Charles Bankhead’s article, Economics at Heart of Drug Shortages, in MedPage Today quoted two other industry experts.  Here’s what they said “The main cause of drug shortages is economic,” wrote Mandy L. Gatesman, PharmD, of Virginia Commonwealth University in Richmond, and Thomas J. Smith, MD, of Johns Hopkins. “If manufacturers don’t make enough profit, they won’t make generic drugs.”

This is a classic example of where the race to ‘free’ is taking us.  When sellers focus their customers’ attention on price and customers respond by pressuring sellers for lower and lower prices, you end up with shortages like those outlined above.

Unfortunately that’s a mild precursor of what’s to come.  In today’s global economy and easy access to anything you want online, we’re going to find opportunists who will fill the gap.  These folks aren’t going to care about health and safety.  Nor do they care about the regulations that exist to protect your health.

Their production processes won’t be as sterile as those of the manufacturers we’ve come to know and trust.  They’re also more likely to use some variation of the primary component of the drug you’ve been taking.  Fillers, which add nothing to the effectiveness of the drug, will become a more significant component of the drug to keep costs down.

This is just one example of the world we’re creating for ourselves.   As sellers we have to take the lead and retrain customers to appreciate the value we provide.  Better yet we need to quantify that value for them so that they can see what a bargain our offerings are, even at premium prices.

We, as sellers, also need to say ‘No‘ to customers who demand lower prices.  That’s what the generic drug companies are doing now.  Too bad they didn’t make that tack before it reached this stage.

As consumers, we need to be aware of the risks of low prices.  Not just in regards to our safety, as in the case of drugs, but in terms of the enjoyment our purchases should afford us.

If we continue this race to ‘free’ we’re going to create misery for ourselves and others and we’ll have no one to blame but ourselves.

If you’d like to increase your prices, profits and customer base, call Dale at 314-707-3771.

Low Prices and Drug Shortages is a post from: Pricing For Profit Book | pricing strategy | branding | value based pricing | value pricing | private equity |

My initial thought was “Well that promotion wasn’t very successful.”  I know that extending the deadline for a sale, for discounts and terms, like shipping, is a common practice for many businesses, but do these businesses realize what message they’re sending to the market?  Let’s see whether you and I are getting the same messages.  Here’s what came to mind:

• The promotion wasn’t successful, what makes them think that extending the deadline will help?
• I wonder what was wrong with the offer that it didn’t produce better results.
• Whatever it was I’m not interested in learning more about the promotion.
• The more frequently they extend deadlines, the less confidence I have in their offerings without even seeing them.

Of course the opposite could be true, the promotion could have helped them achieve their revenue goals.  But then why extend the deadline?  Oh that’s right, market share.

If businesses would expend as much energy improving their profit margins as they do going after market share, we’d all be better off.  The business would be more profitable, allowing them to invest in innovative, to attract and retain talented workers and create a more satisfied, loyal customer base.

Regardless of the reason for Amazon’s deadline extension, here are the thoughts I’d like to leave with you:

• Don’t use discounts regardless of their form; they don’t generate greater long-term profits.
• If you do offer a discount and don’t generate the profits you’d hoped, don’t extend the deadline.  The problem isn’t the price.
• Shift your focus from market share to higher margins.  You and your customers will both be better off.

I’d like to take this opportunity to wish each and every one of you a holiday filled with love, joy and wonderful memories in the making.  Happy holidays!

If you’d like to increase your prices, profits and customer base, call Dale at 314-707-3771.

Amazon’s Deadline Extended! is a post from: Pricing For Profit Book | pricing strategy | branding | value based pricing | value pricing | private equity |

Ineffective at Communicating Value
An all too familiar refrain from business owners is “They (prospects) get excited about my product/service, but seem to lose interest when they hear the price.”  The only solution these sellers see is lowering the price.  Why?  Because they don’t know how to quantify and communicate their value effectively.

Unfortunately our education system doesn’t teach business people how to quantify value.  Absent this ability, it’s difficult for business owners/leaders to identify who their ideal customers are.

Let’s say that I’m a JCPenney’s type buyer.  When I create offerings for my customers I’m going to do so with that value proposition in mind.  Often this decision is made subconsciously; I’m not even aware that I’m doing it.  Let’s see what implications that has for the success of my business.

If I’m unaware that I’ve created my offerings with a JCPenney mentality, what’s the likelihood that I’m going to market to everyone who might possibly buy my offerings including Walmart, Target, Macy’s and Nordstrom buyers?  Based on over 20 years experience working with businesses in a variety of industries, it’s inevitable.

I’m also going to direct my sales force to target all of these potential customers.  Unfortunately, my salespeople are going to get a lot of rejections from the Walmart and Target buyers because those buyers think my offerings are too expensive.  The Macy’s and Nordstrom customers are also going to reject our offerings.  Why?  Because they don’t believe the quality or image value are there.  Yet, their most likely reason for not buying is “Your price is too high.”

Quantifying the value of your offering is the key to communicating your value effectively.  Creating the formulae to quantify that value require more space than what’s available in a blog post.  The topic required a significant amount of one chapter to communicate in the book.  There is another approach that won’t be as precise, but will help you quantify that value.

First, look at what buyers are willing to pay for your value proposition – image, innovation or time savings.  Buyers pay more than 7 times the lowest price alternative on large ticket items to get the image they desire; 12 to 14 times as much for small ticket items.  Innovation buyers pay 3 to 4 times as much as the mass market and 10 to 12 times as much as late adopters.  Consumers pay at least 3 to 4 times their hourly rate of compensation to save time.  The value of time savings for business is the gross margin it’ll gain on additional sales.

Next, determine where on the spectrum your value and, consequently, your ideal customers’ value lie.  With image you have a spectrum that includes Walmart, Target, JCPenney’s, Macy’s and Nordstrom.  At each point on the spectrum you have a sense for how much buyers value image.  Target buyers typically pay 20% to 50% more for a sweater than a Walmart buyer.  JCPenney’s buyers typically pay 3 to 5 times as much as a Walmart buyer.  Macy’s – 6 to 8 times; Nordstrom’s 12 to 14 times.

In essence, by pricing according to the multiples that your ideal customer has demonstrated a willingness to pay you communicate your value in a way to assure the buyer that the quality, service, etc. are there.

Throughout the series you’ve had a chance to see that our perception of a scarcity of customers is more a perception than a reality.  Don’t allow your perceptions to become self-fulfilling prophecies, use the simple tools outlined in this series to open the door to countless customers at the price you so richly deserve.

If you would like to command higher prices, grow your profits and grow your customer base, give Dale a call at 314-707-3771.

Scarce Customers – Part III is a post from: Pricing For Profit Book | pricing strategy | branding | value based pricing | value pricing | private equity |

Another reason for this belief is that sellers view their competitors’ offerings as superior to theirs.  You may be surprised to find how rarely that’s true.  Here’s why.

Competitors’ offerings are better
An unfortunate human tendency is to place greater value on others’ capabilities than on our own.  When a competitor’s offering provides something that ours doesn’t, we place great value on it because we don’t have that capability.  Yet when we provide something that our competitors aren’t, we tend to discount it.  Why?  Because it’s so natural for us that we assume everyone can provide that value.

I’ve lost count of the number of times a client or prospect has said “It only takes me ‘x’ hours to do that?”  My retort is always the same “Does the fact that you can produce the result so quickly make it more or less valuable to your customers?”   It’s amazing how often this simple concept is overlooked by sellers.

There is another assumption that we make about the advantages of our competitors’ offerings.  That assumption is that their customers value that ‘advantage’.  My experience has been that often these competitors don’t really know whether or not that advantage is valued by their customers.  Why?  Because they never asked them to pay for it.  Which begs the question “Why would you discount your offerings when you don’t know whether your competitors’ customers value their ‘advantages’?

The more that we believe that our offerings are inferior, the more likely we are to view customers as a scarce resource.  Let’s see how we can overcome the natural tendency that creates this mindset.

Overcoming this tendency
The first step in overcoming this natural tendency is to ask yourself “How many customers have I lost to competitors vs. how many I’ve gained?”  Unless you or your competitors are really screwing up badly, the likelihood is that your customer bases are fairly stable.  There’s a reason why your loyal customers are choosing you over your competitors.  Find out what it is and focus your attention on becoming even better at what’s most important to them.

The second step is to talk to your competitors’ customers and find out why they buy from them.  Often you’ll discover that the reason they’re doing business with your competitors because they have a long history with that competitor.  It has nothing to do with your offering, it’s ‘family.’

Another reason that they may be doing business is that their value systems align better with your  competitor’s than with yours.  Let’s say that your competitor has a Walmart value system where you have a JCPenney value mindset.  If that competitor’s customer also has a Walmart mindset, there really isn’t anything you can do to attract that customer to your value proposition.  The one thing you don’t want to toy with is your value system – that is one misstep that is likely to ring a death knell for you business.

Next week we’ll discover how our  inability to communicate value can make it seem as if customers are a scarce.  In the meantime, please share your thoughts, experiences and recommendations with us whether you agree or disagree.

If you want to increase your prices, grow your profits and increase your customer base, call Dale at 314-707-3771.

Scarce Customers – Part II is a post from: Pricing For Profit Book | pricing strategy | branding | value based pricing | value pricing | private equity |

I was listening to a company’s CEO/founder relate her company’s rise to success, warts and all, when she stated that when they hit $3 million in revenue they had to buy additional equipment to handle the demand.  Is that what you’d have done?

The vast majority of business people would, but I’d like to suggest that there is an alternative that makes more sense.  Yes, I’m talking about raising prices.

Whenever a company reaches its capacity it should review it’s customer list.  It’ll inevitably find customers whose margins are very low and who are so demanding that it doesn’t make sense to continue accepting their business.

If you’re looking for a quick and easy way to identify these customers just ask your staff “Who are the most challenging customers with whom you deal?”  They’ll rattle off a list so quickly your head will spin.  Here’s what you’ll find when you investigate these customers’ history:

• They’re high volume customers – otherwise why would you have tolerated their demands.
• Their margins are well below those of most of your customers, possibly even negative when you factor in how many resources are expended trying to satisfy them.
• They’re regularly demanding that you do things that are outside your normal business activities which increases the likelihood of errors and lost productivity.
• Late in paying because of all the ‘problems’ they encounter.

Ouch!

Replacing bad customers

Now, let’s imagine that the increased demand for your offerings is coming from people who really value what you have to offer.  You’ve attracted them because you’re the best, if not the only company, that can do what you do.  As a result they’re paying higher prices than the customers identified above.  What will that mean for you financially?  You’ll:

• Enjoy much higher margins when you replace troublesome customers with new customers.
• Eliminate the time and energy drains on your staff thereby increasing productivity and, in essence, adding capacity to your organization.
• Avoid having to make additional capital investments which conserves cash.
• Avoid borrowing money for capital investments and weakening your balance sheet.
• Keep your infrastructure costs flat while raising margins thus increasing profitability.

Given these options, expansion or customer replacement, which would you choose?

Expansion’s Emotional Appeal

Surprisingly, more than a few of you will still opt for expansion.  It’s tough to forego bragging rights associated with a growing customer base, isn’t it?  The reality is that, if you choose to go ahead with expansion without eliminating low or unprofitable customers, somewhere in the not too distant future you’ll be complaining that running your business “isn’t fun any more.”

The problem becomes even more profound if you suddenly feel the desire to sell your business.  Why?

• Your company’s profits aren’t what they could have been.
• Productivity (revenues per employee) are low compared to the industry.
• Free cash flow is marginal, if it exists at all.
• You have significant amounts of debt on the books.

As a buyer, how much would you pay for a business like that?  Indeed, would you consider buying it at all given all the unraveling you’d have to do?

Don’t live this nightmare.  The next time you feel the need to expand:

• Review your customer list.
• Fire those who are most demanding and take you outside your organization’s strengths.
• Replace those customers with your ideal customer and significantly higher prices than the old customers were paying.

It’s a much more effective way to deal with growing demand.

Please share your experiences in expanding your operations.  Did it work well or poorly?  What were some of the factors that influenced your result?

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

Is Expansion on Your Horizon? is a post from: Pricing For Profit Book | pricing strategy | branding | value based pricing | value pricing | private equity |

The reality is that every business is creating a brand image whether it intends to or not.  The question is what image are you creating?

The most successful companies, regardless of size or industry, make conscious decisions about what their brand promise is.  To make sure we’re all on the same page, a brand promise is the result the customer will get from using our products/services.

Unfortunately, the vast majority of companies (again regardless of size) devote most of their marketing dollars to telling customers what the company does, not what the customer gets.  Here are a few examples to help you visualize the difference.

A quick visit to Johnson & Johnson’s website and you’ll find, on its home page, scrolling examples including how a mother can use ‘green products’ to protect her child’s future  environment while keeping her child free of infection.  These are specific results that the consumer can expect from Johnson & Johnson products.

Let’s contrast that with Centene Corporation’s home page which states “…through a comprehensive portfolio of innovative solutions, we remain deeply committed to delivering results for our stakeholders…”  While I’m confident that Centene does have solutions to their customers problems, as a potential customer I wouldn’t know whether or not they have a solution for my problem.

Now let’s look at a much smaller company, Cynergy Ergonomics, whose tag line is “leveraging the power of man” and whose opening salvo is “We design ergonomic lifts and work stations that will improve your safety record and increase productivity.”  Could the result be any more clear?  If your company is looking for improved safety and increased productivity, you need look no further.

As you can see, it doesn’t take a monumental budget to create a clear brand promise.  What it takes is a clear understanding of the result your customers can expect.

As you reflect on the examples above, ask yourself one simple question “After seeing each home page, would I continue my search?”  My guess is that you would with Centene, less likely to do so with Johnson & Johnson and infinitely less likely with Cynergy.

Don’t invite potential buyers to continue their search, create a clear brand promise and lead with it in all your marketing materials.  That’s how you avoid the high costs of an unintentional brand.

Whether you’re a private equity firm looking for ways to quickly generate higher returns and more investors…

…or a middle market company struggling to get funding for expansion, give Dale a call at 314-707-3771 to discover just how quickly he can help you achieve your goal.

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

Conventional wisdom is that you need to know your competitors’ pricing.  My question is “Why?”

The answer I get most often from business owners/leaders is that their company’s pricing has to be competitive.  Then I ask “So what is a competitive price?  Is it 10% more, 10% less, in line with your competitors?  What does it mean to you to be competitive?”  Interestingly, few have a concise answer.  They simply feel that their price needs to be close to what their competitors are charging.

Lack of a clear definition of ‘competitive price’ isn’t the only problem.  There are a number of flaws in the ‘conventional’ wisdom regarding the value of pricing intelligence.

First, it overlooks the fact that we tend be more critical of our offerings than our competitors’ offerings.  We know where the warts are in our offerings.  They’re less visible when viewing competitors’ offerings.  It’s difficult to get fair compensation for the value you provide when you’re consistently discounting that value.

Second, most of your competitors’ don’t have any better idea of how to quantify value (dollars/cents) than you do which means that they, too, have defaulted to ‘industry pricing.’  How is gathering pricing ‘intelligence’ from people who don’t know any more than you do going to help you establish your prices?

Third, if you have an effective business strategy – one in which you’re providing something the market wants or needs that it isn’t getting – how is your competitors’ pricing relevant?  There is no frame of reference among your competitors.  You’ve got that market entirely to yourself.

Fourth, gathering competitive pricing intelligence focuses the seller’s, and ultimately the buyer’s, attention on price instead of value.  It’s value that the vast majority (over 85%) of buyers want, not the lowest price.  The reason why they seem so price conscious is that’s where we’ve focused their attention.

Finally, most businesses have taken on business that they shouldn’t have.  Whether it’s because they needed the cash or they thought something was a good idea but it didn’t pan out, they’ve taken on business that they shouldn’t have.  To get, and retain, that business they’ve discounted their prices.  By using their pricing as a frame of reference you’re paying for their mistakes with your pricing.  Ouch!

Getting back to the original question – “Is gathering your competitors’ pricing information a worthwhile endeavor?”  I have to say ‘No!’  Indeed, I encourage my clients NOT to look at their competitor’s pricing.  It helps them avoid the pitfalls outlined above.  Hopefully these insights will help you as well.

Whether you’re a private equity firm looking for ways to quickly generate higher returns and more investors…

…or a middle market company struggling to get funding for expansion, give Dale a call at 314-707-3771 to discover just how quickly he can help you achieve your goal.

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

Is it true?

That isn’t the case for Ron Ameln, the owner and publisher of St. Louis Small Business Monthly.  Here’s what he said.  “I told my advisory board that I wanted to raise prices.  They told me that I was in a dying industry and raising prices would only accelerate my company’s demise.  I raised my prices 5% and revenues grew by 8%.”

Jay King, the CEO of Simploy, “the best PEO in the Midwest,” said “After hearing Dale speak and reading his book, Pricing for Profit, I began to price our services for new contracts based on value, not on our competition.  I was pleasantly surprised to find that our revenues grew even faster than the price increase.  Having the confidence to say ‘No’ to people who want lower prices makes running my business a lot more fun.”

In both these instances the customer base grew as prices went up.  Are these anomalies?  The short answer is “No.”  My experience has been that business owners who raise prices to levels that more accurately reflect the value they provide grow their customer base as well.  Why?

Because their value claims become more credible.  Instinctively buyers understand that higher value requires higher pricing.  During a recent speech a woman in the audience said “You’re right!  My 13 year old daughter is saving her money to buy a used iPad.  In anticipation of that day and to see how close she is to having the money she needs she’s been searching the internet.  The other day she say a really inexpensive price and said ‘No point in checking into that one, there’s got to be something wrong with it’.”

At age 13 she’d already developed that instinctive knowledge that real value commands a premium price.  You don’t have to trust me on this, you know from personal experience that you become skeptical if the offer seems to good to be true.

Armed with this knowledge it would seem that every business could raise prices and have the same experience, yet you and I know have heard plenty of horror stories about companies raising prices and losing customers.  Why does this happen?  More importantly, how do you enjoy the success Messrs. Ameln and King have?

If a company raises prices and loses customers there are several possible explanations.  It failed to:

• Quantify and communicate the value effectively.
• Qualify the prospect before accepting them as a customer.
• Provide the value that the customers wants.

Let’s explore each of these in more detail.

Communicate Value
Many business owners/leaders have never been taught how to quantify value consequently they have a difficult time communicating that value.  The problem is compounded by the fact that buyers need this information to make an informed decision.  Combine the two and it’s easy to see why raising prices without being able to demonstrate value can lead to lost customers.

Qualify Prospects
There isn’t a business out there that hasn’t either failed to profile its ideal customer or lost sight of that profile and taken on business they should never have accepted.  It’s part of our humanity – we make mistakes.

Customers who don’t fit our profile don’t value what we have to offer.  Indeed, we typically have to discount to get them in the first place.  For clarification, discounting in this context refers to any concession made to the buyer to get the business – not just price reductions.

These customers will go away when you raise prices, but that’s a good thing.  They’re the ones who’ve been gobbling up huge quantities of your organization’s time and energy and costing you tons of money.  They need to go away.

Provide Desired Value
All too often business owners/leaders continue to ‘improve’ their offerings to gain a competitive advantage only to discover later that their customers don’t really value those improvements.  The solution is simple, talk to your customers before you make the improvements to ascertain that they’re willing to pay for the improvement.  If they are you’ll not only have a reason to raise prices, you’ll have a new marketing tool to attract like-minded business owners to the fold.

The moral of the story is that you can, indeed, raise prices and increase your customer base.  The key is to avoid the three mistakes mentioned above.  Do that and you’ll enjoy the success that Ron Ameln and Jay King did.  Happy selling!

Whether you’re a private equity firm looking for ways to quickly generate higher returns and more investors…

…or a middle market company struggling to get funding for expansion, give Dale a call at 314-707-3771 to discover just how quickly he can help you achieve your goal.

Higher Prices = Lost Customers? is a post from: Pricing For Profit Book | pricing strategy | branding | value based pricing | value pricing | private equity |

…they’ll reward you with higher prices.

Jane Porter, in a May 23, 2011 article for Entrepreneur, highlighted the great comeback story of GovernmentAuctions.org.  What can we learn from this incredible story?

Background
According to the article, GovernmentAuctions.org had been charging $40/year subscription to people wanting access to seized items the government was auctioning.  When their sales hit the skids, they reevaluated their strategy, began offering a free three-day trial and changed their offering to a monthly subscription of $18.95.

Strategy Comparison
Under the old model GovernmentAuctions generated $40 per year from each of its subscribers.  The new model produced $227.40 per year, almost 5.7 times the original offering.  Why would buyers opt for such a significant price increase?

Two Reasons
The first reason is risk aversion.  Buyers will pay more to avoid being locked into long-term agreements.  The freedom to opt out at any time is one that buyers relish.  It leaves them feeling in control, consequently, they’re willing to pay significantly higher prices for this freedom and flexibility.

The second reason is that the price is more in line with the value they’re experiencing.  They believe that they’re going to get great bargains at government auctions and when they do, they realize that their ROI on the subscription is well worth the higher price.  In essence the $18.95 monthly price supports the claim that they’re going to get significant bargains at the auction.

The Lesson
Actually there are several lessons here:

• Educate the buyer about the value you provide.
• Reduce the risk the buyer assumes by making it easy for them to opt out.
• Establish prices that reflect both the value you provide and the reduced risk.
• Perform slightly better than your customers expect.

Now that’s a winning strategy.  Kudos to Ian Aronovich and Michael Pesochinsky, GovernmentAuctions.org founders, and a special thanks to Jane Porter for sharing this story with us.

Whether you’re a private equity firm looking for ways to quickly generate higher returns and more investors…

…or a middle market company struggling to get funding for expansion, give Dale a call at 314-707-3771 to discover just how quickly he can help you achieve your goal through higher prices.

Reduce Risk, Increase Prices is a post from: Pricing For Profit Book | pricing strategy | branding | value based pricing | value pricing | private equity |

These clients were told that they had access to a broader array of services than they’d had previously. Care to guess what kind of reaction he got?

His clients were incensed. Having access to more services doesn’t mean that they need or want them so why should they pay more for the services they do value.

Let’s be real; the acquiring firm has a fee structure higher than that of the firm they acquired and they wanted to have all of their clients on that same fee schedule. That’s a worthy goal, but raising prices without adding value won’t get you there. What should they have done?

They should have:

• Created bundles of offerings that incorporated some of the new services
• Sat down with each client and made them aware of those bundles
• Discern the client’s interest in those bundles
• Priced the bundles to achieve the higher fee structure desired

Why would this have worked better? This approach:

• Offers clients a choice
• Identifies their interests
• Allows customization for those interests
• Demonstrates the value they’ll receive
• Enhances the relationship

Were any of those accomplished with the tactic employed? Indeed, the opposite occurred. These clients:

• Didn’t like having a new fee structure imposed upon them
• Became resistant to any new services
• Felt taken for granted or deemed unimportant to the firm
• Resented having to pay higher prices without any value being added
• Are likely to search for a new firm

Which result would you prefer? The next time you’re in the mood to raise prices, make sure that you’re demonstrating higher value in ways the customer/client appreciates. Remember, access does NOT equal value.

Whether you’re a private equity firm looking for ways to quickly generate higher returns and more investors…

…or a middle market company struggling to get funding for expansion, give Dale a call at 314-707-3771 to discover just how quickly he can help you achieve your goal.

Access Does NOT Equal Value is a post from: Pricing For Profit Book | pricing strategy | branding | value based pricing | value pricing | private equity |