7 Pricing Mistakes Small Business Owners Make and How to Fix them

Many small business owners see pricing as adding a little amount to the cost price, to serve as the profit. And voila, the price is up on their products’ pictures and price lists.

No research! No thinking about the value of the product! No segmentation of the audience to know what each segment is willing to pay! Just guesswork and vibes. That will stifle growth and not yield great results long term.

In this article, we talk about 7 common mistakes you are making, with your pricing and how to fix them ASAP. Let’s get to it.

7 Common Pricing Mistakes and How to Fix Them

Setting product prices can be tricky for small business owners, especially in the face of rising business costs and slow sales. However, that is not to say you should be careless with how you set your prices. Here are 7 pricing mistakes small business owners make and how to fix them:

Mistake 1: Setting lower prices to beat competitors

Setting low prices to attract customers would present your brand as cheap and desperate since some consumers are not just looking for the cheapest option in terms of price, but the best option in terms of value.

So, if your sales strategy is based on emphasizing how cheap your product is in comparison to your competitors, you would only communicate that your product is lower in value, even when it is not.

What to do: While it may be tempting to set your prices below your competitors, focus on assessing the perceived value of your product and pricing it accordingly. This would bring more perceived value to your business and encourage consumers to buy, even when there is a cheaper alternative.

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You should read: 4 Financial Numbers Every Small Business Owner Should Analyze for Growth

Mistake 2: Not updating prices

Not updating product prices is another mistake, especially in the face of rising production costs. Also, changes in trends and seasons cause changes in how consumers approach a particular product. So, updating your price can be a game changer when necessary.

What to do: Update the prices of your products at intervals to match changes in your niche, as well as increase your profit margin.

Another important situation that calls for a price increment is when the prices of the raw material you use for your products go up, when expenses increase, or when the market changes. In this situation, adjust your pricing to suit the current state of things.

Mistake 3: Updating prices without considering competitor’s reaction

You are not selling in a bubble, as other competitors exist who are also vying for your target audience's attention. So, before updating your price, it is important to analyze and consider how your competitors would react to that action. Then make a plan on how to counter their response in a way that benefits your new pricing.

What to do: Start by observing how things work in your niche, and how competitors and even consumers would react to price changes. You can also take a cue from past situations of price change, to predict what might happen in the future.

Mistake 4: Setting Prices based on costs and not value

Pricing based on only the cost of production and not product value is another pricing mistake to avoid.

For example, if you sell dresses for ladies, it is important to know that ladies value black dresses a lot, because of their versatility. So, if the price for a black dress is higher than that of another dress with a different colour, your buyer may not mind the price and still go for the black dress. This is all based on the perceived value, rather than the costs.

What to do: Know how much value your product/service brings to the life of your customers and make your pricing decision based on that information.

RELATED: Basic Accounting Terms every Financially Smart Business Owner Should know

Mistake 5: Not segmenting your audience

Not segmenting your audience when setting prices is another mistake that can stifle your sales as a small business owner. Various audiences are willing to pay various prices, even for the same product/service. Thus, it is important to consider this when pricing.

What to do: If you have a service business, customer A may value your product more than customer B, based on how you package the product. So, you can create a tier or package pricing, to help customers choose what they can afford. In pricing, one size doesn't fit all, so allow your customers to sew their clothes according to their sizes.

Confused about the pricing strategy to employ to increase product sales? Our pricing guide contains 11 pricing strategies, alongside their pros and cons, to help you choose the best for your business. Get a copy today.

Mistake 6: Pricing all your products the same way

If you sell a variety of products, like fashion accessories such as brooches, earrings, necklaces, belts, bracelets, watches, rings, etc. In this instance, selling all these products at the same profit margin is a mistake.

For example, you buy product A for #300, product B for #500, and product C for #700. Then when you want to set prices for them, you add #200 markup to all the products; making it #500, #700, and #900 respectively for all your products. This is wrong and won’t do well.

What to do: As a business owner with multiple products, you need to know that there are various audiences for each of your products. So, you need to implement different pricing strategies for each product. For example, if you sell belts for males and females, you can vary your pricing, based on the gender that is likely to pay more, even though for the same product.

Mistake 7: Not considering price presentation and context

Another mistake small business owners make with pricing is not considering price presentation with how humans think. If you do this wrong, it will affect your sales.

For example, if you sell your product for Two thousand Naira, and you can present it as follows:

#2,000.00

#2,000

#2000

#1999

In this situation, the first 3 examples, are the same. However, due to the way they are presented, the first two prices may look more expensive. And for the 4th example of #1999, it is still technically #2000. However, the human brain would consider it cheaper than the first three prices.

What to do: In this situation, go for the fourth option to trick the brain and get more sales.

Another mistake is not considering the words used in presenting prices or the context of sales. Remember how as a child your mum would buy a bottle of Coke for #100 from a kiosk in the street? However, she would pay #500 or more for that same bottle of Coke, when she goes to a restaurant or eatery. This shows how context also affects pricing.

Also, people are willing to pay more for a product based on the words used in describing it. This is why you would see some business owners give their products customized names. This makes the product stand out in the market and justifies whatever price they decide to place on it.

Setting Prices like a Pro

Setting the right price for your product takes more than adding a mark-up price. It requires research and the right information, to help maximize profits. So, whether you are an expert in business or a new business owner, getting your pricing right will determine how long you will last in business.

So, take note of the pricing mistakes stated above, and be sure to avoid them. You can also work on your current pricing, to ensure that you are not leaving money on the table.

At Triift Africa, we are passionate about helping small business owners start and grow profitable businesses through access to funding and business resources. Need to talk to a business expert to help you hit your business revenue goals? Send an email to hello@triift.com or visit our website

So, which of these 7 pricing mistakes are you currently making? Let’s know in the comment section below.