Pricing is one of the most important elements for all businesses.
That’s why many, especially small businesses, struggle to set prices.
New businesses especially seem to struggle with early prices. The feeling seems to be that setting an initial price means that the price will remain the same for the long-term.
While you don’t want to constantly change prices, you’re allowed to make changes. Consumers understand that you’re looking for value in what you offer just as they are looking for value in what they buy.
A price is something that both sides are comfortable with. If one side isn’t getting value, including the business, it’s okay to adjust.
But there are a few things to consider…
#1. Initial Pricing Best Guess
I just finished reading the book, Southwest Passage, by Lamar Muse. It’s his story about the early years of Southwest Airlines. The company saw an opportunity to fly people back and forth from three large cities in Texas. After a few years of legal battles, they launched the service.
During that time, the founders, including Muse, had researched what they felt was a good price. Muse had been an executive in the airline industry for decades. He had as much knowledge as anybody and with that experience he knew as well as anyone what the initial prices should be.
They settled on $20 roundtrip flights for all passengers. And the pricing pretty much worked. But after people started flying and the company got some data, the executives realized they had two distinct passengers: business and pleasure.
It also turned out that the $20 tickets were off a little. To adjust, the company changed its pricing to $25 for the business passengers and $15 for the pleasure customers. Actually, they adjusted the pricing based on when the flights occurred. During the week, when it was mostly business passengers, prices were $25. On the weekends, it was $15.
Even with all the experience in the world, Southwest needed to adjust their pricing. That’s okay to do. You make your best guess and revisit the pricing once you have data.
#2. The Public Is Smart
Southwest didn’t make that early pricing change as a way to deceive their customers. They knew their customers were smart. Even if you try to fool someone in business, while it may “work” for a while, it rarely and probably never works in the long run.
There was simply more demand for Southwest flights during the week than on the weekends. So the pricing change made sense. It was something they didn’t full anticipate when launching. The price change made sense and the public knew it.
You don’t have to feel bad about changing your prices. As long as you’re not doing it too frequently and confusing your customers. They will understand the reasons why you’re changing.
We all know that businesses need to make money. If they don’t, people know that they won’t continue to have access to products and services.
#3. Don’t Overthink It
Obviously you want to do the best you can when setting your initial prices. But don’t overthink it to the point that you’re delaying the start of your business or even the release of new products.
Trust the knowledge you have. Look at the basic profit numbers. Then go for it. All businesses need data and experience to figure things out. That includes pricing.
Pricing is very important. But don’t let it hinder your business. The idea of being decisive is important in business. It’s better to make decisions and move forward and then make more decisions than it is to overthink everything. Follow the lead of Southwest Airlines. Set your prices and adjust as needed.