2010 January | Pricing For Profit Book | pricing strategy | branding | value based pricing | value pricing

Archive for January, 2010

A Dissenting Opinion

Tuesday, January 26th, 2010

A Dissenting Opinion

Is raising prices in a down economy inappropriate?

One reader thinks so.

Break the bonds of industry pricing!

Get compensated well for the value you provide.

I had the good fortune to be interviewed for an extensive article for a local business publication. During the interview the reporter said “One of my readers thinks that it’s inappropriate of you to recommend that businesses raise prices in a down economy.”

What do you think? Am I being inappropriate? Am I adding to the financial problems the unemployed are experiencing? Or am I trying to speed the recovery?

Here’s my take on the current economic conditions. We’ve been in a discount economy for roughly three decades. Consumers have been trained to expect low prices or free for most of their wants and needs. This discount economy has wrung most of the profits out of the system for large companies and small. Without profits companies don’t have the financial wherewithal to hire more employees. The longer it takes for these companies to generate profits and cash reserves, the longer the unemployment will continue.

It’s counter-intuitive, but higher prices help companies ascertain who really values their offerings and who doesn’t. It helps them restructure their businesses to meet the desires of this narrower customer base and get fair compensation for providing the value their customers desire. The profits they generate can then be used to invest in new, exciting ways to serve their customers – ways that the customers value – or in geographic expansion.

Either activity, new offerings or geographic expansion, will require additional employees. The majority of the investment in either activity will be in people. The more quickly companies can work their way through this process:

Getting higher prices and profits for their offerings.

Restructuring their businesses to serve their value-minded buyers.

Building cash reserves from profits.

Funding new product/service launches/geographic expansion.

The more quickly we’ll see employment return.

Is raising prices in a down economy inappropriate?

One reader thinks so.

Tags: counter-intuitive pricing, price management, Pricing, pricing for profit, pricing for profitability, pricing management, pricing strategies, pricing strategy
Posted in Economy, Pricing | No Comments »

Want to Increase Demand?

Tuesday, January 19th, 2010

Want to Increase Demand?

Then raise your prices…

…to reflect your value.

Break the bonds of industry pricing!

Get compensated well for the value you provide.

One of the key reasons why buyers resist paying for the value we provide is that they don’t have an effective way to determine value. As we’ve discussed previously, when your product/service claims aren’t supported by a price that reflects that value the buyer gets confused. Confusion often translates into “No Sale.”

Recently I was asked, in an interview, to respond to the following comment:

“In my industry, raising prices is like shooting yourself in the foot. A lot of people are willing to do things for free and most of the companies that would hire me care more about quantity rather than quality. So, they take the free option until it burns out and then get a new one.”

Before I share my response, I encourage you to take a moment to consider what your answer would be. After all, you’ve been reading these blogs for awhile now and you may even have read my book, Pricing for Profit. How would you help this individual?

Here’s how I responded. In every human interaction one person is training another how to behave. In this particular instance the seller (indeed, the industry) has trained potential buyers that their offerings have no value. How? By “continuously doing things for free.”

In addition, this individual has trained buyers that her offering isn’t any better than anyone else’s. By failing to stand firm on her pricing she in essence has told the market that, despite her claims of a superior offering, her claims are not really true.

Indeed, I can’t help but wonder whether this service provider and her contemporaries really have demonstrable results to which they can point to substantiate their value claims. If they do, then it should be relatively easy to demonstrate value. If not, then they need to reevaluate what they’re doing so that the can build a results resume for the future.

Finally, if this person is truly in a business that people don’t value, shouldn’t she consider a different line of business? If I were still trying to sell movies in VHS format today, at some point I’d have to accept the reality that there just isn’t a market any longer and move onto to something that buyers want.

It’s counter-intuitive, but raising prices, or at least holding firm on your prices, will increase demand from people who truly value what you offer. You may not have as many customers as your competitors, but you’ll enjoy greater profits without working nearly as hard as they are.

Next week I’ll respond to a comment that it’s inappropriate of me to recommend higher prices when so many people are out of work. In the meantime, command the price you want – you’re worth it.

For more information on how you can command higher prices for your products and services, please post your questions or comments below, send Dale an email @ dale@furtwengler.com or call him at 314-707-3771.

To see how counter-intuitive thinking can be applied to other business issues, visit Dale’s blog, The Invaluable Leader at www.furtwengler.com/theinvaluableleader/.

You can get my book, Pricing for Profit, by clicking on the book cover or by ordering online from Borders.com, BarnesandNoble.com and Amazon.com. Enjoy!

Then raise your prices…

…to reflect your value.

One of the key reasons why buyers resist paying for the value we provide is that they don’t have an effective way to determine value. (more…)

Training Your Customers

Tuesday, January 12th, 2010

Training Your Customers

Break the bonds of industry pricing!

Get compensated well for the value you provide.

In every human interaction on person is training another how to behave.

How are you training your customers?

To get a sense for what your customers are experiencing I’m going to ask you to switch hats and view the following from the buyer’s perspective. You’ve reached an agreement with the seller on what you want. The only thing left is determining the price.

The seller states his price. You counter with a lower offer. He comes down a little. You press further. He drops his price some more. What’s your inclination at this point? To try again for another concession? Of course it is. As the buyer you don’t know where the bottom is and you won’t discover it without trying repeatedly for greater concessions.

Scenario number two – again you’ve reached agreement with the seller on what you want. The seller states his price. You counter with a lower offer. He tells you the price is firm, but that there are other, less expensive, options available to you depending on what you’re willing to forego in the option you’ve chosen. What are you going to do now? Are you going to push for the price concession again? You might. Just to see whether or not the seller is serious.

Let’s assume that you offer a price somewhere between what he’s asking and your earlier counter offer. Again, the seller states that the price is firm, but you have options. What’s going through your mind now?

In all likelihood your mind shifts gears and you begin evaluating the various options and price points available to see which best fits your needs.

In the first scenario, the seller trained you that it’s okay to ask for price concessions – that he wasn’t really serious about the price he was asking. He trained you to continue to seek price concessions.

The second scenario was completely different. The seller trained you to make a choice between what you said you wanted and what you’re willing to pay. He trained you to make an informed decision.

It’s counter-intuitive, but with every transaction you’re training your customers how to behave. If you don’t like the way your customers are treating you, you need to retrain them. Let them know that you’ve reevaluated your pricing policy to enhance their satisfaction. That you don’t want to waste their time with needless negotiations and a nagging doubt about whether or not they got a fair deal. Tell them that you’ve set your prices based on the value they get and be prepared to substantiate that value, then hold firmly to your price. Your customers will enjoy a more enjoyable buying experience with you and you’ll enjoy higher prices and profit margins.

Next week we’ll discuss how to say “No” to people who aren’t a good fit, yet retain them as a referral source. In the meantime, command the price you want – you’re worth it.

To see how counter-intuitive thinking can be applied to other business issues, visit Dale’s blog, The Invaluable Leader at www.furtwengler.com/theinvaluableleader/.

In every human interaction one person is training another how to behave.

How are you training your customers?

The Market Share Myth

Tuesday, January 5th, 2010

The Market Share Myth

The financial press focuses heavily on market share?

Is that the an appropriate measure?

Break the bonds of industry pricing!

Get compensated well for the value you provide.

Often when we see headlines stating that a company lost market share, we assume it’s a bad thing. Why? Because that’s what the financial press has led us to believe. They speak of market share as if all customers are created equal.

You need only look at the range of profit margins you experience from your customers to know that isn’t true. So how should you view market share?

It’s counter-intuitive, but the market you want to measure is the one in which your customers are paying the highest premiums. Unless you have 70% share of this market or more, you’ve still got plenty of opportunity left.

Many companies make the mistake of trying to increase “market share”, their customer base, by attracting the next tier of customer – those that don’t value their offerings as highly as the first tier. Consequently these companies have to lower prices to attract these customers and they do.

Unfortunately existing customers (those paying the premium) want the same discounts. Now these companies are giving up revenues and profit margins from their ideal market in hopes that the new revenues will more than offset the discount losses. Even if their able to replace the revenues, they’re making larger investments and working much harder to make less money per transaction. Is there an alternative?

Again, it’s counter-intuitive but if you can develop an offering in which that second-tier customer is interested, even if it’s at a lower price point, you can develop a new market to serve with price points and profit margins equal to those of your first-tier customers. Indeed, for this new market, they will become first-tier customers. Now you can measure your share of this market separately from your original market.

Don’t be fooled by the financial press’s cavalier attitude toward market share. Identify your markets carefully, measure your market share, then look for ways to increase your market share through creative new ways to serve those customers – ways that don’t involve lower prices on existing offerings.

ATTRACT opportunities instead of pursuing. Visit The Invaluable Leader at www.furtwengler.com/theinvaluableleader/.

The financial press focuses on market share?

Is that the an appropriate measure?

When we see headlines stating that a company lost market share, we assume it’s a bad thing. Why? Because that’s what the financial press has led us to believe. They speak of market share as if all customers are created equal. (more…)

Tags: counter-intuitive pricing, price management, Pricing, pricing for profit, pricing for profitability, pricing strategies, pricing strategy
Posted in Marketing, Pricing, Strategy | No Comments »