Archive for August, 2011

Pricing In This Chaotic Era Requires Thought, Care

August 20, 2011

Small business leaders are facing increasing pressures from a number of different places.
Among these factors are lower staff morale, stagnant economic growth, higher material costs with limited availability and increased competition for sales.
In a recent survey 40% of respondents told Information Strategies, Inc. they were reviewing their pricing models.
While reviews of key marketing elements are always welcomed, changing pricing strategies while in a recession is wrought with danger.
Pricing is probably the least understood and most misused component in the marketer’s toolbox.
Building a case to increase or decrease the price of a product/service requires thought, testing and yes, even a modicum of luck.
In an era of stagnant growth, many buying decisions are made on price alone.
This trend is putting significant pressure on firms to reduce their sales price.
While winning the order is important, gaining a profitable sale is equally as critical.
In response to competitive pressure, the argument can be made that maintaining current clients at any cost justifies losing money.
In fact the argument goes, by lowering the price far enough, sales volume will eventually reach a point where it will compensate for the fact that the company is losing money on every sale.
This commoditization is often the result of actions by the company or industry rather than happenstance.
Absent a robust economy, it is also recipe for disaster.
Experts also argue there is a corollary to this action in that if the focus is on offering the lowest price alone, a company can even end up actually reducing satisfaction among its customers.
The price of a product or service is often a reflection of the value buyers place on the offering.
Some experts argue that in industries where product and/or service values have been made an important part of the offering, pricing can vary dramatically from one competitor to another…and, at the same time, all parties can be profitable businesses.
Changing this equation can result in more damage than help.
In most cases, moving a product or service to a price based buy decision will prevent a company from rebuilding it to a premium offering.
While no single situation fits all criteria, it is important for small business leaders to think about the following when revisiting their pricing model:
• Buyers don’t always buy on price alone…even the government. In fact, they rarely do.
• Buyers buy based on values provided in terms of quality, ease-of-use and other factors.
• Buyers incorporate the cost of ownership into the purchasing decision.
• Buyers factor in the trust they have in the brand or company.
• Buyers know how products or services should be price.
Even in today’s chaotic world, these dictums still dominate and it is important to keep them in mind when reviewing a pricing algorithm.