Are you tempted to price your products/services lower than the competition to boost your sales? What stops the competition from retaliating? Will you retaliate again? Who will reach the bottom first?
The reason that price reduction comes to mind first as a means to increasing sales is because it is the easiest thing to do and seems to be under our control; and not because it is necessarily the most effective way to increase revenues. These are two key questions I ask my clients when pricing is discussed:
1) Do you know of a competitor who is pricing higher than you, and not losing sales to you because of your lower pricing?
2) Do you know of a competitor who is pricing lower than you but is not winning your clients over because of their lower pricing?
Clearly any answer to either of these questions is not pricing, but almost certainly the story behind the product/service, the “selling proposition” that the client sees or believes that you are offering.
Try to answer these questions before you declare a price war.
Answering these questions allows you to understand your market and the problems you are trying to solve. Once these problems are understood and solved, you can demand your price.