Mission impossible

Business owners assume that their MISSION 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.

Should you decide to read this post your business will not self destruct. You may actually start to charge more, sell more and make more profits.

The following three examples illustrate how to increase sales, increase profits and get more customers.

1.  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 programme 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.

2.  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.

3. 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 minimised.

There are three common threads in all these examples.  In each, someone did a careful cost benefit analysis from the CUSTOMER POINT OF VIEW.

First, 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.

Article written by Andrew Gregson and Donald Robichaud

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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.intentfinancials.com

Contact e-mail address:   [email protected]

The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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