For his book “Bootstrap to Billions,” Dileep Rao interviewed 23 hundred-million dollar and five billion-dollar entrepreneurs and discovered that 50 percent of them succeeded with higher prices by offering more value and knowing how to sell that value.
“If your strategy is to succeed by pricing low, think again,” Rao says. He offers these tips for focusing on your differentiating factors and pricing accordingly:
Price with the trend. Trends affect pricing in a number of ways. For instance, new technologies may offer more benefits than existing ones and provide high margins. As the trend ages and competition increases, gross margins decline. This requires newer products to generate profits.
Use the high-low strategy to attract customers. Selling some products at a lower price and promoting the lower prices to attract customers is common in retail and fast food. If you employ the tactic, make sure you know how to sell your high-margin products (drinks, fries and desserts in fast food) and train your employees to sell these.
Add services to get a higher margin. American consumers are used to cheap products but not cheap services, so think about offering services and warranties. (For more on adding services to gain a competitive advantage, see Niraj Dawar’s marketing column on page 14.)
