In Part One of our series on setting a price for rental products we looked at how to find the minimum price that you should charge in order to at least break even between what you spent to buy the product and the income you receive from renting it out.
Now that you have determined your minimum price point, think about how your prices will affect the perception of your company by customers and also how it determines the type of customers you interact with.
Common wisdom says to price your products lower that your competition to attract more customers. This might be the best idea in some situations, but not in all.
How Do We Compare to the Others?
Soon after we started Picnic Table Rental a couple of competitors showed up offering the exact same products as our company. We quickly realized that our prices, and the services that were included in the price, were going to be very important in setting our company about from the others.
How did we do this?
First we figured out what the direct competitors were using for rental prices on similar items and positioned ourselves against them.
Determine Competitor’s Pricing
Dig around online and see if you can find prices for direct competitors. If you cannot find prices online (which is likely, because most companies prefer to get you on the phone to discuss your needs) try calling them up and asking them about their costs as any potential customer would. It will be helpful to know the highest price, lowest price, and average price of competitors in your area.
Local Comparisons Are Best
You may have to look outside of your area for comparable companies in order to determine typical prices. Keep in mind that there can be dramatic variation in prices depending upon your location and the demand for the product.
As an example, if you would like to rent a stand up paddle board for a day on the lake you will only pay $9 per hour in some parts of the country, but others area have a typical charge of $45 per hour for the same product. This is why the best price comparison is with similar companies in your region.
When we started Picnic Table Rental, before we had competition, we were able to compare prices to a company that had operated in our region in the years previous. We also looked at similar companies in other cities within a couple hours of our market and kept our prices within the same ballpark range as theirs.
When direct competition showed up in our market we had to decide how to price our products in relation to theirs.We found that the number and type of customers that we interacted with was related to how our products were priced compared to the competition.
Perception of Your Company
Low Prices and Company Perception
Let’s say that you price at 30 percent lower than the lowest-priced competitor. Does this indicate that your service is a great deal, or does it indicate that you provide lower-quality service with cheap products and fewer perks? You may be perceived as a great value, or you may be perceived as the low-end, low-service company in the market.
Low-end companies are not able to offer as many extra services as the high priced companies (maybe high-end companies can offer free setup and delivery, but you cannot, for example) and you will have to serve more customers to make up the lost profit that higher prices would bring.
If you go with the low-price strategy it is important to brand your company as the “best value” company for what you are offering. Your cost of doing business must be low, but the value of the service that you offer your customer needs to be more than what is expected for the price. Customers should be pleasantly surprised by their overall experience with you or you will have a reputation as the cheap and crappy company that offers the lowest prices.
Think about your everyday decision making. Do you typically book the cheapest hotel room in a city, or the cheapest airline? Most people go with at least the second-cheapest option to avoid a dirty hotel or a barely-safe plane unless the cheapest option also has a reputation for great service. The perception of quality is a battle you will fight if you price your products on the low end.
Low Prices and Customers
Another consideration is the customers that you will interact with. Experience both from running a rental business and a retail business has shown me that customers who want the cheapest price are usually the most difficult to deal with. You might expect that a customer paying $150 for running shoes would be much more picky than a customer who comes in to the store with a budget of $50, but it is exactly the opposite.
The customer who is willing to pay more is generally one who understands the value of what you are offering, and they are willing to pay for that value. The customer who comes in with a very low budget may not understand that value, and they just want a product for the lowest price.
Lowest-price customers can also be more difficult to work with because may not trust your advice, seeing you as a salesperson trying to make an extra buck, even if you are simply trying to find the right solution for their needs. You are trying to get them into a shoe with the right type of support, and they simply want a shoe that is half-off, even if it is not the right shoe for their feet.
In many ways it can be more desirable to find and work with one high-paying customer than with two or three low-paying customers.Pricing low is not always a bad idea, but you should be aware that it does come with its difficulties.
Pricing higher than your competition may give the impression that you offer high-quality service and products. When faced with a variety of options most customers will assume that the most expensive is the highest quality.
By pricing your products on the high end, and providing great service to match the price, you can establish the perception of your company as the expert or leader in the market. When a customer looks at the options they will ask which services the other companies are not offering to get their prices lower than yours. This is a great thing, because the customer is using your company as the standard by which to measure the competitors.
The difficulty with higher-priced products is finding customers who are willing and able to pay the price. You must be able to educate the market on the need for and benefit of your high-priced product. You will have to explain to customers the benefit of paying the higher price to work with you, and the customer needs to be able to trust you or she will not be able to justify paying a premium to do business with you.
On the bright side, higher prices with a stronger profit margin mean that you will not need to serve as many customers as the lower-priced companies to earn an equivalent profit.
How We Managed Perception
At Picnic Table Rental we actually priced our main product, picnic tables, on the low end of the price range compared to similar companies. We differentiated our company by offering many related products that our competition did not have, such as tents, banquet tables, and chairs, and this helped to make up the difference in lower picnic table prices.
We also utilized some pricing strategies that increased our average sale and made our customers happier.
In Part 3 of this series we will take a look at various pricing strategies you can employ to enhance both your sales and the customer’s perception of your company.
Do you have any interesting experiences dealing with companies that offer very high-end or low-end services? Share them in the comments below!