Break the bonds of industry pricing!

Get compensated well for the value you provide.

The financial press focuses heavily 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.

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.

In next week’s post we’ll explore what you’re doing and how it’s affecting your customers’ behavior in a post entitled Training Your Customers.

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.

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

Break the bonds of industry pricing!

Get compensated well for the value you provide.

Many of us fear saying “No” to a potential customer…

…yet it can be one of the most effective tools for building rapport.

When you’re approached by someone interested in your offerings how do you react?  Do you go into your sales mode?  Do you get a queasy feeling in your gut and a nagging voice in your head saying “Don’t blow it!”  Or do you begin listening to see whether this prospect is a good fit for your business?

Unfortunately too many of us experience the fear I just described and we begin selling to people who aren’t a good fit for what we’re offering.  How can you avoid this mistake?

1. Remember that your greatest profit margins come from your ideal customers.
2. Whenever you stray from that path it adds dramatically to your infrastructure costs.
3. You risk your reputation by selling something to someone whose needs would better be served elsewhere.

These are compelling reasons for saying “No” to prospects who don’t fit your ideal-customer profile.  How can you say “No” and enhance your reputation in the marketplace?  Simply say to the prospect “We’re not the right solution for you.  You’re looking for … and we provide ….  Here’s the name of someone who will meet your needs.”

It’s counter-intuitive, but you will create a lasting memory with this prospect as someone of incredible integrity who genuinely cares about him/her.  This memory will create additional referrals down the road as the individual to whom you said “No” relates the story of your ethical business practices.

The key lies in the language I provided above – “We’re not the right solution for you.”  This language removes all the judgment that could so easily creep into the conversation.  By saying that “we’re not right for you,” you acknowledge the validity of the buyer’s choice without denigrating it.  It’s you who is not the good fit, not them.  The final step of referring them to a better fit seals their perception of you as an incredibly ethical and caring business person.

Buyers want this kind of integrity and concern for their welfare and they’ll pay premium prices to get it.  It’s another way to assure that you’re getting compensated well for the value you provide.

Next week we’ll discuss The Market Share Myth.  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 at dale@furtwengler.com or call him at 314-707-3771.

ATTRACT opportunities instead of pursuing them using counter-intuitive thinking.  Visit www.furtwengler.com/theinvaluableleader/.

What impact do sales quotas have on pricing?

Is that the result you really want?

You know that value buyers are willing to pay higher prices to get value.

The question is “How much more?”

Break the bonds of industry pricing!

Get compensated well for the value you provide.

If you were able to get 5% more than you’re currently getting for your offering, what would that do for your bottom line?  How about 10%?  25%?

I’m sure some of you are feeling your throat constrict and your chest tighten as you contemplate charging 25% more for your offerings.  The reality is that these are modest percentages in light of the premiums buyers pay for what they truly want.  How much will they pay?

Regardless of what benefits your offering possesses – quality, dependability, convenience, image, innovation, knowledgeable salespeople, etc., you’re basically selling one of three things, image, innovation or time- savings.  What kind of premium does each command?  Let’s take a look.

If image is your value proposition, how much is a buyer willing to pay for that image?  Let’s compare the Chevy Aveo sedan which retails about $12,500 and the Mercedes smallest S-class sedan which rings the register at $90,000+.  The Mercedes is more than 7 times as much as the Aveo.  That’s on a big ticket item; a sweater at Nordstrom’s will cost you about 12 times as much as at WalMart.

How much will innovation buyers pay?  Both VCRs and DVDs give us a clear picture of the innovation pricing cycle.  Early adopters paid about $1,200 for the early players (not recorders, just players).  Dependability buyers got into the market when a player/recorder was about $400, a third of what the early adopters paid for less capability.  The late adopters paid between $85 and $100 dollars, a twelfth or less than the early adopters.

Time-savings premiums depend on whether you’re selling retail or business to business.  Retail buyers use time savings for recreation and it’s not unusual for them to spend 3 times or more of their hourly compensation on recreation.

Business customers, at least the more savvy business people, look at time savings as a way to increase revenues without adding resources.  The gross profit from these additional sales falls directly to the bottom line because the most significant overhead cost, labor, is being held constant.  This additional revenue generating capability has 2 to 3 times more value than the cost savings associated with not having to add staff.

Those modest increases suggested in the first paragraph don’t seem so outlandish now, do they?

It’s counter-intuitive, but you also limit your investment when you’re able to command these higher premiums.  Using the Nordstrom/WalMart sweater example above, WalMart needs 12 times as many customers to generate the same sales volume as Nordstrom.  That means that WalMart needs more facilities, more distribution centers, larger staffs and greater inventories than Nordstrom.  The same is true any time you sell value over low price.

Don’t hesitate to charge a premium price for value – the buying public is willing to pay.

Next week we’ll discuss the impact of sales quotas on pricing.  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.

ATTRACT opportunities instead of pursuing them, visit The Invaluable Leader at www.furtwengler.com/theinvaluableleader/.

Can you use pricing to create name awareness?

You can, but it may not be how you want to be known.

Break the bonds of industry pricing!

Get compensated well for the value you provide.

One of the more common reasons I hear for using a low-price strategy is that “we don’t have the name awareness the big boys have.”  Typically this reasoning is used by organizations in their first three years of existence or by established companies entering a new market.  Is it sound reasoning?

Here’s the approach I used with a homebuilder who was using low prices to create name awareness.  First, let me give you a little background information.  This homebuilder was adamant, and rightfully so, that his quality was better than the big boys.

I asked him whether he advertised in the real estate section of the newspaper.  He did.  Then I asked him to envision that he and two well-known, well-respected builders had subdivisions in the same area with the same style homes of comparable size and amenities.  Finally, I asked him to envision that his and his two competitors’ ads appeared side by side and his price was 10% lower than his competitors (it was).

My question to him was “If you were the buyer and saw these ads, what would you think about your homes?”  He said, “I think we were taking short cuts to keep costs down – that our quality was inferior.”  Indeed, the message this homebuilder was sending was exactly the opposite of what he believed.

It’s counter-intuitive, but name awareness should be created by your marketing efforts and supported by your pricing.  Whether you’re touting high quality, quick delivery, innovative ideas, image or productivity make sure that your price supports your marketing claims.

Incongruity between your marketing claims and your price leaves buyers in a quandary.  Do they believe your marketing claims or the price?  Which would you believe?  Given our natural skepticism toward what others tell us, especially if they’re trying to sell us something, we’re going to believe the price.

This homebuilder was struggling to generate sales and profits because he was sending conflicting messages to the market.  Are you?  If not, congratulations!  You’re ahead of many businesses out there.  If you are, now you have a more effective approach to employ.

Tune in next week when I give you a sense for the pricing premiums available to you.  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/.

Break the bonds of industry pricing!
Get compensated well for the value you provide.

The Grinch and Me

‘Twas the night before Christmas
The store had just closed
I tallied the receipts
Adding to my woes

The Grinch had stolen Christmas
Before my eyes, without even a hint
He’d stolen my profits
Leaving my pockets with lint

In an economy blue
Battling high unemployment and costly fuel
The Grinch was heartless and cruel
He made me lower prices to get sales – even a few

I lowered prices to all
Yet sales and profits continued to fall
So did my holiday cheer
The Grinch had stolen Christmas again this year

Weary and disheartened I drifted into sleep
A welcome respite, a bit of relief
A way to deal with the season’s defeat
Alas, it was a mistaken belief

In my dream the Grinch lowered prices
He lowered them early
He lowered them often
Yet buyers’ resolve did not soften

I saw the Grinch smile
He thought with guile
“I know this won’t work!”
He cut prices and continued to smirk

A voice cried out
“Low prices won’t get people to buy!
Of this there can be no doubt.”
Wasting money makes buyers cry or at least pout

People buy what they want
Price doesn’t matter if they really care
The Grinch knew this, yet continued to taunt
As he pressed me to lower my fare

Wait, what do I see?
The picture becomes clearer
As the Grinch comes nearer
The Grinch is me

It’s counter-intuitive, but “I have to lower my prices to remain competitive” is as much an excuse as “The dog ate my homework.”

In every human interaction one person is training the other how to behave. When you lower your prices to remain competitive you train your competitors to take the lead. You, in essence, tell them that you’ll follow their lead regardless of what they do.

Similarly, you train your customers to wait for a deal. That’s one of the reasons why Chrysler and GM are in such trouble. They trained us to wait for a rebate. Then they added 0% financing. Finally, they gave us employee pricing. Now, unless we get a rebate plus 0% financing plus employee pricing, we feel that we’re being gouged.

Let’s be honest with ourselves. Between relinquishing industry leadership to competitors and training customers to wait for a deal, we’ve sentenced ourselves to a life of hard work with little compensation.

If that’s the life you really want, go for it. If not, if you’re truly tired of trading dollars, hold your prices and focus your attention on marketing. Look for ways to distinguish yourself that are fun and exciting for you and your customers.

I’m sure that some of you are thinking “If only I had the budget for that kind of marketing.” The reality is that, given your current strategy, you’ll never have the budget. Start small! Fun and exciting doesn’t have to be costly. If you don’t have the skill to pull off a fun party, contact a party planner and have them create something that fits a modest budget.

If you’re still skeptical, do the math. Many of you are offering 20% to 50% discounts. How much additional profit would you gain if you stopped offering those discounts. It’s simple math 20% or 50% times your current revenues. Now ask that party planner how much it would cost to create something fun and exciting. It’s been my experience that the additional profits gained by eliminating discounts returns at least ten times the party cost.

Stop being the Grinch that steals your holiday season. Hold your prices. Then find new and exciting ways to attract your ideal customers.

Next week I’m going to focus on the impact price has on name awareness.  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/.

It is…

…the key is to knowing when and how.

Break the bonds of industry pricing!
Get compensated well for the value you provide.

Last week I promised you that I’d discuss the appropriate use of discounts.  Here are three situations in which offering discounts make sense, but only if you employ the strategy associated with the discount:

Opening the door
I’m sure that this has happened to all of you at one time or another.  You’ve identified a potential customer.  You’d really like their business, but they keep telling you that they’re happy with their current vendor.

Your natural inclination is to lower your price to get their business.  Is this the right approach?  Partially.  Typically what happens is that you shoot them a low price to get their business, then find yourself locked into that pricing later when they balk at a price increase.  Why do they balk?  It feels like the old bait and switch tactic to them.  How do you avoid this problem?

• Tell them that you understand that they’re happy where they are.
• Tell them that you realize that you need to give them a reason to try your offering and that you understand that they’ll be taking a risk if they decide to give you a try.
• Offer them a discount to entice them to take that risk using this language – “I realize that you need a reason to give us a try so for this order only I’m going to reduce the price to ___.  I’m so certain that you’re going to be thrilled with our offering that you’ll gladly pay the higher price in the future.” How’s that for a statement of confidence?
• Put your offer in writing emphasizing that the price is for this order only.  Do the same with your invoice.
• Once you’ve won the business charge your usual price.

Retaining competitive advantage
Intel and Hewlett-Packard were both very good at this.  For decades Intel had a knack for beating its competition to the market with faster and more reliable chips.  Hewlett-Packard did the same for in its printer division.  Both charged premium prices until their competitors were about to launch competing products.  That’s when they lowered their price.

That’s a very successful strategy.  It not only allows them to generate huge profits when they don’t have any competition; it allows them to prevent their competitors from getting a similar return on their R&D investments.  These additional profits made it easier for Intel and HP to maintain their competitive advantage.  Coupled with effective marketing campaigns like ‘Intel Inside’, Intel and HP became the industry standard – the offering most buyers wanted regardless of price.  Isn’t that where you want to be?  You can!  You already know how your offerings outperform your competitors’ offerings.

Meeting budget constraints
Sometimes the prospect really wants what you offer, but can’t quite afford it.  The natural inclination of sellers is to lower the price to make it more affordable.  Bad move – unless you’re asking the customer to give up something as well.  Here’s a classic example.  One with which I’m sure that you’ve had experience.

You go in to the showroom to buy a car.  You find the car you want and the negotiation begins.  You tell the salesperson what you’re willing to pay, they counter with a higher price.  On and on it goes until you agree on the price.  The only thing that’s changed is the price.  The car is exactly what you wanted from the start.

With that scenario in mind, how often have you walked out of the dealership wondering whether you got a good deal?  Most of us do.  Why?  The car didn’t change!  Consequently we feel that the dealer was trying to get into our knickers and we can’t help buy wonder if he did.

What approach should that salesperson use?  If, as you made your offer, the salesperson said “Unfortunately, I can’t afford to sell that car to you at that price.  I understand that we all have budgets with which to contend and that this car doesn’t fit your budget.  If you’d be willing to forego (the moon roof, alloy wheels, heated seats, etc.), I could meet your budget.”

Now the buyer is faced with a choice.  Do I want that moon roof badly enough to pay …?  Either way, you’re forcing the buyer to make conscious choices which is in both his best interests and yours.  The more you help buyers understand the choices they’re making, the greater the service you’re providing and the satisfaction your buyers will experience.

It’s counter-intuitive, but there are only a few situations in which discounting makes sense and two of the three require buyers to give up something to get the lower price.

Next week I’m going to focus on common holiday pricing mistakes with a little poem entitlted “The Grinch and Me.”  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 at 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/.

Happy Thanksgiving!

Great strategy…

…or sheer folly.

Break the bonds of industry pricing!
Get compensated well for the value you provide.

Retailers have decided to move Black Friday, the day they begin their heavy holiday season discounts, up a month. Typically Black Friday is the day after Thanksgiving.

Why would they do this? Here’s what a major retailer said “We don’t think buyers are going to be spending as much this year so we want first crack at their dollars.” Is this sound strategy or a self-inflicted wound? Let’s take a look.

Let’s assume that you’re a retail buyer (who isn’t?), it’s the holiday season and you have indeed decided to spend less this year. Your child is pining for the latest video game. You see an ad for some great discounts on clothing for your child, which do you buy – the clothing or the video game?

If you’re like most parents, unless your child’s clothing is going to subject them to some emotional trauma vis-a-vis teasing by other kids, you’re probably going to buy the video game. Even if their clothes have to be replaced, you’re likely to go to the discount chains and buy only what’s needed in hopes of still being able to get that video game.

If what I’ve outlined is anywhere near accurate, what impact would a heavy discount at Macy’s have on your buying decisions? None that I can see. My experience has been that buyers spend money on what they really want. Don’t trust me on this. Simply recall a time when you drove through a trailer park and saw a dilapidated trailer with a brand new $30,000 pickup truck in the driveway. Or an older subdivision of 900 square foot homes with a $150,000+ RV in the drive.

These folks may have scrimped on their housing, eaten store brand canned goods and shopped at WalMart for clothing, but when it came to what was really important to them – the pickup truck or RV – money was no object. They paid the price.

Let’s take this analysis a step farther. Let’s see what the retailers are really accomplishing. As we’ve already seen, the likelihood of generating additional sales is low because buyers decisions are based on their wants, not on the availability of low prices.

Second, if the retailers predictions are accurate and buyers aren’t going to be spending a freely as in previous years, then it’s going to be even more difficult to attract sufficient buyers to offset the revenues lost through discounts. In other words a 20% discount means that the retailer must now attract six buyers to generate the same revenues they would have gotten from five. Raise that discount to 50% and you’d need 10 buyers instead of five. This at a time when you don’t expect lower traffic in your stores?

Third, discounts alter the timing of sales, not the volume of sales. If I offer a discount to people who would typically buy my offering anyway, I may get them to buy earlier but I’m not going to get them to buy more. By accelerating sales into the current month I’m digging a hole in future months’ sales. If I do this often enough (Black Friday occurs every year), I train my buyers to wait for a deal before buying. Now I’ve shifted from a shovel to a backhoe. I’m digging such a deep hole that I’ll probably never get out – think Chrysler and GM.

If this were baseball, the batter (retailer) would strike out. It’s counter-intuitive, but discounts don’t attract more business. They simply keep you from generating the revenues available to you.

How do you avoid this mistake? Tune in next week when I discuss the appropriate use of discounts. 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 Invaluable Leader blog at www.furtwengler.com/theinvaluableleader/.