If you were to raise your prices 20% tomorrow and not lose any customers, what would happen to your profit margins?
If you make a 10% profit margin now, you would be making 25% tomorrow morning. On the other hand, if you cut your prices 20%, you would be sending out peso bills with every order.
Charge more and make more
Which is a very simple way of saying that cutting your prices to win more customers is a very, very bad way to make more money. It is the fastest route to more hassles and less profit. There is always a way to charge more. And there are always people who are willing to pay more.
My dad was a minister. Which means that when I grew up there was not a lot of extra money laying around. If you ask my mom, she will tell you that when I was seven or eight years old and forming my perceptions about money, our resources were pretty darn thin. Consequently I am a pretty thrifty guy.
For me, there is a natural thrill to taking a hundred peso bill and stretching seemingly impossible value from it. It is one of the things that makes me a good marketer. When the president of a company tells me that it costs him $50,000 or almost a million pesos to acquire a new customer (happened a year ago), I get a buzz. Because I know I can probably slash that cost dramatically and bring him a whole bunch more customers at the same time.
Is 'cheapness' always a virtue?
But there is a downside to that thrift, too. I grew up thinking that there was great virtue in having low prices. And that is a very bad way to think when you are a marketer, because if you are not the 900 pound gorilla in a commodity market, you will get smashed by him.
One of the things that I had to learn was that being the premium priced guy in town is a good thing. Not only does it mean your profit margins are a whole lot fatter, but you also get more respect.
If you are thinking that cheapness is a virtue in your business, it is time to unlearn that misconception.
Here is the real deal: Most companies ask themselves: “How low do we have to go to get customers to buy?”
But here is the real question you should ask yourself: “How do I add enough value to what I already sell so that people will pay twice as much for it?”
That is exactly what many companies including Whole Foods and California Pizza Kitchen have done. And when you are a marketing maniac like I am, your eyes and ears are open for examples everywhere you go.
Answer that question in your business and you will be surprised at how fast your company can grow.
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This article originally appeared on Entrepreneur.com. Minor edits have been done by the Entrepreneur.com.ph editors.
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