When working with business clients on mindset, strategy, marketing and sales, one area which intersects is pricing.
How you go about setting your pricing is an area many businesses struggle with. From a strategic point of view are you going for a commodity market or be a premium supplier? Then how will you communicate your value (marketing) and how will you “sell” this to your clients?
A concept we drill into our clients is “price is elastic”.
By that I mean most of your customers will pay considerably more for your products or services than you might believe.
And usually the main impediment to charging more is your own mindset and self-belief around the value you provide.
Always remember you are being paid as an exchange of value. The more your clients value what you do for them, the more they’ll be willing to pay.
And that’s where many business owners short change themselves by not fully explaining what goes into their product or service to make it stand head and shoulders above the competition.
A good example is a member of a business mastermind we’re running for medium sized businesses.
One attendee owns a number of take-away food outlets in shopping centres and premium locations.
His strategy was to set his prices to fall into line with other food providers in the centres. Essentially becoming a commodity.
He recently decided to increase prices of one item by $1. None of his customers batted an eyelid. His sales didn’t drop. He makes more profit.
When we delved deeper he mentioned these items were made fresh to order. I asked if his customers knew this.
“The serving staff tell our clients there’ll be a 2 to 3 minute wait as the items come out of the oven freshly made. And customers can see the oven.”
Our response was that wasn’t enough. All marketing is communication. Assuming his customers correlated the oven in plain sight with knowing everything was made to order didn’t stack up. Most wouldn’t.
He needed to have a big sign proclaiming everything was made freshly to order and that they only used the freshest ingredients and sauces were made from scratch.
Even go further and have tray inserts that explained what went into their food aka MacDonald’s. That’s marketing!
Now they’re going one step further and strategically testing differential pricing. Higher prices in peak times.
A couple of points to note.
His fixed costs haven’t varied, so any price increase is pure profit.
And interestingly, putting up prices given a certain level of operating margin means you could sell considerably less and still make the same level of profit.
We have a pricing table which shows this in detail. Reply to this email if you’d like a copy.
Wrapping up, the secrets of setting prices are a matter of your…
Mindset: What do you believe you and your products/services are worth.
Strategy: Deciding if you want to be a commodity, me-too player where your prices are determined by your competition.
Marketing: How well you communicate your uniqueness and value to your target customers.
Sales: How well you convert interested parties into buyers.
Rashid & Barbara.
And… Ready to grow your business? Here are ways we can help…
1) Access a mini MBA of free material on business building topics of Mindset, Strategy, Marketing and Sales – Click Here
2) Work with us One-on-One.
If you’d like to work with us personally, we’ll design a bespoke growth program designed around the 4 main components – mindset/leadership, strategy/business models, marketing and sales. Hit reply to this message and tell me a bit about your business and your goals, and I’ll get you all the details.
