Old Macy’s Model

Let’s take a look at Macy’s old business model to see what is likely to have happened.  The company decides which fashions to highlight for the coming season.  The customers in markets where these fashions resonated were quite willing to pay Macy’s prices to get them.

It’s a much different story in those markets where those fashions held little, if any, appeal.  Many of those customers weren’t going to buy no matter how low the price went.  Those who judged the fashions to be uninspiring, yet acceptable, required heavy discounts to buy.

The result in the uninspired markets would be:

• Slower inventory turns
• Higher discounts
• Lower margins
• Lower overall profitability
• Dissatisfied customers

That’s a lot of pain!  Let’s contrast that with the new business model.

New Macy’s Model

By tailoring the fashions to the specific markets served Macy’s gets:

• Higher customer interest
• More frequent customer visits
• Higher prices
• Higher levels of customer satisfaction
• Greater customer loyalty
• Higher inventory turn rates

Now that’s a dramatic difference!

Then why is it that more of us don’t tailor our offerings to local markets?  Possible explanations range from ‘we don’t have time’ to ‘it costs too much.‘   When we sift through all the ‘reasons’ what we have is a basic laziness on our part.  We’re not analyzing our results in ways that allow us to see which markets value what we have to offer and which don’t.

This simple analysis will give us the insights we need to tailor our offerings to reap all of the benefits of the new Macy’s business model.  The choice is simple, the question is “Do you care enough about your customers to pull it off?”

Do you have a clear brand promise?  Find out by using my confidential Brand Promise Self-Assessment.  

Are you getting compensated well for the value you provide?  Use my confidential Pricing Self-Assessment to evaluate your company’s pricing.

Are your marketing messages attracting the right customers?  If you’re getting primarily price buyers you may want to use my confidential Marketing Self-Assessment to discover why.

Is your sales force putting pressure on you to lower prices?  Our confidential Sales Self-Assessment can show you why.

If you’d like to increase your prices, profits and customer base, call Dale at 314-707-3771.

Market Driven Pricing is a post from: Pricing For Profit Book | pricing strategy | branding | value based pricing | value pricing | private equity |

Fair Pricing

Virtually every government intervention into pricing has claimed fairness as its purpose.  The government’s perception is that the companies offering the product or service in question are gouging the public i.e. making unreasonably high profits at consumers’ expense.

How do they arrive at that conclusion?  They calculate what they believe to be the offending companies’ costs and add what they believe to be a fair profit margin to establish a fair price.  Wow, that’s a lot of presumption and supposition isn’t it?

Let’s take a look at how many and what types of assumptions are really being made.

Assumptions

First, the government assumes that it knows the company’s costs or what those costs should be.  Implicit in this assumption are two more assumptions:

1. Cost is static; they don’t change over time.
2. Costs and a fair margin are representative of value.

Cost is static

Anyone watching the evening news understands the impact abnormal weather has on crop yields and, consequently, the price of our food.  Similarly, the cost of gasoline is impacted as seasons change, oil supplies are disrupted (artificially or otherwise) and economic and political news spurs speculation.  For a government to think that they can monitor all of these changing conditions and more is sheer lunacy.

Value

Compounding the inane assumption that costs are static is the belief that adding a fair margin to these costs creates fairness.  Fairness for whom?  This approach completely ignores the fact that their are differing market segments for each and every product or service out there.

I may own a desktop computer, but shun smartphones and iPads while my neighbor would feel under equipped if he didn’t have all three.  My neighbor’s and my differing preferences indicate how much value each of us places on these three items.  For a government to think that it can come up with a price that’s fair to both of us ignores the fundamental concept of value.

Finally, the government presumes that all suppliers of products are offering the same quality and same levels of service.  Indeed, this could become a self-fulfilling prophecy in that government-imposed pricing would force companies’ offerings to become commodities thereby eliminating the choices that consumers once enjoyed.

Again, the overriding question “Fair to whom?”  In the examples outlined above, who would have been better off for the government’s intervention?  No one that I can see.

Consumer Dissatisfaction

While I’ve bashed the government’s approach to pricing I haven’t dealt with the reason why governments get involved in the first place – the hue and cry of the consuming public about the price it’s paying whether for food, gasoline or any product/service it feels it must have.

Interestingly the best (most fair) result is achieved when the dissatisfaction is allowed to grow.  Before you begin sizing padded cells on my behalf allow me to share my rationale.

If consumers are beginning to unite in their demands for lower prices and the providers of those products and services aren’t answering the call, there’s a reason.  Either the providers aren’t making as much money as consumers thought or they are making boat loads of money, but feel that they’re in the driver’s seat.

Not so profitable

Those companies that aren’t making as much money as the public thinks, or are making significant investments in technology to stay abreast of changing customer demands or are experiencing economic forces outside their control aren’t going to lower prices.

It doesn’t matter that the buying public doesn’t want to pay their prices, these companies don’t feel that they can lower prices and remain fiscally sound.

Driver’s seat

Companies that are experiencing exceptional profits, but feel that they have a captive audience -passengers in a vehicle – should be listening to their customers cries for help, but they’re not.  This attitude will cost them dearly.  Why?

Regardless of the situation, not so profitable or in the driver’s seat, unhappy consumers will search for lower-priced alternatives.  Absent the ability to find them, they’ll develop and present to the market alternatives which will inevitably have a lower price.

Disruptive technologies are born of burgeoning dissatisfaction with present conditions.  As you can see, government attempts to bring fairness to the marketplace actually deprives each and every one of us of alternatives that not only fit our needs, but at a price that reflects the value we’re actually receiving.

The next time you hear that your government is planning to step in to stem market inequity, call your congressmen and tell them to keep their hands off your future.

Do you have a clear brand promise?  Find out by using my confidential Brand Promise Self-Assessment.  

Are you getting compensated well for the value you provide?  Use my confidential Pricing Self-Assessment to evaluate your company’s pricing.

Are your marketing messages attracting the right customers?  If you’re getting primarily price buyers you may want to use my confidential Marketing Self-Assessment to discover why.

Is your sales force putting pressure on you to lower prices?  Our confidential Sales Self-Assessment can show you why.

If you’d like to increase your prices, profits and customer base, call Dale at 314-707-3771.

Government-Controlled Pricing is a post from: Pricing For Profit Book | pricing strategy | branding | value based pricing | value pricing | private equity |

• Who dictates the pricing in your business, you or your customers?
• How frequently do you monitor your competitors’ pricing?
• How do you use your knowledge of competitors’ pricing?
• Who is more likely to initiate a price increase, you or your competitors?

Dictating prices

Recently I met the CEO of a staffing firm.  He asked what I did.  When I told him he said, “That’s great if you’re in an industry where you control your pricing.  Our customers dictate our pricing.”

Obviously this man is not in control of his destiny.  Sadder yet is the fact that he doesn’t respect himself.  The reality is that we can’t expect others to respect (and value) us if we don’t respect (value) ourselves.

If you find that you’re regularly caving to customers’ price demands, discover your value.  Get help if you must, but find that value.  Until you learn to say “No” to those who don’t value what you offer, you’ll never master your destiny.

Competitors’ pricing

How much time do you spend monitoring competitors’ pricing?  My experience is that there is a direct correlation between the amount of time a company spends monitoring its competitors’ pricing and how reactive their pricing is.  Why?

The intense focus on pricing makes it the focal point in leadership’s mind; inevitably, the value perspective gets lost.  I’m not suggesting that you be ignorant of your competitors’ pricing, but don’t let that knowledge dictate your pricing.

Using competitors’ pricing

Understanding how you respond to competitors’ price changes will help you assess the mastery you have over your destiny.  These questions will help you make that assessment:

• Do drops in their pricing cause you to respond in kind or, worse yet, with ever greater discounts?
• Does their pricing cause you to be reactive instead of proactive?
• Does your mind go to “I have to lower prices to retain market share.” or “They must be struggling to lower prices so dramatically.”?

When a competitor drops his/her price, it should trigger the thought “How do I capitalize on this price move to demonstrate the value of our offerings over theirs?”  In other words, what is their customer giving up to get the lower price?

Initiating price increases

If you’re not the industry leader when it comes to pricing, you have no control over your own destiny.  Interestingly many of your competitors are praying for someone to be bold enough to raise prices so that they can raise theirs as well.

Know your ideal customer profile, what it is they value and how much they value it and you’ll be very confident in initiating price increases.  You’ll be in control of your own destiny and the envy of your industry.

If you’d like to increase your prices, profits and customer base, call Dale at 314-707-3771.

Master of Your Destiny? is a post from: Pricing For Profit Book | pricing strategy | branding | value based pricing | value pricing | private equity |

The reality is that pricing can enhance (or lose) a buyer’s trust in your offerings, but it can’t create it.  Why?  Because a price, without the context of value, has no meaning.  In my blog post, The Dangers of Cost+ Pricing, I used a milk example.  To families with young children milk has a great deal of value, to those who are lactose intolerant it has no value.  What that means is that we have to lay the contextual framework for our pricing in order to build trust.  How do we do that?

Customer Profile

It begins with a clear customer profile.  If we’re selling whole milk our customers are family with young children, not the lactose intolerant or seniors who are trying to remain heart healthy and stroke free.  Once we’ve profiled the customer it’s much easier to create a clear brand promise – a result that the customer can expect.

Brand Promise

What result do these families want?  Healthy physical and mental growth and development for their children.  Once we understand what’s important to our customers, what they value, we can shape our offerings to provide that value.  Communicating that brand promise in a tagline is the first step in creating the value context for customers to later assess the price.  That leads to the second phase of communicating value – our marketing messages.

Marketing Messages

To create an effective marketing message we need to keep our brand promise, healthy growth and development, as the focal point of our messaging.  When we stray, as many companies do, into areas of what we do or how we do it, we lose buyers’ interest and their trust.  Why?  Because we’re no longer speaking to what’s important to them – the promise our brand made to them.

When we focus on our company or our products instead of our customers we, in essence, tell them that we’re more important than they are.  Who among us trusts someone who puts their interests ahead of ours?  You have only to contrast the experience you had in dealing with a salesperson who was genuinely interested in helping you make an informed decision with one whose interest was in making a sale to know that what I’m saying is true.

That brings us to phase three of building trust – the sales experience.

Selling

Whether your involved in face-to-face selling or using point-of-sale devices, your message has to support the message the customer has received in your brand promise and marketing messages.  You can feel the trust building, can’t you?  The more consistent the messaging, the greater your customers’ confidence in the product or service you’re offering.  It’s human nature, we trust consistency just as we tune out messages that overwhelm us with irrelevant information or, worse yet, offer conflicting information.  That brings us to pricing.

Pricing

Once we’ve created a clear value context with our brand promise, marketing messages and sales scripts (materials), we want our pricing to reflect that value.  If we price our offerings too low in relation to the value, we lose buyers’ trust.  Conversely, pricing that reflects the value provided enhances customers’ trust in our offerings.  That’s why I said at the beginning of this post that pricing can enhance (or lose) trust, but not create it.

Byproducts

Not only will these four phases of building trust – branding/marketing/sales/pricing – help you attract and win more value buyers, it’ll help you build a more successful business.  Through this process you define and communicate your value system for all the world to see.  Workers who share your passion for these values will want to join your company.  Vendors who appreciate your values are also going to prize their working relationships with you.

You don’t need much of an imagination to see how much more fun running a business can be when you’ve surrounded yourself with people who share your passion, interests and values.  It all begins with knowing how to build trust with prospective customers.  Now you have the formula to do just that.

Do you have a clear brand promise?  Find out by using my confidential Brand Promise Self-Assessment.  

Are you getting compensated well for the value you provide?  Use my confidential Pricing Self-Assessment to evaluate your company’s pricing.

Are your marketing messages attracting the right customers?  If you’re getting primarily price buyers you may want to use my confidential Marketing Self-Assessmentto discover why.

Is your sales force putting pressure on you to lower prices?  Our confidential Sales Self-Assessment can show you why.

If you’d like to increase your prices, profits and customer base, call Dale at 314-707-3771.

Can Pricing Build Trust? is a post from: Pricing For Profit Book | pricing strategy | branding | value based pricing | value pricing | private equity |

It would be nice to be able to point to a single factor, but it appears that there are three at work in Lego’s favor:

• Brand image
• Impulse buy
• Children

Brand image

According to Ms. Levy, a Market Watch survey showed that Israelis ranked Lego #2 in the category of high-quality brands.  Buyers around the world have demonstrated a willingness to pay multiples over the lowest-priced alternative.  That’s true within a company’s offerings as well as against competitors’ offerings.  Here are a few examples.

The Toyota Yaris retails for $14,000 while Toyota’s Avalon costs over $33,000.  The smallest S-class Mercedes sedan is $91,000+.  When viewed this way, the premium Lego is getting doesn’t seem all that surprising.

Impulse buy

Most consumers want what they want when they want it.  There’s something about an impulse buy that triggers an emotional high.  That emotion is lost when you have to wait weeks, or even days, to get what you want.  As buyers we pay a premium to get that high.

Children

While many of us big kids love to play with Legos, there isn’t a more persistent creature in the world than a small child when it comes to expressing desires.  As parents who among us hasn’t at one time or another caved to these requests because we just didn’t have the energy to resist?

Lesson

Ms. Levy offered us some great insights in her article.

• Being known for consistently high quality increases the desire buyers have for your offerings as well as the premium they’re willing to pay.
• Instant gratification also commands a premium.
• Appeal to the influencers in people’s lives and you’ll increase the premiums they’re willing to pay.

So when you’re crafting your next marketing message don’t forget to:

• Tout your brand promise – shout it from the rooftops!
• Make it easy for those buyers to get what they want NOW.
• Include family members in your message to encourage buyers to act.

Buyers Behave Irrationally is a post from: Pricing For Profit Book | pricing strategy | branding | value based pricing | value pricing | private equity |

For decades, General Motors was, and is, the largest auto manufacturer in the world.  Does that make them the industry leader?  Not according to my definition.

To me the industry leader is the one that, regardless of size:

• Offers a powerful brand image
• Does so profitably
• Leads the way in price increases

This insight was triggered by a recent USA Today article, Toyota raise prices on many models by Chris Woodyard.  Toyota is taking the lead in raising prices at a time when most auto makers are merely reducing the discounts they once offered.  That’s leadership!

Toyota’s ability to take the lead in raising prices comes, not just from an improved economy, but from a powerful brand image.  Other than when they stubbed their toes on the stuck accelerator issue a few of years ago, Toyota has developed a reputation for quality that is unsurpassed in the industry.  Indeed, if they identified a design flaw, they’d remedy it at no cost to the buyer even if the car was out of warranty.

One of the keys to Toyota’s success in developing its brand is that improvements to its cars are functional and user friendly.  The changes aren’t so dramatic that the owner has to relearn how to use the product.  This combination of functionality and ease of use allows Toyota to lead the way in pricing.

This strong brand image and price leadership have, other than in 2009, allowed Toyota to enjoy profitability throughout the worst economy in seven decades.  The 2009 losses can be attributed to the stuck accelerator repairs and the temporary loss in customer confidence.  The fact that the Toyota brand was able to rebound so quickly from that faux pas is a testament to the strength of the brand.

The morale of this story is that you don’t have to be the biggest dog in the pound to be the leader.    Leadership comes from your ability to serve your customers better than anyone else in your industry in ways that have value to that customer.

If you’d like to increase your prices, profits and customer base, call Dale at 314-707-3771.

What Is An Industry Leader? is a post from: Pricing For Profit Book | pricing strategy | branding | value based pricing | value pricing | private equity |

In a March 28, 2012 Financial Times article, Britons are buying less but paying more, Sarah O’Connor and Louise Lucas, give us some great insights into these questions.  According to the article the British are facing high inflation and weak wage growth which means they’re losing purchasing power every day.  If that doesn’t qualify as stress, I’m not sure what does.

What’s intriguing is how the Brits are adjusting their buying habits.  They’ve cut out the least important (least valuable) purchases they typically make or at least are reducing the frequency of those purchases in order to pay the higher prices for what’s truly important to them.

How does that help us as business owners?  It tells us what’s truly important to our customers.  That information allows us to distinguish the must have from the nice to have products and services we offer.  Armed with that knowledge we can anticipate and adjust our marketing as well as our inventory levels and staffing to the changing economy.

In periods of economic uncertainty or declining purchasing power we’ll focus our marketing, inventory and staffing on the products and services our customers are most likely to buy.  The ones they continue to buy during challenging economic times.

When the economy is stable or growing and buyers have discretionary income, we begin adding inventory of the nice-to-have items and bring in temporary help or independent contractors to provide the additional service our customers desire.

We’ll also shift our marketing to highlight these ‘luxury’ purchases.  Why?  Because buyers pay more for what they want than what they need.  You’ll enjoy significantly higher margins on the nice-to-have over the ‘essentials.’

For those of you who may be wondering whether this is a cultural phenomenon ask yourself these questions:

• How did my buying habits change from 2007 to the 2008-09 time frame?
• What items did I give up completely?
• On which items did I reduce the frequency of purchases?
• What items did I buy as a treat for myself and what did I give up to get them?

The answers to these simple questions will demonstrate the universality of human nature and human behavior.  Any variances from one culture to the next are simply a matter of degree.

The moral of this story is simple – pay attention to what your customers are buying during difficult times and you’ll quickly discover what’s ‘essential’ vs. what’s ‘nice-to-have.’  Then adjust your operations accordingly.

Are your marketing messages attracting the right customers?  If you’re getting primarily price buyers you may want to use my confidential Marketing Self-Assessment to discover why.

If you’d like to increase your prices, profits and customer base, call Dale at 314-707-3771.

Stress Impacts Buyer Behavior is a post from: Pricing For Profit Book | pricing strategy | branding | value based pricing | value pricing | private equity |

In my opinion, JCPenney’s ‘square deal’ ads miss the mark completely.  Here’s why:

• A ‘square deal’ doesn’t mean anything to customers.
• The ads focus on price, not value.
• Denigrating competitors hurts the denigrator more than the target.

Square Deal
You’re a consumer; do you typically make purchases that you don’t feel are a square (fair) deal for you?  Of course not.  If you feel that a company is trying to take advantage of you, you’ll go elsewhere or simply forego the purchase altogether.

Price Over Value
It’s amazing to me that so many retailers still believe that consumers only care about price when there is so much evidence to the contrary.  Yet that belief is exactly what JCPenney is expressing in its ads by focusing their customers’ attention on price instead of the value they provide.  Later they’ll lament the ‘fact’ that consumers are price sensitive.  What else would you expect?

Bashing Competitors
JCPenney’s ads ridicule their competitors for deceptive pricing practices – practices that, until a month or so ago, they themselves practiced.

Each of us has, at one time or another, experienced a personal attack where the attacker tried to elevate himself/herself by putting us down.  We also know what it feels like to witness such an attack and how we tend to side with the victim, not the attacker.  That’s the reaction JCPenny is eliciting from viewers of its ads.

Lesson
It’s sad to see such a well-crafted pricing strategy driven off the tracks by an incongruent ad campaign.  The lesson for all of us is that pricing is but one piece of the puzzle.

An effective business strategy requires congruency between the brand promise, marketing messages, sales scripts and price.  If any of the four fails to support (be congruent with) the other three, the whole strategy will fall like a house of cards.  That’s why I’m no longer optimistic about JCPenney’s strategy.  Hopefully these insights will help you avoid a similar mistake.

Are your marketing messages attracting the right customers?  If you’re getting primarily price buyers you may want to use my confidential Marketing Self-Assessment to discover why.

JCP’s Ads Don’t Square is a post from: Pricing For Profit Book | pricing strategy | branding | value based pricing | value pricing | private equity |

Positioning.  The way healthcare companies position themselves in the marketplace can have a dramatic impact on the demand for their offerings.  Unfortunately, most do not position themselves well.  Here’s a quick example.

Recently I had some surgery at a well-known, well-respected St. Louis hospital.  One of the things that struck both my wife and I was the care and concern they had for family members.  Pre-op they told my wife that the actual surgery wouldn’t begin for almost an hour after they took me to the operating room.  They went on to say that they had a screen in the waiting room that was updated periodically to let family members know how the surgery was progressing, when I was being moved to recovery, etc.

This system dramatically reduced my wife’s anxiety.  This hospital’s system had removed one of the more stressful aspects of surgery for the family.  Indeed, my wife was so impressed that when she began searching for a new internist, she insisted that the internist be a member of that group.

The hospital’s system is a powerful engine for growth, yet nowhere in their advertising did they tout this tremendous benefit.  By merely talking about ways in which they’ve removed irritations that have plagued patients and their families for decades, this hospital could be position itself as one of the more caring and innovative hospitals/medical groups out there.

Is this hospital the only one employing this surgical update system?  Probably not.  In today’s world best practices are often emulated.  But no one is talking about it.  The first to employ a practice that delight patients and their families can position themselves to be the healthcare provider of choice by touting these advancements in their marketing materials.  Any hospital that adopts these practices will appear to be mimicking the innovator.  Which would you prefer as your healthcare provider, the caring innovator or the copycat?

Positioning works equally well in any industries in which price is regulated or, at least, limited – wealth advisory services and utilities to name a couple.  If you’re looking for ways to increase revenues when you have limited ability to adjust prices, there’s a great deal of potential for you in the way you position your offerings.  Don’t overlook them.

How effectively are you positioning your products and services?  Not sure, utilize our free confidential branding self-assessment or better yet, give Dale a call at 314-707-3771.

Positioning for Growth is a post from: Pricing For Profit Book | pricing strategy | branding | value based pricing | value pricing | private equity |

Common pricing sets a limit on the discounting that retailers can do by establishing a minimum retail price for your offerings.  The purpose is to prevent erosion of your brand image due to heavy discounts as retailers duke it out for market share.  The next question is “Will it work for Sony?”

Moving to common pricing alone won’t do the job.  Fortunately, Mr. Molyneux recognizes that fact and is embarking on a campaign designed to better communicate the value that Sony provides.  It’s the quality and effectiveness of this communication that will drive the success of its common pricing efforts.

As Mr. Molyneux astutely notes, when you go into a retail store and see all of the various brands of TVs side by side they all look alike.  The differentiation exists in the TV’s capabilities and the compatibility of the peripherals that go with that TV.  It’s this differentiation that Mr. Molyneux intends to communicate.

Another factor that will work to Sony’s advantage in using common pricing is Mr. Molyneux’s plan to eliminate some of its offerings.  Psychologists studying buyer behavior have found that the more choices a customer has the more difficult it is for them to make a decision.  Often the result is “No sale” as buyers walk away from the dizzying array of alternatives.

Eliminating offerings, especially low-priced alternatives, can enhance the brand image and reverse an all-too-common mistake that companies make when going after market share – cannibalizing their premium offerings.  One of the often-unanticipated effects of creating a lower-priced alternative is that existing customers opt for the lower-priced alternative costing the company sales revenues and profit margins.  I don’t know that Sony has previously fallen into that trap, but the possibility always exists.

Given Mr. Molyneux’s multi-faceted approach to altering Sony’s strategy, I’d say that the odds of his common pricing program being successful is very high.

Are you getting compensated well for the value you provide?  Use my confidential Pricing Self-Assessment to evaluate your company’s pricing.

Sony Moves to Common Pricing is a post from: Pricing For Profit Book | pricing strategy | branding | value based pricing | value pricing | private equity |