded handbags, your market is going to be made up of the higher LSM.
Position yourself as the cheap alternative, and you may find yourself doing less business. That’s because people judge value and quality largely on price – which, in turn, is why Aston Martin hasn’t gone broke, in spite of its premium pricing, and partly why Apple is ruling the world.
Minuscule profit margins tend to hurt you financially and cheapen the perception of your brand. Don’t fight the war based on pricing – it’s a losing game. Instead, fight the battle for wealth based on perceived value.
The concept of value is everything for entrepreneurs and wealth-builders. Once again: increase your value, or increase the value of what you offer, and you can earn more money in fewer working hours. Similarly, raise the value of what you offer and you will change the nature of customers in your market.
Misidentifying a problem
In 2011, as my own business began to become much more profitable, I started bumping my head on a new problem. I was becoming busier than one person could handle. The nature of my work is such, though, that it’s difficult to outsource. When you run a burgeoning beauty salon, you can hire more beauticians, but when you deliver keynote speeches using your own specific skill set, the load becomes more difficult to spread.
For a long while, I agonised over possible solutions (virtual PAs, small support teams and time-management courses). But when I read Alan Weiss’s book Million dollar speaking: The professional’s guide to building your platform, and learnt that this incredibly prosperous man gets by without any support staff, it occurred to me that my thinking was entirely wrong. I needed a Copernican Revolution.
My problem was a form of wheelbarrow thinking. I was trying to apply the labourer’s concept of how to get richer: carry more bricks, work more hours. Escaping this equation meant a decision to position myself actively on a higher level as a speaker. It meant raising my fees significantly and jettisoning my lower-paying, high-input clients.
Consider how elegantly such an approach solves the problem of capacity: do less work for more money. Instead of constantly scrambling for loads of low-end work, take on fewer, higher-paid assignments.
This approach in no way advocates laziness. It takes a great deal of work to hold your position at the top end of the market. But it will mean less consumption of time for higher reward, which is a meaningful goal.
Poverty mindset: My customers can’t afford more.
Wealth mindset: I need to target the right customers.
Douglas Kruger is a business author and professional speaker. See him in action, or read his articles, at www.douglaskruger.co.za. Douglas’s books, including ‘Is Your Thinking Keeping You Poor? 50 Ways the Rich Think Differently,’ are available at Exclusive Books, Estoril, CNA, and as ebooks from Amazon.com