Community > Getting Started > Small Business > How to Price Your Goods and Services for the 21st Century, Part II

How to Price Your Goods and Services for the 21st Century, Part II

Posted by: Linda Sanchez, March 12, 2010

Under: Resources, Small Business

In Part I of this article, I summarized a Four Step Process to evaluate and determine your pricing strategies for the 21st century that I learned at a Small Business Development Center workshop presented by Jane Johnson, a B2BCFO Partner.  In addition to the ways in which technology and globalization have affected consumer behavior in the 21st century, prices and margins have been facing downward pressures in every industry in the last few years. The second half of the workshop focused on two very different schools of thought - in many ways polar opposites - on how to reach consumers through pricing for the 21st century: narrow your niche or lower your cost structure.

Strategy One:  How to narrow your niche and add value without lowering prices.

  • Differentiate your goods and services by going more narrow and deeper with niche.

    • How to Price Your Goods for the 21st Century, Part 2

  • Create an ideal customer profile, determine these customer perceptions and hone in, branding your product or service to these customers.
  • Offer better guarantees that will increase consumer confidence.
  • Prove that your product or service has real value: be sure that value is the issue not the price
  • The customer defines the value - values and service are  the only real products - its now what you sell but how you sell it.
  • Focus your resources on the best niche or distruibution channel.
  • Create alliances to eliminate competitors.
  • Create a value added pricing strategy.
  • Use testimonials.
  • Remember that there are three  types of customers:
  1. Buys the best regardless of price,
  2. Buys the cheapest regardless of quality,
  3. Buys value, looks for the best quality for the least money
  • Determine the customer you are looking for and price your goods and services accordingly.
  • Identify your value components: Time, expertise, information, convenience, quality, guarantee, payment terms, availability of inventory, consistent delivery, etc.
  • Know your customers' needs. Customers value the above value components  differently so repackage these value components to meet your customers needs.

Getting the price you want:

  • Carefully analyze failures, returns and complaints and make the necessary changes.
  • Generate profit for quality service
  • Develop and use a feature/price/service/competitor grid to analyze what makes you different. (The instructor provided me with a template for this grid if you are interested)
  • Demonstrate what makes you different.
  • Never quote prices without giving the customer a value statement.
  • Offer unique and simple guarantees.
  • Help customers get maximum value by providing an "extra" whether it be instructions or on how to use the product, free service calls, phone availability depending on your industry.
  • Survey your customers to find out their needs.
  • Prove your price is fair by demonstrating the value and quality of your product.
  • Use precision pricing.
  • Reward volume buying with a tiered pricing structure.
  • Identify any bundled services and show exactly what they are getting for their dollar.
  • Alternatively, unbundle services to gives spending flexibility to the customer.
    Raise prices consistently – predictable scheduled increases
  • Offer incentives – points, rewards, loyalty program – buy 3 get the fourth one free.
  • Put your focus on quality of services and products.

Strategy Two:  How to lower your cost structure and prices. (Be forewarned that this may not be the right strategy for your business!)

  • Be aware of who the 21st century customer is:
  1. Today's customers are educated, and do the research before they buy.
  2. Customers have probably selected 2 or 3 vendors before they contact you.
  3. Most customers know exactly what they want and how much they are willing to pay for it.
  4. Customer loyalty is a think of the past
  • Increase profits by cutting costs or increasing productivity not by raising prices
  • The best way to compete is to lower prices.
  • Do less, not more for the customer.

How to make money using this strategy.

  • Accept the new reality.
  • Think less, not more.
  • Stop selling and start negotiating.
  • Believe that there are no fixed costs – everything is negotiable.
  • Focus on net profit, not gross margin.
  • Be willing to say no to unprofitable deals.

How to keep existing customers

  • Determine how much premium you can charge and still make sales.
  • Don’t assume your competitor is either losing money, offering inferior product or services. You do not know what your competitors' pricing structures are.
  • Lower your costs.

Know your break-even point and how to manage it.

  • Every business is a continuum and there is a line at which your price means you are just breaking even.
  • If you arrive at this point: make it easy for customers to find you, stop making cold calls, don’t spend money on print advertising but use it on website or social networking. (The presenter recommended reading Midas Marketing by Rob Slee and  Inbound Marketing by Brian Halligan)
  • If possible, retrain or eliminate your sales team.
  • Eliminate value added services that your customers don't
  • Offer a la carte pricing for services
  • Don’t assume competitors have the same cost structure,
  • Constantly improve your ability to buy (negotiating with vendors).
  • Cut your fixed costs as much as possible.

Summary and Action Items

  • Do business self assessments, including:
  1. Product and service analysis
  2. Cost analysis
  3. Market analysis
  • Clarify marketing objectives: what are you trying to do with your marketing? Bring new customers – launch a new service or product?
  • Identify your differentiators - can you narrow your niche and add value?
  • Do you sell a commodity product or service that is one of a kind?
  • Complete the four step pricing process outlined in Part I.
  • Educate your salespeople and other stakeholders.
  • Consider appointing a pricing guru.
  • Keep your costs down as a rule – don’t lose that focus even as the memory of the recession starts to fade.

If you would like more of the meat and potatoes of the workshop that I was unable to include here, you can check out an audiocast of a similar workshop by the same presenter. Did you find this information about pricing helpful? Tweet this post!

Similar Topics: