pricing strategy“We’re $11.00 cheaper per month!”

That was the entire value proposition given to me by the gentleman standing at my front door.

It was a Saturday afternoon and the doorbell rang.

A gentleman asked if we have a pest control service and if so what we pay for it.   I responded that yes we do have one, and I gave him the approximate amount we pay.

He said he could save us $11.00 per month and we could switch right then!

I’m all in favor of trying to save a few bucks, and yes $11.00 per month would be nice, but did he offer any other information? NO!

His only comment was, “We’ll save you $11.00 per month!”

The strategy he was using to attract business was to gain it purely based on price. I’m sure over the course of the afternoon walking through the neighborhood, he was able to sign up a number of homes.

It leaves me asking, “Is the savings of $11.00 per month a valid reason to switch for a homeowner?”  Sure, I can see why it would make sense to switch.

But the bigger question is does the price point make sense for the business?

What is his basis for offering a price of $11.00 less? Was he providing less service?

I don’t know and he never said. Was he building his business model around a lower operating margin? Could be.

Was he thinking that if he could create a large number of homes in one area needing pest control service, he could lower his cost of travel, etc.? Could be.

The fact is he could be doing any number of things to validate in his own mind why a lower cost would work.

As salespeople, there are key questions we have to ask when establishing our price point. What makes sense for the customer? What makes sense for the business?

The strategy I think he should have gone with is offer the first month free and then have a price more in line with the market (in this case, $11.00 more per month).  He then has the customer pay for the first 3 months upfront.

For a small business, he gets cash flow now and he establishes a high price point on-going with the customer.

Long term this would protect his margins and give him more flexibility, because the customer would be used to paying a higher price.

What is your opening price point strategy?

Are you discounting to get the business and in so doing creating a lower price point you won’t be able to break away from?

Copyright 2015, Mark Hunter “The Sales Hunter.” Sales Motivation Blog. Mark Hunter is the author of High-Profit Selling: Win the Sale Without Compromising on Price.

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