Without sounding like a broken record, this is a topic that is often discussed and debated time and time again. It all stems from your pricing strategy and the importance of a robust pricing strategy cannot be underestimated! When should I put my price up, how often should I put my price up, and can my market sustain continual price increases?
In our current business environment, we are seeing businesses face growing costs for compliance with legislation, staffing pressure and subsequent wage increases, freight costs increasing on the back of fuel costs and congestion issues, increasing funding costs, supply chain challenges leading to businesses holding more stock than they traditionally would have, and underlying material cost increasing. Are you facing rising costs that haven’t been passed on to the customer? Are jobs being priced correctly? Have you put your price up in the last 3 months? All these elements create an environment that is putting pressure on our margins.
Going hand in hand with the pricing discussion, is businesses having access to the right labour resource. Too often I hear about businesses that have significant projects in the pipeline, but with no staff to do the work. Whilst stock and the other factors mentioned above are sucking cash from businesses, the challenge of labour supply also cannot be understated.
Consequently, when considering pricing strategies, you need to know what your business is competing on, that is, what do you want to be famous for? What’s your competitive advantage and why do you beat your competitors? We often refer to a model called the market positioning star to assist business owners and management to consider what strategy best suits their business. Essentially you have three choices from which you must beat the market in one and meet the market in at least one other. The options are to compete on 1) Product / Service offering – your offer, 2) Price or 3) Customer Intimacy / Experience.
So, if your business is competing on price, then you are probably a low price, low margin, high volume business. If price isn’t a competitive strategy, and instead you are competing on differentiation, then you are probably a high price, high margin, low volume business. It’s vital that pricing strategies match your target market. It’s okay to be priced higher than your competitors, as long as you meet your customers’ expectations of quality and value, and you can clearly articulate that message to your customers.
To build on this concept we link value, cost and quality. It’s important to remember that Value = to the client, Cost = to the business. Below are a handful of questions to test how well you apply this in your business.
To round out the pricing discussion, we need to understand what some of the common pricing mistakes are. Below is a summary of the seven more common mistakes.
Avoiding pricing mistakes and being strong in your pricing proposition go hand-in-hand in building a profitable business. Pricing problems might be a symptom of other weaknesses in the business or your offering, such as poor quality, poor marketing of benefits, wrong match of service/product to customer needs etc.
Reviewing pricing is a discussion that often comes up, but how well do you actually do this? Are you good at providing desire or articulating the consequences of a course of action? Do you make it easy for a customer to buy from you? Do you understand the relationship between Cost, Quality and Value? When you’re reviewing your pricing strategies, just remember that pricing right is the fastest and most effective way to increase profits.
For any help with all your pricing strategies and to assess the impact of discounting on your business, contact Mike Atkinson from Bellingham Wallace.