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Common-Sense-Business-Solutions

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.



More Common Sense Business Solutions articles

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]



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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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