I went out to grab a hot dog today. On the southwest side of the street, I approached the hot dog vendor, a plain cart, with no advertised price. I asked him what his price was. He replied that it was $4,50. I looked to the southwest side of the street, and saw another, far more elaborate hot dog cart with flashing lights, and a gigantic sign which read “Hot Dog: $3″.
I proceeded to ask the hot dog vendor why his hot dogs were $4,50 when I could buy one across the street for less money, to which he replied “Mine are better.” Great! I’d be willing to pay a premium price for a premium product. But I wanted to ensure that I was getting the best value for my money. I asked him why his hot dogs were better, to which he replied “They just are. You can go across the street if you don’t believe me.” Now, having purchased a hot dog in from this vendor in the past, I knew that his hot dogs were no different than the hot dogs across the street because I’d made the mistake of purchasing a hot dog from him before without asking his price, assuming that he was competitive.
True story. This actually just happened to me, and I thought of a very very good point about how to operate a business.
You can make your customers pay more.
Now, you can go about this in a few different ways. You can be ignorant to your competitive market and charge what you think is appropriate and think your product is the best. This will work once, it might work twice, and you will make more money on those sales. But as soon as your customer figures out that they can get a comparable product at a cheaper price, they’ll leave you for the competition.
You can ascribe a distinct benefit to your product. Had my first hot dog vendor said “My hot dogs are made locally” or “My hot dogs are organic” or even “My hot dogs have premium condiments”, I would have bought the more expensive product rather than crossing the street.
You can build a relationship with your clients and have them buy into your brand proposition. As soon as I crossed the street, the cheaper hot dog vendor captivated me with the story of her hot dog stand. She’s been there for over 20 years. She’s never raised her price. She even mentioned that she had never seen me and asked if I was new to the neighbourhood. I almost want to go back and buy more hot dogs just to chat her up.
If all else fails, and you just want a quick buck, you can just charge more and hope that your customers don’t figure out that they’ve been duped or you can be better and create longer, sustainable profits.