As a business owner, one of the very first decisions is what price to set to sell your goods or services for. But how do you ensure you’re selling at the RIGHT price?
The seemingly simple formula of pricing to make a profit over the costs of buying in products or raw materials; or covering your costs to provide a service, leaving a margin for yourself, can actually become very complex and create a stress for many businesses.
Get your pricing model wrong and you can end up in trouble very quickly. So it makes sense to look at your pricing strategy regularly and make adjustments quickly.
In this article, we are covering some of the simple fundamentals of pricing and what to consider when deciding on your prices.
Pricing strategies are everywhere we look these days. Think about how airfares have changed over the years with the rise of budget operators, then supermarkets (Lidl, Aldi etc…) taxis, (Uber) holidays, insurance, clothing, the list is almost endless, where established business models and pricing have been revolutionised, mainly by technology and leaner strategies.
In B2B it’s the same story, with businesses that have clung to outdated pricing and business models being forced to close, or struggling on but flatlining.
Ignoring the aspect of pricing is to leave your business vulnerable to attack by competitors.
1, The customer will always let you know
Customers are a great barometer for price. Today’s tech savvy customer can compare prices in an instant, it’s the same for B2B and B2C. It’s not to say you cannot be more expensive on a product and still be successful, but there MUST be a reason why a customer will willingly pay more for the same product.
Think about Booths and Selfridges, people are willing to pay more for groceries, for the perception of the BRAND and the shopper EXPERIENCE.
If a price is simply higher and there’s no other pull for the customer, they will simply buy elsewhere.
Research and surveys can be a good way of deciphering customer attitudes and price perceptions. Competitor research is essential, as well as actually asking your customers or clients for their opinions.
2, Tough pricing decisions
In a recent meeting with a B2B manufacturer, I was told that even a £1 difference in price on a certain product could mean the difference between a flood of orders and virtually nothing.
This is the reality of today’s market for many distributors and retailers, where the source product is the same for all, and there is effectively a ‘race to the bottom’ if you want to sell at virtually no margins, or even at a loss to try to bolster market share.
If there is paralysis in a certain product area, then it’s important to diversify your offer, or create packages where value is enhanced by the overall offer, bringing other products into the mix.
On rare occasions, there may be leverage you can pressure on the manufacturer by your volume or spend in other areas, allowing you to negotiate a better deal, but this is not always possible.
If there is no strategy on the table that can make a difference, then this product or category needs to be parked and other options pursued where margins are more favourable.
3, Positioning & pricing
As in point 1 above, positioning can be a big factor in a brand’s ability to command a higher price. Positioning is simply where you place yourself in the market; are you a budget player, or with a high-end offering?
Putting that in terms of restaurants, you would expect to pay a higher price in a Michelin starred restaurant than your local Harvester.
Can a brand reposition itself when an existing perception exists, the answer to this is yes, but the offer must be evidenced by tangible differences in brand and experience.
Skoda is a good example of a brand with a pre-existing perception that has been changed positively over time, albeit with a new owner and massive investment.
What does this mean for your business?
Simply an audit of where you see yourself in the market, defining accurately where you sit, where your nearest competitors are and how you can make changes to improve the perceptual elements of your brand and command a higher price.
4, Driving a hard bargain
Working with suppliers to get the very best deal is pivotal to pricing success. Sometimes supplier relationships rumble along without any change for years, but it’s simply the case that you are not always getting the best deal, for no other reason than you haven’t asked them.
Much like the household utility bill and insurance policies, ignore them and they usually creep up to a terrible deal!
Today, with Brexit and all the other uncertainties for business, it’s essential that costs are kept to an absolute minimum and margins maintained.
Pricing must be an area of ongoing scrutiny.
It’s better to broach the subject and get the better deal at the risk of an uncomfortable conversation, than go out of business because you were priced out of the market.
5, Pricing and Brexit
Brexit has placed an unprecedented set of circumstances on businesses and the situation is far from being resolved any time soon.
The uncertainty is creating a tension within larger corporate businesses that are stalling on larger investment and holding back on normal spending decisions, this is filtering right down the line, affecting many smaller businesses as they in turn, sense the nervousness and hold back on their own initiatives.
So where does pricing come into the picture amid the chaos?
The key word is ‘contingency’ as in hope for the best, but plan for the worst. As in point 4 above, pricing must be scrutinised carefully.
It is likely that changes to imports & exports, tariffs, taxes, fuel and transportation will have an impact that will affect costs and to some degree have to be passed on in higher pricing.
But the details are unknown at this stage.
Planning for different scenarios can be useful, so that you are accommodating different outcomes and planning accordingly.
Pricing models will be part of this analysis and you can predict the scenarios and actions you will consider for each option.
Thanks for reading this article.
Ashforth Marketing is a North West based Marketing Consultancy providing marketing planning, outsourced marketing and full digital design.
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