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 |

…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 |

…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 |

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

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.

What Is Price? is a post from: Pricing For Profit Book | pricing strategy | branding | value based pricing | value pricing | private equity |

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.

Pricing: An Added Convenience? is a post from: Pricing For Profit Book | pricing strategy | branding | value based pricing | value pricing | private equity |

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.

Greatness: The Key to Accelerating Recovery – Part I is a post from: Pricing For Profit Book | pricing strategy | branding | value based pricing | value pricing | private equity |