What does your price mean?

What does your price mean? 

 

 

The high cost of low prices.

Low prices can kill businesses! But everyday companies use price slashing as their first defense to capture or maintain business.

 

The reality of business is that discounters do not survive! Wal-Mart has been a huge success but the low price strategy almost always fails.

 

If your customer comes for price, they will leave for price and that is the customer that you do not want.

 

There are tremendous costs associated with gaining new business and the relationships must last in order for that business to be profitable.

 

For household supplies such as toilet paper and laundry detergent, I shop at three stores local to me - IGA, London Drugs and Shoppers Drug Mart. When Shoppers has Tide on sale I buy it there.  When IGA has Charmin toilet paper on sale for half price I buy it there.  For these items I have zero loyalty.  Now, the businesses may consider these items to be lost leaders to get me in the store, but that does not really work because all three stores are within four blocks of my home and I shop at all three regularly for the items at the lowest price.

 

Price does not buy loyalty.

 

Now Fletcher's Dry Cleaners, which is also within the same four block radius of my home is probably the most expensive dry cleaner in the city.  Fletcher's is also the best dry cleaner in the city. Because I buy quality clothing that lasts I see the value in taking care of those clothes and would not look to go cheap on cleaning them I have loyally used Fletcher's for more than twenty-years.

 

I see the value in dry cleaning!

 

If you are chasing customers who do not see the value in your business but only buy from the lowest priced supplier then that is not a good long-term client. 

 

Unless you have a particular price advantage that your competitor does not have, price should not be part of the selling strategy you use.

 

Use a formula to determine pricing that covers all of your costs of doing business and provides a reasonable return to the business owner. That is where your pricing should be. It is every businesses' responsibility to maximize profit. Price should be the last thing to move.

 

Of course it is also every businesses responsibility to become as efficient as possible and make every effort to lower the costs of providing the products and services at a level which, is acceptable to its clients and will maintain the company's position in the marketplace. It is not, however, the responsibility of business to pass on savings. In the case of public companies, it is the legal responsibility of the management to maximize the return on investment to the shareholders. Many business owners in smaller companies forget this, often paying employees better than themselves and cutting pricing when it's not necessary.

 

The goal of business should not be to be the biggest, but rather to be the most profitable.  Often ego gets in the way of prudence in this area.

 

Pricing is a delicate balance and must be looked at very carefully.  Once prices are dropped, it is very difficult to get them back up. Lower price strategies do work in the short term but in the long term these strategies weaken a business.

 

The better approach is to find and target customers who like you and value what your business has to offer. These customers are not as price sensitive and these relationships will provide you the margin to deepen service levels and improve the quality of your products and services.  These are actions that build long-term value in a business and in a brand.

 

The first step is to understand what your products and services are truly worth and then to take steps to communicate that value first to your sales team and then to your customers.

 

There is a businessman with whom I have traveled with on a number of occasions. During overseas trips we were both in a position to choose where we stayed, where we ate and how we traveled.  I preferred to fly business class and stay in four-star hotels and eat in modest restaurants. He liked to stay in the cheapest hotel he could find, travel economy, walk ten miles instead of pay for a taxi but could easily drop five hundred dollars on a dinner for two. 

We all choose how we spend our money and for each of us, different things matter.

The key is to realize that not every prospect should be your customer but rather that you should seek out the customers whose values match those of your business.  This is a recipe for happy customers and a profitable business.