Author: Dr. Andreas Kokott (About the Author)
How Businesses Set Prices Customers Accept—and That Protect Profits
Many business owners know this situation: A new price has to be set, or rising costs make a price increase unavoidable. The same questions immediately arise: What are our competitors doing? How much can we increase our prices? Will our customers accept the new price?
Too often, the discussion focuses solely on the price itself. What is frequently overlooked is that a price is much more than just a number on a quotation or a price tag. It not only determines a company’s profitability but also influences the type of customers it attracts.
Your Price Determines Your Customers
For many years, the goal was simple: attract as many customers as possible. Today, successful companies take a different approach. They no longer ask, “How can we attract as many customers as possible?” Instead, they ask, “Which customers do we want to build long-term relationships with?”
This difference is crucial. Established businesses usually know exactly which customers buy reliably, accept fair prices, and develop long-term business relationships. They also know which customers require a great deal of effort while contributing little to the company’s success. Start-ups may not yet have this experience, but they should begin asking this question from the very beginning.
Pricing strategy is one of the most powerful tools available. It determines which target group feels attracted to your business. Companies that compete primarily on low prices often attract bargain hunters who switch to the next cheapest supplier as soon as one appears. As a result, long-term customer loyalty is rarely achieved.
This is why small and medium-sized businesses, in particular, benefit from a clear market position. Companies that offer quality, excellent service, expertise, and reliability should reflect these strengths through an appropriate pricing strategy.
Prices Are Never Accidental
Many business owners base their prices primarily on what their competitors charge. Although this may seem reasonable at first glance, it often results in lost profit opportunities.
Professional pricing takes many more factors into account, including actual costs, the desired target market, the company’s positioning, the competitive landscape, and, above all, the value the product or service delivers to the customer.
Professional pricing takes many more factors into account, including actual costs, the desired target market, the company’s positioning, the competitive landscape, and, above all, the value the product or service delivers to the customer.
The Right Price for the Right Customer
Small businesses, craftsmen, and direct marketers often compete with mass-produced industrial products. In doing so, many forget that customers do not make their purchasing decisions based solely on the lowest price.
They buy quality, trust, local production, sustainability, personal service, and the confidence that they are making the right decision.
A product or service consists of far more than its material or manufacturing costs. Behind every offer are experience, expertise, consulting, quality control, investments, customer service, and entrepreneurial risk. In addition, there are ongoing expenses such as energy, rent, insurance, marketing, and continuous professional development.
All of these factors create value for the customer and should be reflected in a commercially sustainable selling price. Businesses that fail to consider them often sell below their true value, putting their long-term success at risk.
The Right Price Also Builds Trust
Interestingly, customers accept higher prices far more often than many business owners expect—provided they clearly understand the value they receive.
For this reason, pricing and communication are inseparable. A good price alone is not enough. The value of your product or service must be communicated clearly, convincingly, and credibly.
This is precisely what distinguishes simple price calculation from a well-designed pricing strategy.
Learn More in Our eBook:
This article introduces only the fundamental principles of successful pricing. If you would like to learn how to develop prices systematically, implement price increases successfully, and avoid common pricing mistakes, you will find a comprehensive guide in our e-book.