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RISCORE's December Recipe for Small Business SuccessThe Strategy And Tactics Of Pricing
1. Pricing is an attitude. The attitude is if you are the best then you should charge the most and not be afraid of increases.
2. If you want 3% ask for 4 and settle on 3. You have to be able to walk away from the table without the business since the customers’ buyers can be professional negotiators.
3. Customers must have a price increase once a year without any skips.
4. Customer value should drive your business.
5. New price increase. Raise prices by 10% but increase the discount by 6%, therefore, distributors and large purchase people will only receive a 4% increase. Small orders will pay full list. The idea here is that people who buy one unit are willing to pay more than volume purchases.
6. Sell accessories with inside sales people who continuously call the customer after the sale and during the sale to up sell additional items.
7. Accessories are purchased outside, therefore, you don’t need labor.
8. Accessory margins can be lower since it’s almost pure profit.
9. People will always pay more for quality unless the quality becomes a commodity.
10. Never give sales people the ability to negotiate price if they are paid a commission on sales dollars.
11. Alternative commission programs.
a. No commission, just base salary.
b. Sliding scale on commissions. Example: Full list price at $100.00 dollars, the salesman gets 10%, if the salesman discounts the price to $95.00 dollars, he would receive 5%, if he discounts the price to $90.00 dollars he would receive 2% and $88.00 dollars, he would get –0-. This method keeps him in the ball game.
12. When someone wants a lower price instead of lowering the price on that product, switch them to a less expensive product at full list price.
13. A price buyer never goes for Win, Win, they only go for price. They have no loyalty.
14. Your company needs to list the five reasons why the company is different from the competition. Example: full line, engineering, quietness, highest quality, etc.
15. One industrial company increased price by 9% and suffered a 20% loss of market share. Even though some capacity was idled, its contribution to profit increased by more than 70%! This company learned that four out of five of its customers valued the product by at lease 9% more than they had been paying. The company had been prevented from capturing that value by an excessive market-share goal.
16. In contrast, effective pricers make their decisions in exactly the opposite order. They first evaluate what buyers will pay and only then choose quantities to produce and markets to serve.
17. A low-cost firm can charge lower prices and sell more because it can profitably use low prices to attract more price-sensitive buyers. A higher-cost firm, on the other hand, cannot afford to underbid low-cost producers for the patronage of the more price-sensitive buyers. It must target those buyers willing to pay a premium price.
This is a summary of some of the more important ideas that were obtained from the book, “The Strategy and Tactics of Pricing”
Submitted by David Lucier, CPA, Score Counselor
david@luciercpqa.com