Monday, December 05, 2005

When Price Doesn't Matter

There once was a time when I thought that we could be the most affordable cleaning company in town. I don't think that any longer.

Our original employees were paid poorly. They performed poorly.

We were cheap. As a result, we had no problem finding new customers. The problem was that we had trouble keeping those new customers. We signed up new customers just as quickly as we signed up new employees.

It was painfully obvious that we needed to raise our employee's wages. There was only one problem. We also needed to raise our customers rates in order to afford our employees. Try telling an unhappy customer that he needs to give you more money so that you can fix the problem. It wasn't a fun time, but it was essential for our survival as a business.

It hit me one day while in a department store. I was searching for a stapler. There were plenty of staplers to select from that day. About five if I remember correctly. What intrigued me was the price deviation from stapler to stapler. The really cheap stapler cost about $5, while the most expensive stapler cost just over $125. They each did the same thing, they stapled.

I thought, "Why would someone purchase anything but the $5 stapler?" I was intrigued, so I asked a store employee. What she told me was alarming. The $5 stapler was the most popular item, but the $125 stapler wasn't far behind. I still didn't get it. I pressed on. According to her, the expensive stapler belonged in a classy office setting. Professionals use the expensive stapler, while everybody else uses the cheap stapler. That's when it hit me.

People are more than happy to pay more if they perceive the higher price results in more value. I was scared to be the most expensive cleaning company in town. I preferred being cheaper because it was easier. Higher rates meant that I needed to provide more value.

We not only needed to raise our employees wages, we needed to increase our value. We did it and our customers are glad we did it now.

Your product or service must provide more value than any other available option. That's when price doesn't matter.

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