A Disturbing Trend in Pricing

Within three months I’ve heard two successful business people say:

“No American wants to pay another American a fair price for his products.”

“No one wants to pay you your price, yet they expect you to pay their price.”

Is this a disturbing new trend? If so, what can we do about it?

Not new
I believe it is a trend, but one that’s been with us for some time. Indeed for the past 3 decades or more we, as business leaders, have been almost exclusively focused on two things:

Market share.
Head count.

Ask virtually any business leader what the quickest path to market share is and he/she will respond ‘lower your prices.’ Ask that same leader what his/her greatest cost is and the response will be ‘people.’ Ask where their greatest competition lies and they’ll say China, India and Brazil.

Is it any wonder this triad has led businesses to focus on cost control and price competition instead of innovation? Couple that with Walmart’s success using a low price strategy and it’s little wonder business leaders feel like hamsters running fast, but getting nowhere.

Fuel to the fire
This trend toward lower prices has been exacerbated by the protracted recovery. Very few people, regardless of income level, feel as well off today as they did prior to 2007. That perception, whether or not accurate, creates a sense of scarcity, which in turn, triggers a desire to stretch our dollars – the desire for low prices.

The Solution?
As Einstein said “You cannot solve a problem with the same consciousness that created it.” We need to become conscious of the things that created the dilemma in which we find ourselves, as well as evidence of alternatives that work. Then we need to shift our focus to the latter.

Problem creation
We created our problem by:

  • Devoting our creative energies to cost control.
  • Trying to mimic Walmart’s success with a low-price strategy.
  • Trying to compete with developing countries when our cost structure is higher.
  • Failing to recognize Walmart has been trying to distance itself from its low-price persona for almost a decade.
  • Ignoring the numbers showing Amazon’s top line growth has come at a significant reduction in bottom line performance.
  • Trying to compete on price instead of innovation, thinking that innovation is more difficult to achieve. (Given how hard you’ve been working with little to show for it, is that really true?)

Alternatives
At the same time we’ve:

  • Viewed Apple’s success as an abberation instead of a guide to our success.
  • Attributed Panera’s ability to raise prices throughout the recession as a function of its ‘newness’ rather than a well-thought out strategy.
  • Ignored the fact that companies like Kraft Foods, Ritz Carlton, Nieman Marcus, Johnson & Johnson have long, storied histories of growing with premium prices.

Isn’t it time you focused your attention on WOWing your customers with new, innovative ideas? Isn’t it time to refocus the depth and breadth of your organization’s talent on creating things customers can’t wait to get rather than trying to compete on price like everyone else?

Amazingly, virtually every business owner I meet talks about the need to differentiate, then consistently behaves in ways that make his/her offerings appear like competitors’ offerings.

Reverse the trend
If you want to reverse this disturbing pricing trend:

  • Become innovative in creating products/services that WOW your customers.
  • Establish premium pricing to substantiate that value in customers’ minds.
  • Create bundles of offerings so that when you get push back on the price, you have an option to offer, but your customers have to give up something to get that lower price.
  • Focus your attention on the practices of companies successful at growing with premium prices instead of those employing a low-price strategy.

Follow these simple, timeless rules and you’ll find customers are willing to pay a premium for what you have to offer. Happy selling!

Dale Furtwengler is the author of the internationally acclaimed Pricing for Profit. His company, Furtwengler & Associates, Inc., helps companies get higher prices regardless of what their competitors or the economy are doing. For more pricing/branding/marketing/sales tips visit his website, PricingForProfitBook.com.

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