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.

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.

Part I: Dispelling the Pricing Myth

Greatness is not measured by what we do in good times, but how we respond to challenging times. You can ascertain the greatness of your organization by comparing your actions during this, the most challenging economy in 70 years, against the essential elements of economic recovery.

The truly great companies are going to lead the recovery and enjoy a gigantic lead over their competitors for years to come. How? By:

• Dispelling the pricing myth.
• Narrowing their focus.
• Stimulating job growth through innovation

In this three-part series we’ll discuss these essential elements of economic recovery. How will your organization measure up? Let’s see.

Dispelling the Pricing Myth
A common misconception is that buyers become more price sensitive during difficult economic times. Indeed, this belief becomes a self-fulfilling prophecy. Leaders expect buyers to become more price conscious so they discount their offerings to retain their customers’ business. Voila! Buyers’ focus on price intensifies. Imagine that.

It’s counter-intuitive, but buyers become more value oriented in a down economy. Here’s a simple example to demonstrate my point. You’re at the grocery store in the canned goods section. As you reach for your name brand green beans you notice that the store brand is 40 cents less. You think “Hey times are tough, I’ll give it a try.” So you pick up a can of store brand green beans and one of corn.

That evening you serve the green beans and find that they’re mushy and bland. Most end up in the garbage disposal. What are you going to buy the next time you’re at the store? The name brand. The store brand is more expensive even though the price is lower.

The following evening you hesitantly serve the corn. Much to your surprise it’s every bit as good as your name brand. Which are you going to buy the next time? The store brand. The quality is every bit as good as the name brand and the price is lower.

Both decisions are value decisions. The only price decision was to try the store brand in the first place. After that you returned to value. Sellers who understand this simple concept and are truly providing greater value than their competitors may lose a few sales as buyers try a lower price alternative, but that business will quickly return once buyers experience the difference.

If you’re thinking “That hasn’t been my experience.” Then there are several explanations for your experience:

• You’re offerings aren’t really superior.
• They’re superior, but not in ways that your customers value.
• You’ve stopped selling value.

Offerings Aren’t Superior
In the 20+ years that I’ve been helping clients increase their prices, I rarely find that they’ve overvalued their offerings. Indeed, the opposite is generally true; they tend to devalue their offerings.

While this isn’t a likely explanation for why customers aren’t returning after trying a low-price alternative, it’s still worth investigating. It’s possible that your quality and exceptional service have waned and you’re not aware of it. After all, many buyers will simply walk rather than complain. They may even use price as an excuse to keep from telling you that you’re dropping the ball.

It could be that your policy-making process doesn’t anticipate the impact of those policies on your customers’ experience. A more aggressive collection or credit underwriting policy may antagonize customers and drive them away. I almost left my credit card company when they unilaterally decided that I need an ‘upgraded’ card that had absolutely no benefits I wanted.

The key in evaluating the superiority of your offering is to look at it through your customers’ eyes. There is no other perspective that matters.

Superior, But Not Valuable
A more likely explanation for why buyers aren’t returning is that while your offerings are superior, your customers don’t value the additional benefits your offering affords. I learned this lesson from a printer who asked me “Do you think that customers coming to my print shop want a great print job or a good print job?”

“A great print job!” I responded. He smiled one of those ‘gotcha’ smiles and said “Most people can’t tell the difference between a good print job and a great print job and the great print job is a lot more expensive. My customers want a good print job because they aren’t willing to pay for something they can’t see.”

How about your offerings? Have you increased the quality/service beyond what your customers value? If so, it may be the reason they’re not returning after trying a low-cost alternative.

You Stopped Selling Value
Earlier we discussed the misconception that buyers become more price conscious in a down economy when, in fact, they become more value conscious.

It’s this belief and the attendant fear that a down economy engenders that cause us to stop selling value. Recently I gave a presentation to a group of business people one of whom was a product supplier to the construction industry. While logically he agreed with everything I was saying about holding your price in a down economy, emotionally he couldn’t get past the fact that his customers were opting for lower prices. By the way, his offering was the ‘gold standard’ for his industry – a reputation that was earned from decades of exceptional quality and service.

Here are some of the questions I asked him:

Q: Are your products’ tolerances better than your competitors?
A: Yes.

Q: What does that mean for the contractor using your products?
A: Assembly goes more quickly saving time and money.

Q: Do your competitors’ tolerances result in higher product returns?
A: Yes.

Q: What does that cost the contractor?
A: Lost revenues while he waits for the right material.

Q: What does that do for his reputation with the general contractor?
A: Makes it more difficult for him to get repeat business from the general.

Q: What does that do to the general contractor’s reputation?
A: Damages it with his customer.

Q: Does that make it more difficult for him to get repeat business from his customer?
A: Yes.

Q: So how much money is at stake if all three of you lose a customer?
A: Millions.

This business man, not only knew the answers to these questions, they were questions he typically used when selling before the economy tanked. The reason he no longer used this sales approach is that he believed that his customers ‘only cared about price.’

That’s the misconception that began this discussion. The reality is that buyers become more value conscious in a down economy, not more price conscious. Indeed, value is less important to customers in good economic times. You need look no further than your own buying history.

In good economic times there were things that you bought because you thought you might enjoy them, even though they weren’t really all that important to you. Not today, you’re foregoing that type of spending to maximize the value you get from every dollar you spend.

Those of you who can use these insights to get past the myth that buyers only care about price are going to hold, better yet raise, your prices and resume selling value. In the process you’ll not only recoup some of the revenue lost when the moderately-interested buyer left, you’ll help your buyers get the greatest value from their dollars. They’ll show their appreciation by returning time and again to purchase your offerings.

How did your company measure up? If it wasn’t as well as you’d hoped, you now have a tool to help you move you to another level of greatness. The next tool we’ll discuss is narrowing your focus.

To discover how you can command higher prices for your products/services – even in a down economy, call Dale at 314-707-3771.

You can wait for the inevitable…

…or take charge of your destiny.

All excesses are eventually reversed.  Many liken the way world works to a pendulum.  When it moves too far in one direction the pendulum inevitably drops and its momentum carries it to the limit on the opposite side of the arc.  Then the process is repeated.

As I’ve said in previous blogs, we’ve been in a discount economy for three decades or more.  During this time we, as sellers, have trained buyers to focus on price. Eventually we’ll retrain them to buy on value because there is little room to lower prices.  Indeed, we’re seeing the first signs of this trend developing.  Even Walmart has moved from “Always low prices, always” to “Save Money. Live Better.”  A sign that their low-price strategy has run its course, as all low-price strategies do.

Unfortunately waiting for the inevitable when your suffering simply prolongs that suffering.  Those who recognize that the shift from a price focus to value focus is under way and take action to help their buyers understand the value of this shift, will suffer less than those who don’t.  Indeed, the leaders in this movement will enjoy a quicker recovery – a speedier return to the business success they once enjoyed.

Winston Churchill put it this way “If you feel like you’re going through hell, keep moving.”  Those who continue to discount have stopped moving in a hell they’ve helped create.

As sellers we can accelerate the recovery by:

It’s counter-intuitive, but we have a great deal more control over our future than we realize.  Those who lead the charge in ending the discount economy will be rewarded with higher revenues and greater profit margins.  They’ll have the profits and cash flow to invest in creating new value and expanding their lead over their competitors.  The question is “To which group will you belong?”  The choice is yours.

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.

Marketing messages must be great stories…

…about the true hero.

I wish I could remember the source of this elegant language for the person certainly deserves the credit for this incredible bit of wisdom.  I’m paraphrasing, but after reading a marketing piece, the individual said ‘that’s a great story, but it’s the wrong hero’.

The marketing piece had discussed the company, not its customers.  That’s why it was about “the wrong hero.”

If you want your marketing messages to translate into sales at premium prices, tell stories in which customers and prospects can experience the joy of your offerings – even if they haven’t tried them yet.

One of the fascinating aspects of the human mind is that we can experience emotions as vividly today as when we first experienced them.  Tie your offerings to an experience that everyone has had that elicits joy.

Remember, there are only three things that any of us sells – image, innovation and time-savings.  So when you’re selling image, help them experience the joy of having others admire and emulate them.

With innovation, make the story about the fun and excitement of playing with the latest, greatest toys or our childhood curiosity when everything was fascinating.

For time-savings, the story highlights the joy of spending more time with family and friends, traveling or just kicking back in a hammock on a beautiful spring day.  If you’re selling business to business and the time savings translates into greater revenue-generating capabilities, make the story about the joy of growing a successful business – one that’s the envy of their competitors.

It’s counter-intuitive, but the less said about your company and what you do, the greater the likelihood that your marketing messages will bring buyers through the doors.  More buyers, mores sales, at your price.  Now that’s an experience that’ll bring a smile to your face.

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.

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.