A December 6, 2010 Bloomberg Businessweek article, Wal-Mart Says It’s Cooperating With China Government on Prices http://tinyurl.com/28sxlnp, shows another way that a low-price strategy can bite you.

Because China’s economy is growing at such a feverish pace the government justifiably fears inflation.  To help stem the tide of inflation government officials are asking Walmart and other retailers to provide advance notice of price increases and justify them.  Let’s see how this plays out for two different firms.

One firm employs Walmart’s type of low-price strategy.  Margins are thin.  They’re getting pressure from the stock market and their Board to get the margins up which requires price increases.  Then a government, the government of the most populace nation on earth, asks you to justify price increases.

The second firm uses a value strategy and prices in accordance with the value it offers.  It’s margins are above average.  It, too, receives a mandate to justify price increases.

Which of these firms is more likely to prosper in the future?  The latter, for several reasons.  First, it already has better than average margins which allow it to absorb some cost increases without risking the firm’s future.

Second, if the government sets a target of 2% to 3% maximum price increase, the value firm will enjoy greater prices increases because its base price is higher.  The magnitude of the increase is more likely to cover any cost increases it may face.  Given these scenarios, which firm would you rather be running?

It’s counter-intuitive, but the a value-pricing strategy affords protection from a broad array of unexpected market conditions including government intervention.

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

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

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

…it’s more reliable than you think.

I don’t know a business owner/leader who hasn’t, at one time or another, felt adrift in the sea of change. It’s inevitable. Why?

Business, like everything else in life, evolves and devolves. One day we’re riding high on the wave of a strong economy, the next we’re underwater trying to get back to the surface for a breath of air.

There is one constant though. Each stage of the cycle produces new opportunities – opportunities that can cause us to lose focus and drift aimlessly. Let’s take a look at how this happens.

Good economy
In good economic times opportunities abound. New markets surface. New uses for our offerings appear. Customers ask us to add new products and services. Employees, whose minds are free of economic worry, are coming up with exciting, new ideas. We have all of these wonderful sources of new opportunities. It’s a great time to be alive.

It’s also one of the most dangerous. Often these opportunities lure us into markets in which buyers only have a modest interest in what we offer. Buyers are willing to buy our offerings because they have considerable discretionary income. They won’t, however, remain with us during tough economic times or when their interest is captured by the next shiny object.

Then there’s the siren song of customers’ requests. Things that customers desire that don’t fit our either our passion or strength. Yet it’s a heck of an opportunity. Right? Maybe it is a capability that we need to develop. Or so the thought process goes.

Challenging economies provide their own opportunities. Are they any less dangerous? Let’s see.

Tough economy
During difficult economic times opportunities present themselves as challenges. Yet these challenges offer great insights into what our customers truly value – what is really important to them. Important enough for them to part with their cash when cash is in short supply. It’s a great time to reevaluate our business model to see that it fits our ideal customers’ desires.

The danger lies, not in reevaluating our business model, but in the mindset employed in that evaluation. It’s natural to experience fear and anxiety, especially in the initial stages of a tough economy. After all, the economic wave took us under and we’re disoriented, not quite sure where the surface is. It’s the fear, anxiety and sense of scarcity that prevent the objective analysis that so vital for your company’s future.

Internal compass
The question is “How do we navigate these waves so that our businesses continue to grow in both economies?” The answer lies in our internal compass, the mission (purpose) that has provided direction since the inception of our businesses.

In good economic times, the question you need to ask in evaluating any opportunity is “Does this further our mission?” If not, don’t pursue that opportunity. After all, you’ve built your entire operation on this premise. It’s what drove your marketing and staffing decisions as well as your customer and vendor relationships.

When we stray from our mission we position ourselves to provide products/services that we’re not passionate about, much less capable of providing effectively. We risk our company’s brand for short-term gains. We also intensify the impact of every economic downturn that we’re going to face. We, both, know that economic downturns are as inevitable as death and taxes.

On a more positive note, companies that remain focused on their mission during good economic times also experience less fear, anxiety and scarcity during economic downturns. They’re more confident in the customer/client relationships because they’ve remained true to their passion and strengths. They’ve focused on customers who value what they offer enough to pay premium prices to get it. Finally, they’ve positioned themselves so that don’t really have any competitors – anyone who can do what they do as effectively as they do.

The confidence that comes with maintaining mission focus during good economic times allows these companies to grow even during difficult economies. Panera Bread is a prime example. They raised prices and enjoyed growth at a time that most companies’ revenues were shrinking. Ron Ameln, the owner of St. Louis Small Business Monthly http://www.sbmon.com/, told me that, in the heart of the recession, he raised his prices by 5% and experienced an 8% growth in revenues.

It’s counter-intuitive, but if you want to experience growth in good economic times and bad, evaluate every opportunity that presents itself against your company’s mission. If it fits, go for it! If not, walk away comforted by the knowledge that you’ve positioned your company for growth in challenging times.

If you want to be the Nordstrom of your industry or if you catch yourself thinking “I’m tired of working my tail off without making any money,” call Dale at 314-707-3771.

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

Adrift in a Sea of Change? is a post from: Pricing For Profit Book | pricing strategy | branding | value based pricing | value pricing | private equity |

Are you sure?

I recently saw an ad that said “We offer the best…at the best price.” What does that mean? What is the best price? Did you mentally equate “best price” with “lowest price?” This lack of clarity can create customer disappointment and a lot of ill will. Let’s see how.

“Best” is a subjective term. It has different meanings for different people. Let’s look at clothing retailers and how each of their buyers might define the word best.

If you’re a Saks or Nordstrom buyer, best means not only very high quality merchandise, but also great ambiance and exceptional service. The best price for these buyers is the one that reflects that value – a price significantly higher than they’d find at other stores.

To a Macy’s buyer, best means high quality with strong brand recognition, but they may view the ambiance and additional service of Saks and Nordstrom as impractical. The best price in their minds is the one that bespeaks the quality of the merchandise and brand logo, but discounts heavily the ambiance and service aspects of Saks and Nordstrom.

JCPenney’s buyers impression of best is dependable quality and reasonably fashionable clothing. They may view the higher levels of quality, ambiance and service at Macy’s, Nordstrom and Saks as ostentatious. The best price for JCPenney buyers is one that’s significantly less than Macy’s, yet coincides nicely with the dependable quality and a less recognizable brand like St. John’s Bay.

Target buyers’ definition of best might include dependable quality and a good look. It does not mean paying extra to get a Tommy Hilfiger, Polo or even a St. John’s Bay logo on the garment. The best price for a target buyer is a step down from the JCPenney’s price. It reflects affordable quality.

Walmart buyers define best price as the lowest price. The price is the overriding consideration in their buying decision.

With all of these definitions of best, let’s look at how the marketing message at the beginning of this article creates expectations.

A Saks or Nordstrom buyer expects the price to be very high to reflect the levels of quality, ambiance and service they expect. If the ad intended “best” to mean “lowest price”, you’ve lost the sale. The same is probably true of the Macy’s buyer. To these buyers, best price means one that reflects the value and they expect high value.

A JCPenney’s and Target’s buyer would feel the same way if the garment they were considering carried a Walmart price. While they may view Saks, Nordstrom and Macy’s prices as wasteful, they certainly don’t to get the feeling that there’s something inferior about what they’re buying. A sense they get when something is priced below what they expect the price to be for the quality they desire.

It’s counter-intuitive, but the language you use in your marketing message must clearly convey the value you provide. Vague terms like ‘best’ leave too much to interpretation. When you leave messages subject to interpretation, the way the message is interpreted will almost certainly be different than what you intended.

If you want to be the Nordstrom of your industry or if you catch yourself thinking “I’m tired of working my tail off without making any money,” call Dale at 314-707-3771.

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

The Best Price is a post from: Pricing For Profit Book | pricing strategy | branding | value based pricing | value pricing | private equity |

…you have to do well.

I recently had the good fortune to speak to a group of entrepreneurs affiliated with the Center for the Advancement of African-American Business. A number of the members had created 501(c)(3) not-for-profit organizations in addition to their for-profit businesses. Why this dual arrangement? They wanted to increase the number and quality of opportunities within their communities.

These laudable goals were hampered, however, by poor pricing models. Many of these business owners, in an attempt to help the disadvantaged in their communities, priced their offerings so low that they are barely making ends meet. This scenario isn’t limited to the African-American community. I’ve seen it played out time and again in a wide array of ethnic and religious groups of all sizes and geographic location.

The old adage that you can’t take care of others unless you’ve taken care of yourself is so true, as these social entrepreneurs were discovering.

It’s counter-intuitive, but your ability to lead others to higher levels of accomplishment requires you to demonstrate the ability to achieve great things yourself. In business, that means creating and growing a profitable business.

The keys to success for social entrepreneurs are:

In the for-profit business:

• Identify your ideal customers – those who value what you offer enough to pay for that value.
• Price in accordance with the value you provide.
• Communicate that value in your marketing messages so that you attract those who are willing to pay your price.
• Quantify and communicate your value in the sales call so that buyers can make an informed decision.
• Indicate in your marketing materials that a percentage of your profit dollars are going to your not-for-profit entity and the mission of that entity.
• Highlight one or two success stories of your not-for-profit organization.

In the not-for-profit organization:

• Don’t assume that because someone is less well off than you (your definition) that they want their lives to change. Many of the people on lower socioeconomic scales are quite happy with their lives.
• Require those seeking assistance from your not-for-profit are willing to contribute time, talent or other resources to help others while gaining the assistance they need. If they’re not willing to commit to some form of exchange, they really don’t value the assistance you’re offering.
• Use your success and the success of those who’ve received assistance to expand the resources of your not-for-profit so that it’s not completely reliant on your for-profit business.

I admire these social entrepreneurs. I hope these tips will help them and the communities they serve enjoy greater success.

If you’d like to become the Nordstrom of your market or you find yourself saying “I’m tired of working my tail off and not making any money”, call Dale at 314-707-3771.

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

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

How to price innovation.

On September 1, 2010 Bloomberg BusinessWeek reported Panasonic’s claim that Samsung started a price war for 3-D TVs. The authors, Mariko Yasu and Adam Le, go on to tell us that Samsung began offering the sets in March and garnered 88.3% of the market by the end of August. Since March both Sony and Panasonic have entered the market.

Given these facts what would you have done if you were running Samsung? I’d have done exactly what they’re doing, lowering the price. Yes, I know that sounds strange coming from me, the leading advocate of higher prices. But, as I’ve said before, this is a situation that begs lowering prices. Why?

Samsung was the first to market. They had no competition, which allowed them to charge a premium price. The price premium provides a large ROI on both their innovation and marketing dollars. As soon as their competitors enter the market with a competing product, they lower the price to prevent those competitors from enjoying similar returns.

The financial gains they earn while being the sole provider of 3-D TVs allow them to continue to innovate and be first to market, which enables them to maintain a commanding lead over their competitors for decades. Who wouldn’t embrace a strategy that enables them to accomplish so much so quickly.

It’s counter-intuitive, but lowering prices just as your competitors come out with a competing offering doesn’t cost you money. It solidifies your competitive advantage and, often, your market share. The latter is especially true if you have the next generation of innovation ready to launch.

If I were Samsung and being accused of starting a price war, what would I do? I’d smile all the way to the bank.

If you’d like to become the Nordstrom of your market or you find yourself saying “I’m tired of working my tail off and not making any money”, call Dale at 314-707-3771.

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

Samsung Gets It Right! is a post from: Pricing For Profit Book | pricing strategy | branding | value based pricing | value pricing | private equity |

…what language are you using?

There are basically two types of language we use – logic and emotion. Our natural tendency is to view logic as the more effective approach to decision making. Why? Because emotions tend to feel chaotic, reactionary and, therefore, limiting in their ability to produce effective results.

These beliefs form our desire to be viewed as logical human beings. Yet studies have shown that logic alone is often barren; it produces little, if any, fruit. I find this in my work with clients. It’s actually quite easy for me to get logical acceptance. But it isn’t until I get emotional acceptance that things really begin to happen.

When my clients feel the emotions associated with what they truly want out of life that their excitement transforms into action and action into results. So what’s my point?

When creating marketing materials use the language of emotion. Paint pictures that allow potential buyers to experience the joy, pride, convenience or quality you provide. Here are two examples of how language can make a difference.

The first came from a meeting with a mergers and acquisitions consultant who showed me his marketing materials which defined his ideal customer by demographics. I asked him “If you were a potential customer and your read this profile, what would make you want to do business with this company? Why would you choose this company over another who serves the same demographic?”

He didn’t have an answer. Why? Because their was no emotional trigger that caused him to say “That’s it!  That’s what I want.”

In a similar vein one of my clients and I were working on her tag line. We were considering two words “phenomenal” and “amazing” in conjunction with the word “result.” She had her heart set on the word, phenomenal. I asked her “What do you feel when you hear that word?” She hesitated, then said I get the sense of bigness. Then I asked what she felt when she heard the word, amazing. She instantly said “A smile came to my face!”

Why the difference in reactions? Phenomenal is a logical term; it denotes quantifiability. Amazing, however, is an emotional term. Each of us knows what it feels like to be amazed. It triggers memories of amazement and the joy we felt when we were amazed. It’s that joy that we want over and over again. We don’t get the same impact with the term, phenomenal.

It’s counter-intuitive, but using the language of logic is counter-productive in generating sales. Yet it’s the language we most often employ. Retrain your mind to use the language of emotion and you’ll generate more sales at higher prices.

If you’d like to become the Nordstrom of your market or you find yourself saying “I’m tired of working my tail off and not making any money”, call Dale at 314-707-3771.

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

Language That Sells is a post from: Pricing For Profit Book | pricing strategy | branding | value based pricing | value pricing | private equity |

…and someone is being trained.

I often tell my clients that in every human interaction one person is training another how to behave. The question is do you want to be the trainer or the trainee? They, all, want to be the trainer. How do you accomplish that?

By being clear about:

• What your company offers – image, innovation or time savings.
• Who values it enough to pay premium prices to get it.
• What is and is not a reasonable extension of your offerings.

Let’s say that you love throwing amazing parties on an affordable budget. Think Martha Stewart. Your company offers image without the hefty price tag. You accomplish this through a series of how-to classes, videos and books. Your market is do-it-yourselfers who want to throw elegant parties without hiring a caterer or party planner. Their satisfaction comes as much from the the creative aspects of their preparations as the amazed looks they get from their guests.

Now imagine that you’re approached by a very wealthy family that’s willing to pay you a huge sum of money to put together a party for them. Are you going to do it? Let’s face it, there are a lot of compelling reasons to do so:

• The money’s great.
• You have the opportunity to enter a new market.

If you’re successful (and you know you will be), you’ll take your business to a new level.

So what’s the downside? You’re on the threshold of confusing the market. You’re about to start down a path that will leave buyers questioning whether you’re an educator or an event planner. These are two dramatically different businesses serving different markets and requiring different marketing messages. Try to do both and you’ll excel at neither.

The same would be true if you were approached by someone who wanted you to discount your materials because they ‘couldn’t afford them.’ In essence what these potential buyers are saying is that what you’re offering really isn’t that valuable to them. If you lower your price, you’ve just taught them that your offerings don’t really possess the value you claimed and you’ll invite more of these buyers to the table.

It’s counter-intuitive, but allowing buyers to lure you into providing products or services that are outside your normal offerings trains them that you’ll do anything to make a buck. It also creates confusion about what business you’re in. Which, in turn, makes it more difficult to attract the customers who will pay premium prices for your offerings.

Conversely, saying “No” to requests that don’t fit your business strategy trains the market to make a conscious choice – to choose or not choose your offerings with either choice being all right with you. Now you’re sending messages of:

• Success – you don’t need their business to be successful.
• Confidence – you’re very good at what you do.
• Purpose – you have a mission and won’t be distracted from it.
• Care – you want buyers to make informed decisions.

These are powerful messages that attract buyers who value what you have to offer.  Learn to say “No” to tantalizing temptations that don’t fit your business strategy and you will, indeed, be the trainer.

If you’d like to become the Nordstrom of your market or you find yourself saying “I’m tired of working my tail off and not making any money”, call Dale at 314-707-3771.

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

In Every Sale… is a post from: Pricing For Profit Book | pricing strategy | branding | value based pricing | value pricing | private equity |

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.

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

…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.

Customers Only Care About Price is a post from: Pricing For Profit Book | pricing strategy | branding | value based pricing | value pricing | private equity |

I’m Worth It! is a post from: Pricing For Profit Book | pricing strategy | branding | value based pricing | value pricing | private equity |