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.
This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.