Pricing

Many business owners are bemoaning ‘the race to zero’ – the seemingly irreversible trend toward lower and lower prices. Then how do you explain these results?

2009-2012Revenue ($billion)Compound Growth RateOperating Margins
Apple$36 ➠ $156 44.3%22.9% ➠ 37.4%

↑14.5% ➢ 63% improvement
Panera$1.4 ➠ $ 2.110.7%15.4% ➠ 17.6%

↑2.2% ➢ 14% improvement
Walmart$408 ➠ $4693.5%7.6% ➠ 7.7%

↑.1% ➢ 1% improvement
Amazon$24 ➠ $6126.3%6.6% ➠ 4.6%

↓2% ➢ 30% decline

Let’s not forget what the economy was like during 2009-2012.

  • Economists tell us the recession ended in June 2009.
  • The stock market was just beginning to show signs of recovery in 2009 to early 2010.
  • Most people’s IRAs and home values were still in the tank.
  • Unemployment was still 50% higher than what is considered normal.
  • Many people were underemployed or hadn’t had a raise in several years. College graduates were facing one of the toughest job markets in over 7 decades.

We would expect these conditions to favor low-price strategies, but the results show that consumers paid huge premiums for items that weren’t essential to their well-being.

Want out of the race?  Call me at 314-707-3771 and I’ll shine a light on the path to higher prices and even greater sales growth.

Losing Sales?

If any of the 5 elements (on the right) are missing or incongruent, you’re losing sales. You’re sending conflicting messages about the value of your offerings. Confused prospects either keep searching for the value they desire or go with the lowest price.

Stop losing sales! Give me a call at 314-707-3771.

Warren Buffett on Pricing

“…if you have to have a prayer session before raising the price by 10 percent, then you’ve got a terrible business.” – Warren Buffett.

With all due respect to Mr. Buffett, I believe that’s a bit harsh. While I agree that a 10 percent price increase should be a slam dunk, I don’t believe that those reluctant to effect such an increase have terrible businesses.

My experience has been that the reason why companies don’t raise prices with greater confidence is that one or more of the elements of the pricing pyramid are missing or incongruent.

Pricing pyramid R2

1. Brand Promise

For many mid-sized businesses their brand promise comes in the form of a tag line. Usually the tag line states what your company does. Customers don’t care about what you do, they want to know what they’ll get.

Use a result-oriented tag line and you will differentiate your company in ways that matter to your customers.

2. Psychographic Profile

Demographics may help a Mercedes dealer know what his customer’s income is and where he lives, but it doesn’t answer the question ‘Why did that customer buy a Mercedes instead of a Hummer, BMW or Audi?’

Psychographic profiling – a profile based upon your customers’ values, behaviors and characteristics – helps you attract more customers who share your values and are willing to pay a premium to get that value.

3. Positioning Statement

“Dale will have you seeing your business in a whole new light.” – Thad James, Sammy J Balloons

Clients credit me with seeing value they didn’t realize they were providing, highlighting that value in their marketing messages, then converting that value into premium pricing.

4. Sales Scripts

Few businesses are able to convert benefits into dollars and cents value.

Lead your prospects and customers through a calculation of value and you’ll not only get higher prices, you’ll garner a lion’s share of the market.

5. Bundling & Pricing

One of the reasons that many companies fail to get premium prices is that they offer only one option. That leaves customers with a ‘Yes or No?’ decision. Bundling not only avoid the ‘Yes or No?’ decision, it lays the groundwork for negotiation.

Each bundle offers different value and should be priced accordingly while maintaining your margins.

The way in which your bundles are presented dramatically alters your customers’ perception of value, the price you get and the margins you enjoy.