I often suggest to clients that they need to reinvent themselves or their businesses for their own personal welfare. Sometimes it’s because they’ve become burned out; at other times they’re bored and feel the need for a change. Whatever the reason, they need a change.
I find myself at that stage. I intend to continue my pricing work, but I’m finding it increasingly difficult to come up with new material for you. It isn’t that I know everything there is to know about pricing. I don’t believe anyone knows everything about any topic. At the same time, I feel that I’m delivering the same messages, just packaged a little differently.
I’ve also been encouraged to write two new books. My agent suggested that I write a follow up piece to Pricing for Profit, which I’ve done. Become a MAVERICK highlights mistaken beliefs we hold about business–beliefs that prevent your company from enjoying the profits and cash flow it so richly deserves. As always, I support my contentions with hard numbers using the financial results of companies that defy conventional wisdom with great success. Become a MAVERICK is scheduled for release in January 2015.
The second book, Confidence: Living a life free of fear, anxiety and frustration, was prompted by a group of business owners after I presented a program entitled I want your life! This program came about as a result of the fact that, in the past three years, I’ve had over a half dozen people tell me that they want my life. When I challenged their statements that they wanted my life, their responses told me what they really wanted–to live a life free of fear, anxiety and frustration. In Confidence, I share the secrets I’ve learned to living that life. Confidence, is also scheduled for a January 2015 release date.
These new books offer opportunities I hadn’t previously envisioned. These new opportunities, when added to my concern that I’m no longer providing you with enough new insights to warrant your time and attention, are the reason why this will be my last Pricing for Profit blog post. I’m available to answer any questions you may have about pricing.
I also intend to write a new blog on confidence as the book release date approaches. I’ll let you know in case you’re interested. In the meantime, here’s a final message on pricing:
Cheaper prices come at an economic cost
This is the title of an article in the Melbourne Herald Sun which discusses how falling oil prices raise concerns over deflation and the slower economic growth deflation portends.
Those of us who aren’t economists tend to view lower prices as a good thing for buyers and a bad thing for sellers. The reality is that it’s the rationale behind the price decrease that matters.
If prices drop because productivity has dramatically increased, that’s a good thing. Buyers are getting lower prices and sellers are able to maintain, if not improve, their profit margins.
If prices decline due to oversupply and those lower prices result in companies exiting the market for greener pastures, that’s a good thing. If companies fail to reallocate resources to alternative offerings and markets, the oversupply worsens and once-profitable companies go out of business with devastating financial results for the owners, vendors, employees and taxing authorities–in other words, it hurts the economy.
When companies cut their prices to “be competitive” or to “gain market share,” what they’re really doing is lowering their profit margins or shifting costs to vendors, employees, and/or municipalities. If they’re lowering their margins, they’re making it more difficult to provide the level of quality and service to which customers have become accustomed. That often leads to customer dissatisfaction and further price reductions.
As prices spiral downward and demand slows, companies try to stem shrinking margins by cutting costs. These cost cuts often come in the form of layoffs, benefit cuts, fewer, if any, salary increases, and demands for lower prices from vendors. All of these cuts result in fewer dollars in the hands of consumers, whose spending is essential for economic growth.
Companies that maintain margins by shifting costs to vendors, employees, and municipalities cause a misallocation of resources within the economy. The economic result is the same as if these companies had lowered prices to become more competitive. There are fewer dollars in the hands of consumers, consequently there’s less spending and slower economic growth.
If you want to use pricing to spur economic growth, base your price on the value your customers receive. Use the profit dollars that higher prices generate to find ways to meet customers‘ ever-changing desires.
In the process you’ll employ more people, be able to pay salaries commensurate with the value your employees help you create, enable your vendors to reap a level of profitability that helps them continue to innovate and drive economic growth. That’s the way to spur economic growth. In layman’s terms, it’s how we create a bigger pie.
Thank you for your loyal readership, insightful comments and encouraging words. As always, I wish you continued success in whatever you choose to do.