Pricing controls your business and the functions of your business.
I remember one of my College Professors proudly stating to the class one day that Business was easy if you did the following four things. We eagerly got ready to write down these words of wisdom which were going to make our lives much easier and clearly successful. He blurted out his formula for success and it is as follows;
1-Buy Low 2-Sell High 3-Collect Early 4-Pay Late
I’m not sure whether he meant for us to ponder this sage advice, or whether this truly was the extent of his practical business knowledge. After all, he had no real hands on Business experience. His knowledge was theoretical at Best and relied upon what he read, learned, and was taught during his educational process. There is so much more to Business than Professor Johnson conveyed in his edict regarding Business Success. Like Pricing for instance. I suspect he knew more than his pronouncement, however, not nearly as much as a Seasoned and experienced Business Owner.
Now to the topic at hand . . . Pricing. Goods and Services both have a true cost which must be considered when establishing a Selling Price (Retail or Wholesale). Determining the true cost of Goods is generally easier than a Service unless you are the Manufacturer of that Product. Most Retail and Wholesale outlets have a pre-determined delivered true cost of the Goods (products) that they sell with a few variables such as quantity discounts & manufacturers promotions to name a few.
The Marketplace in general has a huge impact on pricing (What the Market will bear). Competition tends to even out the playing field in favor of the Buyer until you add the intangibles such as status, peer pressure, quality, & other related factors. Let’s compare a cup of coffee (You can substitute hundreds of products into this coffee analogy).
Pricing for Coffee!
- Home – $0.25 standard, $0.50 Keurig Cup
- McDonalds – $0.99
- I-Hop, Duncan Doughnuts – $1.49 with unlimited refills
- Nice Restaurant – $2.49 with unlimited refills
- Starbucks – $3.50 to $6.00 – no refills
Clearly this represents a huge difference in the Retail Price offered to the General Public and yet each one has a following or demographic that works. Often times the General Public shops at and uses several, most, or even all of the noted possibilities in any given month. Circumstances clearly dictate what we are willing to pay at any given time for a staple product like a cup of coffee. Is your clientele willing to pay far ranging prices for your Products and/or Services? You need to know the answer to this question.
Many of us don’t have the luxury of wide ranging pricing for similar products. Small variations are always available. The competitive marketplace dictates the highest level of acceptable pricing except in only the rarest of occasions. The lowest level of pricing is what you have the most control over and is clearly the most important to control. The lowest and cheapest price will almost always find and attract the cheapest customer or client. (These folks are usually the hardest to please. They may cause you more heartache than you are willing to endure!). If this is not your customer or client of choice, establish the price of your Product or Service at a level more conducive to attracting your desired clientele. You must always know your true cost of same! Remember . . . . If your pricing is considerably below others in the marketplace many will assume that your products or services are not as good as your competitions. Is that a message with which you want to be associated. Probably not! A lower price says something about your business . . . control the message if you lower your prices permanently. An occasional sale offers value . . . . . a permanent sale says something entirely different. What will it say to your Customers?Would you rather sell 100 Widgets for $195.00 each; which equals $19,500.00? OR Would you rather sell 250 Widgets for $125.00 each; which equals $31,250.00?
These Widgets are identical Products! What if your true cost for these identical Widgets was $75.00, $90.00, or $105.00? Get out your calculator and think this through thoroughly. The answers to these questions clearly are dictated by your true cost of these widgets.
Do the Math . . . . You may be Surprised . . . . Circumstances may dictate or entice you to have a new pricing structure, for instance Technology changes, High inventory, Cash flow, & Competition. Therefore, it is imperative that you know what your true cost is for any given product or service that you offer to your Customers/Clients.
Neither low nor high pricing within your industries accepted price window is necessarily correct for your business today. Company goals, Sales volume and your ever changing circumstances directly affect your ability to control price and make money! Pricing that is too far below the norm makes people wonder about your stability, quality, & business sense. Pricing that is too far above the norm makes people wonder what makes you so special. It’s a fun place to be, if in fact you, or your products are special. If not people will just think your greedy and unreasonable. Not a fun place to be, and difficult to defend. Contact Select Marketing is we can be of service to your business.