Is SWOT analysis helpful in setting prices?

Or a road map to disaster?

SWOT (strengths, weaknesses, opportunities and threats) analysis is used in a variety of ways for a variety of purposes. Everything from strategy development to customer service enhancements to productivity improvement. Given it’s versatility, is it an effective tool for setting prices? Let’s look at each of the components.

Strengths
It would seem that knowing your strengths would be critical to effectively establishing price. After all, how do you know what your competitive advantage is if you don’t do a strengths analysis? Right?

That’s not been my experience. Most companies, when analyzing strengths do so from the perspective of what they believe the customer wants. Indeed, the ‘strengths’ they identify were often created in response to a competitor having made ‘improvements’ in their offerings. Yet neither they, nor their competitors, asked their customers whether they valued the enhancement.

A much more effective way to determine your offerings’ strength is to ascertain which of your customers are paying the highest prices for what you offer. Then asking them what they value most about your offerings. While you’re there, you might want to ask them what you could do to help them serve their customers better. Identifying your customers’ customers needs is a great way to gain a long-term advantage.

Weaknesses
In my experience identifying an offerings’ weaknesses creates only one result – lower prices for you. It’s human nature to place greater emphasis on our shortcomings than on our strengths. The unfortunate result is that we don’t charge for the value we provide.

How do we counteract this natural tendency? First, stop looking at weaknesses as failures. The reality is that perfection is not humanly possible. If you accept that premise, you know that your offerings will always possess some weakness, but so will your competitors‘ offerings. Focus on the value that your customers see, the value you identified in your discussions with them.

Next realize that, unless that weakness is resulting in a growing number of customer complaints or costing you sales, it’s likely that it’s an aspect of your offering that your customers don’t care about. If that’s true, then it doesn’t make sense to invest resources to remove that weakness?

Opportunities
I’m a strong advocate of remaining open to all possibilities. I’m equally strong in my conviction that analyzing opportunities to make sure that they make sense is essential. Over the years I’ve met a lot of people who are easily distracted by any shiny object that appears on the horizon with the unfortunate consequence that they don’t accomplish anywhere near their potential.

Here are a few questions to help you determine whether or not an opportunity makes sense for you and your company.

• Is this something I’m passionate about?
• Can I see myself working tirelessly to make this opportunity a reality?
• Does this opportunity fit our strengths as defined by those who pay us the most for our offerings?

Is this something that our best customers, those who value what we do the most, want?

These simple questions can help you quickly and effectively determine whether what you’re seeing is really an opportunity for you.

Threats
Unfortunately too many business owners/leaders look at their competitors as possible threats. The reality is that if you’re effectively helping your customers serve their customers, you don’t have any competitors. Looking at others in your industry as competitors simply clouds the issues and distracts you from your primary mission – finding new and exciting ways to serve those who value what you have to offer.

Often the greatest threats come, not from within your industry, but businesses outside your industry that are serving the same market you serve. Monitor the spending habits of your market to see where they’re shifting their spending. It’ll give you a sense for the value they perceive and what kind of value you need to provide in order for them to remain loyal customers and for you to maintain or enhance your profit margins.

It’s counter-intuitive, but there are many more pitfalls than advantages to using SWOT analysis in setting prices. Use the alternatives I’ve suggested and you’ll enjoy greater customer loyalty, higher prices, higher margins and a stronger bottom line.

Pricing for Profit is available at Borders.com, Amazon.com and BarnesandNoble.com.

If you’re discounting to retain market share…

…quoting Dr. Phil, ”How’s that workin’ for ya?”

“I can’t raise prices, the only thing that buyers care about is the price.” That’s the refrain I hear from audience after audience of business leaders today.

Is that really true? Do customers only care about price? Yes, it’s true – because we’ve trained them to focus on price. That happened well before the economy tanked. So let’s not blame the economy for a monster of our own creation.

The reality is that the vast majority of buyers are value buyers. The problem is that we’re not educating them about the value we provide or we’re not really providing the value they desire. Either way we’re causing them become more price conscious.

The typical retort I get is “In this economy buyers are deciding only on price.” Why might that be? Could it be that the vast majority of business owners/CEOs have resorted to heavy discounts to salvage market share? If so, what better question to ask than Dr. Phil’s “How’s that workin’ for ya?”

Not well at all. Most business owners/CEOs report declining sales despite heavy discounting. They see their markets shrinking and they’re afraid to charge higher prices for fear of losing even more sales. What these business leaders fail to realize is that buyers become more value conscious, not more price conscious, in a down economy. What that means is that we, as sellers, have to become even better at communicating value than we were in better times. Here’s an example to illustrate my point.

A steel fabricator for the construction industry said that the discounting had become so severe that some jobs were going for single digit profit margins. I asked him the following questions:

“When your customers choose a low-price competitor, are the materials they get within specifications?” “No,” he answered.

“When the materials are out of spec what are the implications?” “Delays, additional overtime costs, the temptation to make it work.”

“Do those delays cost your customers additional money?” “Yes,” he replied.

“What about the customer’s relationship with his buyer. Do these problems have the potential to create friction with his customer?” “Of course,” he replied.

“In an economy like this, how costly would it be to lose future business from that customer?”

You get the point. A few simple questions can help the buyer see the value of a higher upfront price over the costs, or more importantly, loss of future revenues.

It’s counter-intuitive, but when all of your competitors are discounting heavily in failed attempts to gain business you can distinguish yourself by selling value. Buyers will appreciate the fact that your helping them make an informed decision. They’ll value you even more highly when you show them how to do the same with their customers.

Why do buyers pay premium prices…

…and find great joy in doing so?

My wife’s purchase, by all standards, was actually quite modest, but I couldn’t resist teasing her saying “You’re expensive!” She looked at me, smiled and said “I’m worth it!” Indeed, she is; she’s been the treasure of my life for 37 years.

The more I thought about her retort I realized how often we, as buyers, find great joy in some of the more expensive purchases we make. We make these purchases despite the fact that it’s not our habit to do so, despite the fact that it’s not in the budget and regardless of the fact that we really don’t need what we’re buying. We just want it.

Why is that? How is it that we can throw all logic out the window, spend incredible sums of money (money that we may not have) and experience great joy? Because we feel that we’re worth it.

All too often we overlook this aspect of pricing and how it enhances the customer experience. We forget that people ascribe value to what they purchase based on the price they pay. Buyers take great pride in acquiring the best when their perception is validated by the price.

It’s counter-intuitive, but you can enhance your customers’ experience by charging a premium price as long as the price is substantiated by value. Don’t deprive your customers of the joy of treating themselves to something special. Employ this simple technique and you’ll both be saying “I’m worth it!” And you’ll both be right.

Ted Gorski, Executive Coach and host of The Business Advantage Radio Show at WKXL 1450AM, asked me that question a few weeks ago in an interview that aired on his show.

I must admit that I was taken aback by the question. I had not previously sought to define the term ‘price.’ Fortunately, the answer came fairly quickly.  To me, price is an indicator of value.  Unfortunately, too often, that isn’t the case.

A few companies charge premium prices, then fail to deliver the value.  These companies tend not to survive very long.  It’s one thing to disappoint a buyer who was bargain hunting, but to disappoint one that’s paid a premium price to get what they truly want is unforgivable.

The vast majority of sellers err the other way.  They feel trapped by industry pricing so they charge what their competitors are charging even though they’re providing greater value.  Buyers love it!  Or do they?

When buyers don’t have an effective way to distinguish one offering from another; when they can’t determine why one offering is more valuable than another, they view all the offerings as commodities. This does NOT help them make informed decisions. Consequently, buyers rarely experience the satisfaction they should with the purchases they make.

It’s counter-intuitive, but your price should substantiate your value claims.  It not only allows you to get higher prices for your offerings, it enhances your buyers’ experience.  So the next time you establish your price, ask yourself this question “Does this price accurately reflect the value I provide?”

To discover how you can break the bonds of industry pricing, call Dale at 314-707-3771.

If you haven’t looked at pricing as a way of adding convenience…

…maybe you should.

One of my clients, a horse trainer who specializes in training horses and riders to win hunter/jumper events, offered a full array of services including:

• Training for the horse.
• Lessons for the rider.
• Boarding.
• Show arrangements.
• Show transport.
• Care for the horse during the show.
• Coaching for the rider during the show.

The natural tendency, when you have such a broad array of services, is to price them separately and allow the customer to pick and choose what they want. While this approach allows buyers to tailor the offerings to their needs it has downsides. Buyers spend time:

• Reviewing the invoice to assure its accuracy.
• Wondering whether or not the services were actually provided.
• Trying to recall whether they suspended some services that month.
• Wondering whether some aspect of the service is really worth the money.

That’s a lot of potential dissatisfaction! If you’re about to dismiss these as minor inconveniences recall your last airline reservation and how much time you spent trying to compare airfares.

From the business owner’s standpoint this approach created a lot of extra paperwork, phone inquiries about the bill and the need to, periodically, resell the customer on some of the services they questioned.

It’s counter-intuitive, but ala carte pricing often detracts from the customer experience rather than enhancing it. If you’re looking for a way to avoid the pitfalls do as my client and I did:

• Identify which combinations of purchases your customers make most often and with what frequency.
• Bundle them into packages that allow you to charge one price for the bundle.

That way, when your customer gets the invoice, a quick glance is all that’s needed to assure that it’s correct. As you can see, your pricing strategy can add a great deal of convenience to your customers and save you a lot of work in the process.

To discover how you can break the bonds of industry pricing call Dale at 314-707-3771.

Great strategy?

Or sheer folly?

It’s early spring.  I’m listening to the radio when I hear an ad for the premier carpet cleaning company in our city. The woman in the ad is telling her friend how awful her carpets after having dirt, sand, salt and grime tracked in all winter long.  Her friend recommends the carpet cleaning company touting all of its benefits.

The ad is clever and well-constructed until the friend says that the company is offering a discount.  What? Offering a discount during peak selling season?  Why would they do that?  Ostensibly, to increase market share, right?

Is that a good strategy?  Let’s play this out to its conclusion.  First, the company is giving up profit margin with its ideal customers to garner a larger share of the market.  It’s peak selling season. They’re already swamped with orders yet they’re pursuing more orders with their discounts.  How is the work going to get done?  Overtime and temporary help.

Employees that work incredible amounts of overtime are fatigued.   They’re going to make more mistakes. That’s going to hurt the company’s reputation. Indeed, given the claims made in their ads, the company has set expectations that they aren’t going to be able to fulfill.

Temporary help is an alternative, but these workers aren’t as knowledgeable about the process.  They, too, are going to make mistakes and damage the company’s reputation.  Plus it’s going to take them longer to complete the work. Not only does the company incur additional costs, it angers a lot of customers because the temps are consistently behind the schedule that they were given.

Then there’s the strain on equipment.  When the company is operating it’s equipment at full tilt 12 to 14 hours a day, six or seven days a week, there’s no time for maintenance.  When the equipment breaks down, which it inevitably does in this environment, it throws the entire schedule off; once again, damaging the company’s reputation.

Of course you could add more equipment to handle the increased demand, but then what do you do with this excess capacity in the off season?  Offer more discounts?

It’s counter-intuitive, but offering discounts in peak selling season to garner a larger share of the market is one of the costliest strategies this company, or yours, could possibly employ.  Don’t fall into this trap.  When it’s peak selling season, hold your price.  You’ll not only enjoy greater profits, you’ll do so with fewer headaches.

To discover how you can get higher prices for your products and services, call Dale at 314-707-3771.

Walmart has reverted to lowering prices.

Walmart’s recent price cuts indicate that its attempts to change its business model aren’t faring well.  For decades Walmart has enjoyed tremendous success with its “Always low prices, always” strategy.  The length of its run has far exceeded that of most businesses for one simple reason.  Walmart has a passion for cutting costs.

Unfortunately, as is always the case with a low-price strategy, Walmart has hit the floor on cost cutting. You need no further evidence than the change in its tagline from “Always low prices, always” to “Spend less. Live Better.”

To its credit Walmart realizes that it has hit the cost floor and it has been attempting to change its business model. However, it is discovering just how difficult that is.  Walmart’s customers have become accustomed to thinking of “Walmart” and “low price” as synonymous terms.

Any attempt to change a company’s business model, whether it’s Walmart or any other business, involves the creation of a clear, new direction and equally clear communication of that new direction. Otherwise you simply confuse buyers.  It’s counter-intuitive, but clear communication of your new strategy will allow you to minimize the revenue losses you experience during the transition period.

Walmart has not created a clear strategy as evidenced by its recent price cuts in the face of declining sales. It has also has failed to acknowledge that it’s going to lose sales during the transition from its old low-price strategy to its new, albeit ill-defined strategy.  Until Walmart can define and communicate its new direction clearly and concisely, I’m afraid that it will continue to be the victim of its own strategy.

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

You can get Pricing for Profit online from Borders.com, BarnesandNoble.com and Amazon.com.

‘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.

For help in keeping the Grinch from stealing your Christmas call Dale at 314-707-3771

Great strategy…

…or sheer folly.

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.

For more information on how you can command higher prices for your products and services call Dale at 314-707-3771.