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 fourth article and the following final article 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 4: Price and demand relationships
The price of gasoline dipped late last year to levels we have not dreamed of for a few years. This brought cries of dismay to the lips of investors, layoffs in the oil fields and questions raised on the viability of BC’s oil and gas driven prosperity drive. But it also means that more people will visit us this summer. Combined with the relative decline in the value of our dollar we should, in Kelowna, expect more Albertan and American tourists this year. This influx will put demand on hospitality facilities, on the bars and hotels. It will mean packed restaurants for the first time in years. It will mean car loads of wine going back to Alberta. It will mean more money dropped at grocery stores, liquor stores, car repair shops, and tourist specific venues. Will the prices rise?
A couple of months ago, the Economist magazine, of which I am an absolute fan, examined the impact of price on books - with an emphasis on rare books. The internet has not flattened prices for rare or collectible books. Rather, the internet has expanded like a balloon the demand for a limited supply of books, by broadcasting over the entire planet. Has this affected price? Of course. Prices have risen.
What other goods and services can affect the price of your offering? In the 1990s when house prices suddenly flattened, Home Depot realized it had a bonanza on its hands and targeted the home improver. Can’t afford a new home, then come and see our experts to help you freshen, repair and add onto your home. Did Home Depot increase its prices? Yes, or at least they stopped the steady fall in pricing that had prevailed when people moved instead of renovating.
It is now a much repeated story, but cell phones in India have helped the poorest of fishermen to improve their incomes. Before cell phones, the fisherman came back to port with a boat load of fish and did well if he was first or the only catch of the day. Otherwise supply met demand and often that meant poor returns to the fisherman. Now cell phones work the market at multiple ports on the cost of India to choose where the best prices are offered.
The point of my examples is to urge us all to pull our heads out of the sand, or out of the Valley, and consider wider impacts. When demand increases suddenly due to something completely from left field, we need to be nimble enough to react and not leave money on the table.
In two weeks, Step Five focuses on the market environment.
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.