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Common Sense Business Solutions

How to price: Step Five

In 2008 Self Counsel Press published my book - Pricing Strategies for Small Business. The purpose of the book was to make available to the owners of small companies, pricing techniques used by sophisticated and large companies to improve their bottom line. Since that time I have discovered that most owners are largely indifferent to the opportunities presented by better pricing. The focus after the past seven years of terrible economic times is still on cost cutting and growing sales at whatever cost, ignoring a truly powerful business tool. I believe that finding the time to experiment with pricing is almost always beyond business owners struggling with sales, staff, regulations and taxes.

The question most asked of me when I have given speeches on pricing is how to price their product or service. Clearly this is beyond the scope of a quick 10 second review. But demonstrating six or eight different methods in use today was clearly not quite enough.

So the purpose of this fourth article and the following final article is to create the five steps to finding your price using a workbook approach. The steps in this workbook format are: know your competitor pricing, define your USP, know your customer, price and demand relationships, and the marketing environment.

 

Step 5: Marketing environment

In 1991, CBS’s 60 Minutes program ran an episode about the French Paradox. In that segment, they tried to explain the low incidence of heart disease in France where everyone ate lots of fatty foods (butter, cream, cheese). The solution to this conundrum, the investigators claimed, was that the French drank red wine and put forth a scientific sounding explanation.

The French wine exporters pounced on this and ran full page ads in US newspapers crowing about the positive health impact of a glass of red a day. Sales soared. Prices rose. As similar pattern emerged when oat bran, yoghurt, alkaline water, and echinacea were highlighted as health givers.

In February of 2015, Terry Reilly, of the CBC radio show Under the Influence aired a tremendously insightful examination of the impact of weather on sales. http://www.cbc.ca/radio/undertheinfluence/sunny-with-a-chance-of-mouse-traps-how-weather-affects-marketing-1.2957608?autoplay=true. In this episode, O’Reilly describes how the people behind the Weather Network convinced Campbell Soup to exploit a small bump in chicken noodle soup sales when the weather turned rotten. Instead of just letting it happen, the weather network fed information to Campbell’s to enable them to advertise chicken noodle soup heavily three days before bad weather hit and made people miserable. The result? A tremendous bump in sales.

Consider the price of champagne. Champagne is fizzy white wine, when all is said and done. It costs marginally more to make but sells for a significantly higher price. Why? Because the manufacturers have convinced us all that a meaningful celebration of life, success, marriage, sometimes divorce, graduation, birth and any Hallmark holiday can only be celebrated properly with a bottle of bubbly.

These are three instances of a marketing environment affecting price. In the first, an accidental but favourable review was pounced upon to drive sales and prices. In the second instance, data mining was used to exploit a changing mood and bump sales, although not in this instance, price. In the third instance, the manufacturers set out from the beginning to convince us to pay more for their market segmented, highly differentiated, USP driven product.

So the final part of your workbook must be to include these marketing environments that influence your pricing. What do you control? What can you influence? What factors put you in the driver’s seat? Even the tiniest thing can make you master of your universe and the price driver in your market place.

 

I owe a huge thanks to Rafi Mohammed for his insight and attempt to create a structure based on the theory of pricing.

This column focuses on business problems and how to solve them. Andrew Gregson, BA, MA , M.Sc.Econ is an economist, author and a Senior Partner in iNTENT Financial Inc, a Kelowna based finance and consulting company. The 3 partners specialise in finance, pre-determined profitability, sales and marketing. If you need further information, please contact us through the website at www.intentfinancial.com.



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How to price: Step Four

In 2008 Self Counsel Press published my book - Pricing Strategies for Small Business. The purpose of the book was to make available to the owners of small companies, pricing techniques used by sophisticated and large companies to improve their bottom line. Since that time I have discovered that most owners are largely indifferent to the opportunities presented by better pricing. The focus after the past seven years of terrible economic times is still on cost cutting and growing sales at whatever cost, ignoring a truly powerful business tool. I believe that finding the time to experiment with pricing is almost always beyond business owners struggling with sales, staff, regulations and taxes.

The question most asked of me when I have given speeches on pricing is how to price their product or service. Clearly this is beyond the scope of a quick 10 second review. But demonstrating six or eight different methods in use today was clearly not quite enough.

So the purpose of this fourth article and the following final article is to create the five steps to finding your price using a workbook approach. The steps in this workbook format are: know your competitor pricing, define your USP, know your customer, price and demand relationships, and the marketing environment.

 

Step 4: Price and demand relationships

The price of gasoline dipped late last year to levels we have not dreamed of for a few years. This brought cries of dismay to the lips of investors, layoffs in the oil fields and questions raised on the viability of BC’s oil and gas driven prosperity drive. But it also means that more people will visit us this summer. Combined with the relative decline in the value of our dollar we should, in Kelowna, expect more Albertan and American tourists this year. This influx will put demand on hospitality facilities, on the bars and hotels. It will mean packed restaurants for the first time in years. It will mean car loads of wine going back to Alberta. It will mean more money dropped at grocery stores, liquor stores, car repair shops, and tourist specific venues. Will the prices rise?

A couple of months ago, the Economist magazine, of which I am an absolute fan, examined the impact of price on books - with an emphasis on rare books. The internet has not flattened prices for rare or collectible books. Rather, the internet has expanded like a balloon the demand for a limited supply of books, by broadcasting over the entire planet. Has this affected price? Of course. Prices have risen.

What other goods and services can affect the price of your offering? In the 1990s when house prices suddenly flattened, Home Depot realized it had a bonanza on its hands and targeted the home improver. Can’t afford a new home, then come and see our experts to help you freshen, repair and add onto your home. Did Home Depot increase its prices? Yes, or at least they stopped the steady fall in pricing that had prevailed when people moved instead of renovating.

It is now a much repeated story, but cell phones in India have helped the poorest of fishermen to improve their incomes. Before cell phones, the fisherman came back to port with a boat load of fish and did well if he was first or the only catch of the day. Otherwise supply met demand and often that meant poor returns to the fisherman. Now cell phones work the market at multiple ports on the cost of India to choose where the best prices are offered.

The point of my examples is to urge us all to pull our heads out of the sand, or out of the Valley, and consider wider impacts. When demand increases suddenly due to something completely from left field, we need to be nimble enough to react and not leave money on the table.

In two weeks, Step Five focuses on the market environment.

 

I owe a huge thanks to Rafi Mohammed for his insight and attempt to create a structure based on the theory of pricing. This column focuses on business problems and how to solve them. Andrew Gregson, BA, MA , M.Sc.Econ is an economist, author and a Senior Partner in iNTENT Financial Inc, a Kelowna based finance and consulting company. The three partners specialize in finance, pre-determined profitability, sales and marketing. If you need further information, please contact us through the website at www.intentfinancial.com.



How to price: Step Three

In 2008 Self Counsel Press published my book - Pricing Strategies for Small Business. The purpose of the book was to make available to the owners of small companies, pricing techniques used by sophisticated and large companies to improve their bottom line. Since that time I have discovered that most owners are largely indifferent to the opportunities presented by better pricing. The focus after the past seven years of terrible economic times is still on cost cutting and growing sales at whatever cost, ignoring a truly powerful business tool. I believe that finding the time to experiment with pricing is almost always beyond business owners struggling with sales, staff, regulations and taxes.

The question most asked of me when I have given speeches on pricing is how to price their product or service. Clearly this is beyond the scope of a quick 10 second review. But demonstrating six or eight different methods in use today was clearly not quite enough.

So the purpose of this third article (see previous articles here) and the following two articles is to create the five steps to finding your price using a workbook approach. The steps in this workbook format are: know your competitor pricing, define your USP, know your customer, price and demand relationships, and the marketing environment.

 

Step 3: Know Your Customer

Successful businesses know with exactness the wants, wishes and buying behaviours of specific individuals. They have analyzed the size of the market or the number of potential customers that fit the target profile. But further still, they know their customers’ names, ages, genders, incomes, home and Internet addresses, professions, education, associations, and marital status, number of children, hobbies, their tastes and interests. They grasp what their customers watch, read and hear. They understand their likes and dislikes. Knowing a customer to this depth is one of the key characteristics of highly successful business leaders.

But for most business owners, their target market is as faceless as a telephone book and their marketing efforts as effective as phoning everyone under the letter P.

For the purpose of creating a pricing strategy we need at least two pieces of key information. First is income of the target market and obviously, the geographic distribution of these people. Then you will need to know what benefit they get from buying your product or service and how do these fit with education level, age group, and hobbies.

Put simply, if your target market area is overwhelmingly lower income blue collar, you might do well with a used auto parts store but not a mag wheel retailer. If your target market is higher income professional people who like woodworking, you might do well with a tool store or a lumber store stocking exotic woods.

Even knowing what your customer is going to undertake with your product or service can point you to higher profits. As a wily business owner, you must know what BENEFIT your customer is trying to solve by buying your product or service.

If the product is a chop saw and the weekend warrior is in your store, the salesperson’s first question has to be “what project are you planning?” If the project is a small cabinet, the cheapest machine will be satisfactory. But if the customer is making his living with the chop saw, a durable, reliable machine is the ticket.

If your market is upwardly mobile, there might be an element of keeping up with the Joneses or one-upmanship in the market. More highly priced products carry a cachet of being more successful – if you position yourself by your marketing and branding. When Tynan water got its signature blue glass bottles on a Bond film, sales rocketed in a category crowded with high priced water.

So, create a table of what you and your sales staff think is the customer profile using the list above as a starting point. List all characteristic and then start ranking them in importance. Then pull statistical information from Stats Canada and Chamber sources about your area. To fine tune this process, collect information on your customers. I am still astonished how few businesses collect even elementary data like phone number and email addresses. With social media you can keep your company in front of customers and potential customers, constantly testing the waters with products offerings and sales.

When you have finished, test, test , test and then start again. This is work, but is directly related to sales and sales growth. As above, this is a habit of a successful businessman.

In two weeks, Step Four focuses on demand for related products.

 

I owe a huge thanks to Rafi Mohammed for his insight and attempt to create a structure based on the theory of pricing. This column focuses on business problems and how to solve them. Andrew Gregson, BA, MA , M.Sc.Econ is an economist, author and a Senior Partner in iNTENT Financial Inc, a Kelowna based finance and consulting company. The three partners specialize in finance, pre-determined profitability, sales and marketing. If you need further information, please contact us through the website at www.intentfinancial.com.





How to price: Step Two

In 2008 Self Counsel Press published my book - Pricing Strategies for Small Business. The purpose of the book was to make available to the owners of small companies, pricing techniques used by sophisticated and large companies to improve their bottom line. Since that time I have discovered that most owners are largely indifferent to the opportunities presented by better pricing. The focus after the past seven years of terrible economic times is still on cost cutting and growing sales at whatever cost, ignoring a truly powerful business tool. I believe that finding the time to experiment with pricing is almost always beyond business owners struggling with sales, staff, regulations and taxes.

The question most asked of me when I have given speeches on pricing is how to price their product or service. Clearly this is beyond the scope of a quick 10 second review. But demonstrating six or eight different methods in use today is clearly not quite enough.

So the purpose of this second article (see first article here) and the following three articles is to create the five steps to finding your price using a workbook approach. The steps in this workbook format are: know your competitor pricing, define your USP, know your customer, price and demand relationships, and the marketing environment.

 

Step 2: Define your Unique Selling Proposition (USP).

Your USP is a sentence or phrase that explains what makes you special. It gives your prospective customers a reason to do business with you rather than your competitors. A good USP makes your marketing a lot more effective, because it gives you dominance over a market niche.

When developing your USP, it is important that you put yourself in your prospects’ position. Look at your product or service from the point of view of someone thinking about buying it. What is important to your potential customer? Focus on the benefits - your customers’ interest is what your product or service does for them. How does using your product solve a problem? The key to unlocking the decision to buy is offering benefits that outweigh what the competition offers.

So benefits are all about how your product adds value for your customer, while features relate to what goes into making the product or service and how it is delivered to customers. This is an important distinction, because customers are really not interested in features, they are only motivated by benefits.

For example, saying that there is a lifetime guarantee on your products is describing a feature. The benefit is that customers don’t take any risk by buying your product. A powerful USP is one that is focused on benefits that only you offer.

So, to start with, list all the features of the product or service that your business offers. When you can’t think of any more, go through each feature and look at it from the customer’s point of view. What is the benefit? List all the benefits next to the corresponding features. Next refer to your notes from Step 1 and list what your competition offers.

Your USP must be focused on benefits that only you offer. So, eliminate from your list all benefits that your competition is also offering. If you find that you have no benefits left after you do this, you will have to tweak some features so that they result in unique benefits.

You should end up with a few benefits to choose from. When deciding which one is the most suitable as the focus of your USP, ask these questions:

  • Which benefits are the most important to your client?
  • Which benefits are the most difficult for your competitors to imitate?
  • Which benefits can be most easily understood by customers?

If, like most of us, you are in a competitive market, you can’t be all things to all people. In other words, you have to find a niche - a corner of the market that you can take ownership of because of the unique benefits you offer. Remember, focus is the name of the game.

When you have identified the benefits you want to use, you can start writing the USP. Start off with a paragraph that describes the unique benefit or package of benefits. Then eliminate all unnecessary words. Cut it down until you have only one sentence that says it all.

A good USP should be:

  • Only one sentence.
  • Clearly written so that everyone can understand it.
  • Composed of benefits that are unique to your company or product.

The Domino’s Pizza USP is a good example of a Unique Selling Proposition that does all of these things:

"Fresh, hot pizza delivered to your door in thirty minutes or less, guaranteed."

When you have a USP, make sure that it is incorporated in all your communications to potential customers. Also ensure that it is well understood by your whole team and consistently delivered on. You will attract a strong following of loyal customers and your business will thrive.

In two weeks, Step 3 focuses on your customers.

 

I owe a huge thanks to Rafi Mohammed for his insight and attempt to create a structure based on the theory of pricing.

This column focuses on business problems and how to solve them. Andrew Gregson, BA, MA , M.Sc.Econ is an economist, author and a Senior Partner in iNTENT Financial Inc, a Kelowna based finance and consulting company. The three partners specialize in finance, pre-determined profitability, sales and marketing. If you need further information, please contact us through the website at www.intentfinancial.com.



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About the Author

Andrew Gregson, BA, MA, M.Sc. (Econ), holds a Master's Degree in Economics from the London School of Economics.

Andrew's experience working with an international business consultancy and being a business owner for 15 years was the impetus for his book "Pricing Strategies for Small Businesses". He brings his expertise in finance, pricing and debt restructuring to the table to help struggling manufacturing and service companies to return to profitability. This has helped companies to rebuild value and often to sell at much higher dollar values.

Andrew has contributed to trade journals, "Spark" on CBC National Radio and has been a guest speaker at business networking groups, colleges, universities on his topics of expertise - pricing, exit plans and debt. He is also a frequent contributor to blogs and online postings for business help.

Andrew is currently the President, Board Of Directors intent Financial Inc., his role is overseeing intent Financial Inc., Intent Investment Corporation and other related ventures.

 

Website link:  www.intentfinancial.com

Contact e-mail address:   [email protected]






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The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet presents its columns "as is" and does not warrant the contents.


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