Stay Away From Competitive Pricing

December 1, 2010 § Leave a comment

“Hey Coach, may we discuss pricing today?” Jake asked.

“Yes, partially,” I said. “But before that let us discuss about giving your services for free.”

“You mean what I am doing now,” Jake asked.

“I believe you should continue giving your services free to nonprofit groups like schools and churches,”  I said.  “Aside from helping others out, it is also a form of marketing.”

“The more people are exposed to me,” Jake responded, “the more they talk about what I can deliver.”

“That is better than paid advertising,” I said.

“A friend of mine owns a chain of restaurants,” Jake said.  “Whenever he starts a store, he tells friends to invite friends to eat for free.”

“It is a better way to introduce a restaurant than spending mostly on marketing materials,” I cited. “People who pass by see that the restaurant is full so they will get the impression that it is a good restaurant. Nobody wants to try an empty restaurant.”

“It is also a good way to train their new staff.  The guests would be more forgiving,” Jake added.

“But ultimately, the real reason is to get people to taste their good food and for them to tell their friends about it,” I said. “It is supposed to get word of mouth started.”

“Alright Coach, we want to create enough word of mouth marketing,” Jake said, “so I have to continue giving my services free for some sectors like schools and churches.  But what if they want to get me for a series of talks or what if a company asks for my professional fee.”

“Now we discuss pricing.  I will mention three types,” I said.

Jake sat up. “Now we’re talking.”

“The first one is competitive pricing.  This type of pricing brings down the price to as affordable as possible without going negative.  This is the riskiest approach,” I said.

“Because no one wins in a price war, right?” Jake said.

“Exactly,” I said.  “Each entrepreneur should cover his costs or the business will not profit much less survive.”

“So I should avoid pricing this way,” asked Jake.

“Definitely!” I said.  “Low cost gives the first impression of low quality.  You definitely do not want that.”

“What if they go for a more affordable service provider?” Jake asked.

“Let them,” I said. “If you believe that your service will delight the customer, do not get into competitive pricing.”

“Okay I agree.  But what if I really want to speak for that group?”  Jake asked.

“Free is better than cheap.  Remember that Jake.  Your price affects your image.  It affects your brand,”  I said. “Free gives the impression that you are generous.  Low priced gives the impression that you are low quality.”

“Competitive pricing is one approach,” Jake said. “What are the other two?”

“Value for money and the third, prestige pricing,” I said.  “But we will continue discussion next week.  For now, give your services free.  We want many people to hear you in person, not just hear about you. But stick to life issues.  Reserve growing the organization and similar topics for corporate clients or future public seminars.”

“Thanks Coach.”

© Eduardo R. Pilapil Jr. 2010

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