How Will Right Pricing Make Your Business More Profitable? Post 1 of the series

Over the years I have seen far too many businesses struggling to maintain, or even achieve, a reasonable level of profits in their business – often because they are not selling enough products at the Right Price to the right customers to make the right profit.

I’ve have even seen businesses price their services knowing they were making a loss on that contract or sale, in the belief that they will pick up more business as a result of “going in low”. Trouble is, an expectation once set is an expectation that must always be met.

I have seen even more businesses just pricing their products at a set margin, either a percentage or dollar value, that sometimes is not enough to produce the income they need to cover all the costs of running a business.

In my “Business Basics” and “Pricing For Profit” workshops I talk about “Right Pricing” – the willingness to price the products or services we sell in our businesses at the price they should be sold, rather than just selling them at a price that our opposition sell theirs.

While initially this may cause concern in those attending these workshops, this changes as these business owners see the light, so to speak.

What business owners want to know is how do they Right Price to make a profit – or better still – a profit that will actually allow them to enjoy the life they always planned to have when they first started their business.

In this post, which will have to be a series of posts because of the concepts involved, I’ll simply address one of the issues we face in pricing.

Future posts will address more issues and their solutions.

Why don’t businesses Right Price?
I’ve found that often business people are fearful of pricing their products differently to their opposition because it is often believed – wrongly – that pricing is THE major consideration by customers when purchasing. While pricing is an important consideration, it would be true to say that it is Right Pricing – the price equal to what the customer is willing to pay for the quality of the service or product being purchased – that is a greater consideration.

Everyone will buy the best product or service they can – for the price they are willing to pay.

The right customer for your product or service will pay no more than they consider that product or service to be worth to them.

A business that assumes that everyone is interested in only the lowest price model will invariably position themselves to only service the lowest paying customer. A business that markets the Right Pricing will find the right customers willing to pay the Right Price – even if it is higher than everyone else in town.

Customers will pay more when they perceive that what they are receiving is worth more.

Customers will pay less when they perceive that what they are receiving is worth less.

And they won’t be tricked into believing they should pay heaps for a lousy product or service!

A quick example. I can go to my local world-wide fast food chain and buy their food deal for under $10.00. What do I get for my investment? A meat pattie of varied description, a bread bun, a bit of lettuce, some cheese slice thingy, a bit of tomato, sauce, a party hat of fries and cup full of ice with a little bit of drink. It’s basic. It’s quick. It’s convenient. There is no table service or crisp linen tablecloths. I might get a tray with a paper serviette if I’m lucky. Does it work? Well everyday millions of customers pay their price for this quick alternative to food.

Then there are those people who will pay well in excess of $150 for a meal. And what do they get for their investment. A bit of meat with juz (really snobby gravy!) drizzled over the top on a blob of mashed-potato-with-a-fancy-name, a couple of pieces of under-cooked looking vegetables that are hardly enough to fill a baby’s stomach. And the drink costs extra!

So, why would anyone pay so much – especially when the wholesale price may not that much different – definitely not $140 different – between the two lots of food?

And, if price is the only determinant, why does anyone pay that $140 more for their food than others? Wouldn’t everyone only buy the cheapest?

No! People will pay that much more because they can. They will pay for the name of the chef. They will pay for the ambience. They will pay people with the knowledge to explain the food and wine. They pay so much more because of one little “big” thing – the whole experience that comes with the food.

Equally important, they will even refuse to pay for ANY OF IT if the wait-staff upset their experience.

People will pay more for an experience that makes them feel special and adds value to their experience. People will pay far less for an experience that makes them feel, well, ordinary – nothing that special.

So to begin the Right Price journey you have to understand who your customer is, why they use your products or services, why they don’t use your opposition, what value propositions drive them and what aspirational emotions do they want to fulfil.

All Success

Colin

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