In 2008 Self Counsel Press published my book - Pricing Strategies for Small Business. The book is now available in Europe, India, Russia and the United States. 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 article and the following four articles is creating the five steps to finding your price using a workbook approach. This is not a silver bullet any more than creating a great sales program is a silver bullet. It takes time and effort and needs reviewing annually to keep it effective.
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 1: Competitor pricing.
What do your competitors charge for the identical or near identical product or service? You need to know this because your industry is always in the grip of its dumbest competitor. If competitors are driving down prices, customers will make the unfortunate assumption that your higher product or service is also low quality and not deserving of the higher prices. Having high prices and only high prices proves that your competitors are right.
Knowing ALL of your competitors is key and the steps to make a comparison will make you more aware of where you fit in the pecking order. Are you in the middle, top or bottom band in the pricing marketplace? Are your products and service easily comparable? Is it easy for customers to compare apples to apples?
Let me tell you why this important by quoting from my own book and experience. When I owned a hardware store, we started selling repair parts for barbecues. The suppliers told me that my competition was Canadian Tire and Home Hardware who sold inferior universal replacement parts and not Original Equipment from the Manufacturer. It was part of my spring routine for several years to price shop my competition to see what they had in stock and what they charged. Since the burners for a barbecue sold in the middle 1990’s for some 20-30% of the original value of the barbecue, there was sticker shock nearly every time. I watched the reaction to the sticker shock and was able to quote from my research that whereas I had the OEM replacement part, my competitors across town had a suitable universal replacement that only required “some” assembly and it was $1.50 less. I could see the mental calculator going. “A little assembly is what the barbecue itself was supposed to need and it took me a whole Saturday afternoon and a case of beer.” I never lost a sale because of my higher price.
If your product or service is totally identical to your competitors, please note that in your research. You will need that information for Step 2 which will appear in two weeks.
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.
This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.