Pricing is a key part of your business strategy. Low prices trap companies in a race to the bottom. Slim profit margins mean it is difficult to invest in marketing, training, research and new products. Once customers classify your company as the “low price option,” changing that perception becomes tremendously difficult.
Price Decisions In The News
Your pricing decisions have the potential to make a tremendous impact on the marketplace. On the one hand, you might experiment with a flash sale (i.e. a sale lasting 24-72 hours). On the other hand, constant discounting may dilute your company’s position. The following examples show pricing decisions in the news.
Stand Out With High Prices? Sembikiya’s stores in Japan are known for offering high priced fruits to customers. In 2017, high-end fruit retailers regularly sell fruits for over $100 each, and some sell for over $1,000 at auctions. Many of us are accustomed to seeing low price competition in the grocery market. Japan’s fruit market shows that high-end prices can work!
Coupons May Boost Customer Happiness. Who else wants happy customers? A study commissioned by Coupons.com found that customers that receive a discount coupon reported higher levels of well-being.
Overusing Discounts. Is it possible to offer a “too good to be true” deal to customers? Consider Need a Cake’s experience with Groupon, the online deal service. The bakery was overwhelmed when more than eight thousand customers bought the deal. Delivering on the deal was extremely challenging. It appears that profitability also suffered. This example shows that discounts are like fire. If they are controlled, they are useful, but they can also have a devastating impact.
Assess Your Pricing Strategy In 5 Steps
Before you invest in another advertising campaign, take a step back to analyze your pricing. If your pricing and profit margins are poor, advertising will make those problems worse.
Do You Understand Your Direct Costs?
Direct costs include the raw materials and direct labor required to create your product or service.
Do You Understand Your Indirect Costs?
Your indirect costs include management, accounting, building costs, and marketing. In most cases, these costs are required to operate the business, but they cannot be connected to a specific product or service.
What Was The Last Time You Changed Your Prices?
If you have a large catalog of prices and services, focus on the most popular products. Many companies update their prices annually based on inflation and other data. If you have not raised prices, you are losing money.
According to MeasuringWorth.com, $100 in 2005 is equivalent to $121 in 2015 dollars. If you have not increased prices in that period, you have lost money on that product.
How Do Your Prices Compare To Competitors?
While you have no obligation to set prices based on your competitors, it is helpful to understand their pricing decisions. Why? Many of your customers are likely to price shop your company. Therefore, you want to know in advance whether how rank compared to your competitors.
What Price Feedback Do You Receive From Customers?
How do your customers react to your pricing? If there are long price discussions for every sale, that may indicate that your pricing is too complex.
How Do You Present Price In the Sales Process?
From a sales standpoint, ask yourself how the price is presented to the customer. Some companies like to lead with price in their advertising because they are significantly different. Other companies only present price quotes after going through a detailed discussion with a customer.
Much like price changes over time, it is smart to periodically review how you present price to customers. Sales are likely to suffer if prices are presented in the wrong way.
How To Improve Your Pricing This Year
Putting higher prices into effect are one of the best ways to improve profits and profit margins. Here are three ways that a retailer can raise prices and minimize lost business.
Offer new products: If your company has previously only offered budget priced TVs, you could effectively charge higher prices by introducing high priced TVs. Over time, you can gradually reduce your lower price inventory.
Eliminate or modify existing discount programs: There is no rule that states you must keep discount programs in place forever. If you have a membership-based discount program, consider closing it to new members. As a result, new members will pay regular prices.
Improve The Customer Experience To Support Higher Prices:
If you are interested in significantly increasing prices, a simple announcement may not be enough. Instead, I recommend improving the customer experience. For example, consider offering faster delivery service or a greater degree of customization on products. In this way, a substantial price increase is more likely to succeed because it is associated with increased value.
Put Your Price In Context
It is difficult to see your company’s price objectively. If you are considering price changes or a new marketing campaign, contact us for a price and marketing assessment.