Ask yourself this question: Would you be cheap when considering doctors to perform your open heart surgery? Never! And for exactly the same reason this is the thinking that should apply to small business growth.
Much like that failing heart, a small business will not survive if low cost is always the priority when it comes to decision making. Being cost-effective and being cheap are certainly not the same thing. Don’t ever confuse the two.
Consumers will always be looking for a way to pinch pennies and small businesses will need to match that demand. This is what we call simultaneously instigating growth and generating revenue. Whilst being economical should always be a priority, knowing how, where, and when to cut corners is really the key to longevity.
Always remember that in the consumer’s eyes, price is the validation of quality. The cost is a feature of the offered product or service and it will be an indicator of its own worth, in comparison to the competition.
When you compare a $4 cup of Starbucks coffee to the bottomless $1 cup offered by some, you cannot simply end at price alone. Sure, the price begs us to investigate further in order to draw conclusions such as, ‘the quality of the Starbucks’ beans must be better.’ We use these assumptions to justify the cost difference.
Remember that these conclusions speak volumes about your product and knowing how to determine their direction will bolster your marketing strategies. Do you want your product or service to be associated with ‘better quality’ right off the mark? Yes; you do! To do this, you will need to carefully consider your price points.
Have you ever tried a product only to think ‘well that was not worth the money’? We all have. This pretty much guarantees that the client will not return, and that could be a
huge loss for your business in the long run. This is what you want to avoid at all costs – no pun intended!
Author Steve McKee puts it frankly in an article for Bloomberg Business: “Sending a quality signal via higher pricing is an undervalued and often overlooked, tactic.”
You know that price is a feature and higher cost implies higher quality; this is obvious. So why is the cheapest route not always the best way to go?
Easy: When a startup begins to flourish, it will feel the demand at a much harder and faster rate which means the business will not be able to keep up with the production of the products/services it needs to supply. One of the smartest ways to manage an explosion of growth is to raise price points.
By doing so, your business will generate additional cash flow which you need to invest in more support staff, additional inventory or upgraded facilities. You may lose some clients but these bargain hunters were not likely to remain loyal in the long run.