Mar 29, 2013 / 5:00 am
Business owners assume that their purpose is to set a price for a product rather than for the customer segment. But, identical products or services can be sold with many different price and profit levels.
The following three examples illustrate how to increase sales, increase profits and get more customers.
Analyze your customer
In 1954, DuPont introduced a new resin. While the new pipe looked exactly like the old pipe, it had a longer life and withstood greater pressure. Sales grew strongly despite the fact that the pipe was 1.9 times more expensive.
But there was a secret in this strategy’s success. In a typical use the pipe goes underground. It is clear that if the pipe bursts, it would have to be dug up. The value of the pipe was greater precisely because the salesman focused attention on the pain of having to dig up burst pipes more often than was necessary now that new pipe was available. The sales program was successful because it pressed the hot button labelled “dig all day in the cold mud looking for busted pipe”. At that point, the price difference became irrelevant.
Market the BENEFITS not the features
Unless your customer is an engineer, the latest product specifications are gibberish. Your new resin, new alloy or new gadget must answer the WIFM question if it is to be sold. WIFM = what’s in it for me?
It could be new drill bits with titanium points. They are harder and can drill longer without sharpening. But that has to become a tangible benefit by translating from “longer between sharpening” to 14% more holes drilled. At that point, the potential user will price out his down time for drill changes first and then secondarily, the cost of re-sharpening. Price takes back seat to the cost savings.
Examine the customer perception of what is a cost
One manufacturer of laboratory instruments was plagued by a high number of very small orders for repair parts. The manager found that end users were annoyed at having to place these small orders because the administrative and shipping costs were greater than the parts prices. Furthermore, the manufacturing company was losing money on the parts for the same reason.
Even more costly, customers were upset at the downtime caused by not having these low value parts in stock. To alleviate the problem, the product manager developed repair kits with an assortment of parts and offered them to customers. The company’s picking costs went down, average invoice value went up, profits went up, shipping costs went down, and customer satisfaction increased because instrument down time was minimized.
There are three common threads in all these examples.
In each, someone did a careful cost benefit analysis from the CUSTOMER POINT OF VIEW. The salesperson painted a vivid picture of the annoyance and costs of repeatedly digging up pipe, idle production because the right repair part had to be ordered, or down time costs whilst changing drill bits.
Secondly, the penalties were identified first, not the price. Price was introduced after the benefit picture had been painted in stark, primary colours
Thirdly, the price was MORE than would have been invoiced based upon cost and mark-up formulations.
Want to build your business? Then develop an innovative pricing strategy and talk to your customers.
Andrew D. Gregson B.A., M.A. M.Sc.(Econ) of Floodlight Business Solutions
About the author:
Andrew Gregson has many years of experience as a business consultant to small and mid-size businesses in Canada, the United States and the Caribbean. To date, Andrew has analyzed and assisted over 130 businesses in the service, wholesale, distribution, and manufacturing sectors. In 2008, Self-Counsel Press published his Pricing Strategies for Small Business, now available in Canada, the US, India and Russia. Andrew lives in Kelowna BC, speaks to business groups and works in finance.
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