What does aviation have to do…

…with your pricing strategy?

Imagine that you’re a seasoned pilot.  You’ve filed your flight plan when a massive snow storm hits. Visibility is zero and the winds are gusting up to 30 knots.  Are you going to take off?  Not unless you have a death wish. You know the dangers of flying blind.

Yet business owners fly blind time and time again. How? Let’s say that your competitor comes out with an improvement to its offering.  Your sense that their enhancement will give them competitive advantage so you scramble to provide a similar enhancement.  You just took off in a blinding snow storm.

First, you don’t know whether their customers, or yours, will value this enhancement.  Unless your competitor raised its prices to reflect the additional value the enhancement provides and their customers are paying that price, you don’t know whether the enhancement has any value to the customer.

Second, many business owners give away these enhancements without ever asking for higher prices. Why? Their rationale is that they’ll gain “competitive advantage” and garner a “larger share of the market.” How often has that really happened in your industry? Isn’t it more likely that there was little, if any, shift in market share?

If that’s true, your competitor drove up its cost structure without gaining any additional revenue. That means its margins just dropped.  Worse yet, you followed them blindly.  Your costs are going up as well, without the benefit of additional revenues.  If that weren’t bad enough you just made additional investments to do so. Ouch!

It’s counter-intuitive, but following a competitor’s lead in enhancing their offerings without evaluating their approach and the impact it will have on their bottom line is the equivalent of abandoning your flight plan and taking off into a blizzard.  The results can be devastating.

Discover how easy it is to command higher prices for your products and services, call me at 314-707-3771.

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!

Are you sure?

Are you really, really sure?

Here’s a test.  Can you tell me what these well-known businesses are selling?

• Mercedes Benz?
• JCPenney, Macy’s and Nordstrom?
• Anheuser-Busch?
• Gillette?
• Johnson & Johnson?

Based on my experience in working with business owners, here are the answers I usually get.

• Mercedes Benz – luxury cars
• JCPenney, Macy’s and Nordstrom – clothing
• Anheuser-Busch – beer
• Gillette – razors and razor blades
• Johnson & Johnson – healthcare products

Were these answers fairly close to yours?  If so, then I’m going to suggest that you don’t really know what you’re selling.  Here’s why.

While Mercedes does sell luxury cars, what their customers value is the image enhancement that the Mercedes name brings with it.  Certainly customers enjoy the luxury, comfort and safety their Mercedes provides, but the real value is that a Mercedes in the drive says “I am extraordinarily successful at what I do.  Here’s the proof.”

Even though JCPenney, Macy’s and Nordstrom all sell clothing their pricing varies dramatically.  How can that be if they’re all selling clothing?  The reality is that they, too, are selling image – albeit varying degrees of image. The JCPenney image offers current fashion trends at affordable prices.  Macy’s image is based on some designer names and more customer service than you get at JCPenney.  Nordstrom’s takes image to a whole new level with its store’s ambience, attentive sales force and, as with Mercedes, brands that say “I’ve arrived!”

The King of Beers” says it all.  Anheuser-Busch is in the business of selling the idea of a premium beer.  It doesn’t matter that people’s tastes in beer vary widely, Anheuser-Busch is selling that premium-beer concept and it serves them well.  In China, their products are gaining market share despite staggering price premiums over the Chinese beers.

Gillette does sell razors and razor blades, but that’s not the secret to their market domination.  They focus their attention on two value proposition for their customers – image (the best a man can get) and innovation.  Every few years Gillette comes out with something new to enhance the comfort and effectiveness of their razors.  A far cry from razors and razor blades, isn’t it?

Johnson & Johnson is a household name that breeds confidence despite its recent Tylenol recall.  J&J has a long history of quality and quick, effective action to remedy problems that arise.  The reason many buyers choose J&J products over competitors’ offerings is the confidence they have in J&J – in other words, its image. This image allows buyers to save time while shopping.   What J&J is really selling is image and time savings.  Their products are simply the media through which their image and time savings are sold.

With these examples in mind, what are you selling?  Is it the same thing you thought at the beginning of the article?  In reality there are only three things that any business sells – image, innovation and time-savings. Identify which of the three (or which combination of the three) you’re selling and you’ll be able to command and get higher prices for your offerings.

It’s counter-intuitive, but the key to commanding higher prices is understanding that it isn’t the product or service itself that attracts buyers.  It’s the intangibles associated with the buying experience.

Discover how easy it is to command higher prices for your products and services, call me at 314-707-3771.

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!

How do your organization’s values…

…align with your customers’ values?

I recently attended a meeting which highlighted an organization that took great pride in its culture, it’s values, how it treated it’s employees and the clarity of its expectations of its employees.  Indeed, they had good reason to be proud.  The clarity was greater than I see in many companies.

At the end of the presentation I asked “How do your values align with those of your customers?  Do you find that those customers who share your values are more profitable than those who don’t?”

To the CEO’s credit he admitted that many of his customers were at the opposite end of the spectrum in terms of the values that drive their organizations.  He didn’t indicate that any of his customers were closely aligned with his company’s values.  Nor did he address the question “Do you find that those customers who share your values are more profitable than those who don’t?”  I suspect that he didn’t have experience with customers who shared his company’s values which would explain the lack of a response to that final question.

My experience in working with clients and their customers, and in my own business, is that when you and your customers share the same values, you enjoy higher prices and profits.  Let’s take a look at a simple example.

Often I get involved in helping clients negotiate deals or defining the strategy for a negotiation.  Whenever a client or prospect approaches me to provide this service I tell them that my goal in negotiation is get a fair deal. That I believe that the greatest value lies in long-term relationships which can’t be created when one party is looking for the “best” deal for themselves. Then I tell them that if they’re looking for the best deal they can get, I’m not the right guy for the job.

Using this simple approach I make sure that my client’s values and mine are aligned.  If they’re not, we don’t move forward.  Why?  Because we aren’t going to be successful in the negotiation if either of us is going against our natures.  Let’s be clear, I’m not suggesting that I’m right and the prospect is wrong or vice versa. I’m simply saying that we’re not going to enjoy much, if any, success with divergent views on the right approach.

You can apply that same concept to any product or service you offer.  If the customer wants you to alter your offering in a way that violates your value system, neither of you is going to enjoy much success.  Limited success translates into lower prices.  The lower the value that a customer can expect to receive, the less they’re willing to spend.

It’s counter-intuitive, but one of the easiest ways to command higher prices and generate higher margins is to set define your values and use those values to decide whether or not a prospective customer/client meets those criteria.

Discover how easy it is to command higher prices for your products and services, call me at 314-707-3771.

It’s been said in many ways…

…but our world is a reflection of us.

Over the years we’ve heard sage advice like “You can’t love others until you love yourself” or “You can’t take care of others if you don’t first take care of yourself.” I’m going to put a little twist on these themes.  You can’t be valued by others unless you value yourself.

Buyers’ confidence in the value of what we’re offering depends heavily on our belief that what we’re offering is truly valuable – valuable enough to withhold the offering if we don’t get our price.  Of course we have to be able to quantify and communicate that value. But as long as the value is there, our responsibility to our buyers and ourselves is to communicate that value by asking a fair price and holding firm on that price.

If we don’t, if we cave into the buyers’ requests for lower prices, we tell them “We were just kidding, there really isn’t as much value as we said.”  At that moment we and our customers experience a sense of loss.

We lose:

• self-esteem – we feel devalued, needy, desperate
• revenues – from the lower price or from buyers walking away without buying
• confidence – we’ll find it more difficult to resist future discount requests
• enthusiasm – it’s hard to remain excited about what we do when it isn’t profitable

Buyers lose:

• a solution – often, in the face of conflicting messages, inertia sets in
• satisfaction – even if they do buy, they’re likely to question the value they received
• confidence – confidence in our integrity and/or capability
• enthusiasm – for ever doing business with us again

It’s counter-intuitive, but when you value yourself and your offerings, others, even those who don’t want what you offer, are going to perceive you and your offerings as having great value because you are willing to hold firm on your price.

Discover how easy it is to command higher prices for your products and services, call me at 314-707-3771.

At least once a year review your customer list…

…and refer the 20% least profitable to your competitors.

How costly is the wrong customer?  The cost is much greater than the lower margins you get from these customers. It’s not unusual your staff to spend 20% or more of their time trying to appease customers who really don’t value what you have to offer.  So besides suffering lower profit margins, you’re spending an additional $20,000 out of every $100,000 of salary to try to please people who can’t be satisfied.

If your staff’s time were spent finding new ways to serve customers who value what you offer, you’d have the opportunity to increase both revenues and margins.  These additional revenues and margins fall directly to the bottom line because they’re achieved without adding staff.

The profits you gain by ridding yourself of the wrong customers and replacing them with ideal customers can be used to attract and retain top talent.  A McKinsey study, The War for Talent, showed that an “A” player costs 20% more than a “B” player, but produces two to three times more.  That’s a heck of a return on investment.  You can’t get this return if you’re wasting profit dollars on customers who don’t value what you offer.

It’s counter-intuitive, but referring business to your competitors can be a great way to strengthen your business and position your company for a brighter future.

Discover how easy it is to command higher prices for your products and services, call me at 314-707-3771.