Ive talked to you about the power of cheap pricing. I made the case that for many start-up businesses the most efficient way to successfully enter a market and gain a significant share of it is to underprice the competition.
One of my proteges, BS, who runs a financial public relations firm, said he was persuaded by the idea but couldnt figure out how to apply it to his business. His concern was that since he billed his services by the hour, reducing costs meant making less per hour. That was not a direction he wanted to take.
But thats the whole idea of price competition. You find a way to survive while you underprice your competition, taking less now while your market share increases. Gradually, as your customer base grows, you raise your prices.
In fact, this very strategy was recently used by a colleague/friend, DM, to relaunch a flagging advertising business (which also charges by the hour). For six months, DM and his writers and artists worked twice as hard for the same money. But at the end of that time, the firms client base had tripled and they were able to go back to their original pricing.
The strategy was so successful that they continue to use it to enter new markets.
Not Every Marketing Strategy Applies to Every Business
All that said, as your business grows and your customer base ages, you will want to gradually increase the quality of your product/service and your prices.
This is essentially what the Japanese did in the electronics market. Early Japanese radios and TVs were not as good as their American counterparts, but they were much cheaper. By focusing on price, they achieved a significant share of the U.S. market. But the Japanese electronics firms didnt leave it at that.
Recognizing that bigger profit margins existed in the upscale market, they identified the key selling features of the American television (size of screen, instrument configuration, etc.) and began making gradual improvements.
The volume they attracted by initially manufacturing cheap products allowed them the cash to gradually improve their technology until they were making superior products at cheaper prices. The same thing is true for Japanese cars.
If you have already established your market share and are working to raise prices, you have to identify the features and/or benefits your customers will pay more for. (It isnt uncommon for manufacturers to spend money on things their customers cant appreciate.)
Lets say you are a marketing consultant specializing in direct mail and want to charge double the hourly fee of your competitors. You can do that only if you establish the reputation of being top-notch.
The smartest way to do that is to specialize. Pick one aspect of your business or trade one particular corner of it and learn that better than anyone else alive.
If you make a careful selection if you choose a relatively small but lucrative area (where there arent already a lot of experts) you will have a very good chance of succeeding. The amount of knowledge youll need will be limited. And that means you wont be intimidated and you wont give up.
Spend 1,000 Hours Becoming Competent and Comfortable in the Specialty Youve Chosen Then Start Promoting Yourself as a Specialist
Even after only 1,000 hours, youll notice that your work will be better than most. Youll understand certain nuances your competitors miss. And you wont make the most obvious mistakes.
As you practice your newfound specialty, gradually increase your pricing. By the time you have invested 5,000 hours (the time you need to master anything), you will be charging double (at least) and making double (at least) what you do now. Plus youll be revered in your industry.
Keep in Mind That There Is a Built-In Demand for Higher Pricing
Ill explain why that is next week and give you a better understanding of how and why you can make higher pricing work for you.