During a recent episode of Shark Tank, all of the sharks told a budding entrepreneur that his idea wouldn’t work. The sharks went on to explain why the idea wasn’t viable.
Reasons to listen
There are a number of reasons why this entrepreneur should listen to the sharks.
I have to admit I shared the shark’s opinion of the idea, although I‘ve been wrong before. This raises some interesting questions “When do you listen to naysayers? When do you ignore their advice? Is this an either/or decision?”
Not either/or
One of the things I’ve learned over the years is that just because someone says “It can’t be done” doesn’t mean I should abandon the idea.
A few years back I pitched a book idea to my literary agent. She responded saying “You’re not known for that topic so it’ll be a nearly impossible sale.” And she was right. One of the things publishers want to see are credentials that lend credibility to the book’s message. I didn’t possess those credentials. I set the idea aside and didn’t do anything with it for over a year.
During that year my mind was continuously drawn back to that topic through conversations with friends, through questions I got from people who were suffering a crisis of confidence or some personal pain. Eventually it became obvious to me I needed to write this book and I did. The title is “Lead a Life of CONFIDENCE...Free yourself of fear, anxiety and frustration.”
While it hasn’t yet (note the yet) become a best seller, it has laid the foundation for me to become known for this topic. Indeed, within the past few weeks a whole new market has opened for me to promote the book, and more importantly, the message.
A follow-on book will be released this month, “Stand Out From The Crowd...Without having people point and laugh,” and I’ve just completed the outline for the third book in the series. I’ve decided to self-publish all three as a way to build the credibility that may or may not lead to a future book deal with a major publishing house.
My point in sharing this story with you is that when you’re told “it won’t work” by naysayers, listen to what they have to say, then figure out a way to overcome the obstacles they see.
When to listen
It pays to listen to people with more experience than we have. It’s counterintuitive, but it doesn’t mean we have to abandon our idea.
Typically when experienced people say “That won’t work” what they mean is that it won’t work as you outlined it. It’s your job to ask “Why won’t it work and how do I overcome the obstacles you’re seeing?” Let them help you find solutions, they have more experience than you do. But don’t give up on the dream. You may have to make major adjustments to make the idea work, but if you want that dream badly enough, you will make it work - simply not in the form you originally envisioned.
When not to listen
Don’t listen to people who have little or no experience in what you’re trying to accomplish. Many of them become naysayers simply because they can’t dream as big as you are dreaming. I learned this lesson from having seen an interview of the Williams sisters.
They said that when they told their friends their dreams of being tennis champions, they were told they couldn’t do it. The sisters said that at some point you have to leave old friends behind because they aren’t dreaming as big as you are. They went on to say you have to develop friendships with people who believe in you and encourage you during the inevitable dark hours that accompany the pursuit of any significant dream.
My mastermind group encouraged me to go forward with the confidence book despite the fact that my agent said I wasn’t known for the topic. Their advice? “You’re not known yet.”
Takeaway
By all means, pay attention to what people are saying. There’s almost certainly some sage advice to be found in their comments. Don’t, however, let them dissuade you from your dream. There’s a reason why you’re being drawn in that direction. You may have to make course corrections and the ultimate form your dream takes may be dramatically different than the one you currently envision, but if you’re dreaming it - it is possible.
Dale Furtwengler is the author of the internationally acclaimed book, Pricing for Profit as well as six other books
Dale's company, Furtwengler & Associates, Inc., helps companies get higher prices regardless of what their competitors or the economy are doing.
Pricing expert, author and contrarian Dale Furtwengler raises awareness concerning the importance of communicating your brand promises in a straightforward, clear and responsible manner. He opens his presentation reminding viewers that prospects and customers don’t care what you are doing and how you are doing it. They care about what benefits you are providing to them. They want to know what results they are going to get from you to help them to improve their life and work. Unfortunately, many taglines don’t reflect these results.
Dale describes the difference between an ineffective vs. effective, results-oriented taglines. He takes four examples of taglines and shows why they are effective because they meet the following key criteria:
When your tagline meets these criteria fully, your customers and prospects are much more likely to confidently engage you as a service provider. A good tagline allows you to answer questions in such a manner that your credibility increases during each stage of the conversation. Dale’s use of real-time stories and examples allow the viewers to quickly re-structure their tagline so that everyone wins. Both customers and providers are able to easily determine when there is alignment and a good fit for entering a business relationship. The stage is set to command prices that reflect your promises and ability to fulfill on them.
Dale Furtwengler is an internally acclaimed author. 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 Dale’s website, PricingForProfitBook.com
Dale Furtwengler, expert pricing and business strategist helps companies get higher prices regardless of what their competitors or the economy are doing. In this presentation, he begins by exploring why most people are skeptical and afraid to ask for good prices and make decisions based on long-standing but faulty assumptions. He discusses the concept of pricing elasticity in which it is believed that lower prices net greater sales. He provides valuable insights about:
Dale Furtwengler is the author of the internationally acclaimed books, Pricing for Profit, Become a Maverick, Grow Your Business Using the Unconventional Strategies of World Class Companies, Lead a Life of Confidence and The Uniqueness Myth. 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
Dale Furtwengler is an innovative and insightful thinker who delights in discovering buried treasure at every turn, simply because he refuses to be limited by conventional ways of thinking that often blind many to opportunities right in front of them. The focus of his presentation is on how to use a contrarian mindset to think innovative thoughts in order to attract customers rather than continue chasing after them.
Dale establishes the importance of positioning yourself as a person who regularly offers a fresh, new perspective so you are perceived as an expert and are credited with wisdom, which then brings opportunities your way. He stresses contrarian mental disciplines such as:
Dale Furtwengler is author of the internationally acclaimed book, 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
Author, pricing and sales strategist Dale Furtwengler opens this presentation describing success stories when using psychographics, a process of identifying who shares your values and is most likely to welcome you as a service provider. In this video presentation, Dale shares the importance of:
Dale Furtwengler is author of the internationally acclaimed book, 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. You can also find his eBook, “Psychographic Profiling: How to sell more, more quickly with less effort”
The two companies are Verizon and Sprint. Verizon’s premium prices allowed it to build one of the broadest, most reliable networks in telecommunications history. In addition to its customer-centric network, Verizon continues to show solid growth in revenues, profits, cash flow and shareholder value.
Contrast that with Sprint, which, despite rising revenues, has seen its net loss almost double in the past four years, its debt increased by 20% and its cash from operations dropped by 40%. Other than spikes in stock price associated with potential mergers, Sprint’s shareholders have seen little, if any, growth in the stock’s value.
Troubling times in the kingdom
What’s troubling to me is that:
Yet business ‘leaders’ continue to pursue low-price strategies.
Why?
Behaviors that fly in the face of evidence to the contrary beg the questions:
Result
Whatever the rationale, effects are devastating. Not just for the company itself, but for the economy as a whole. I’ve gone into greater detail about this in my white paper, Low Price Strategies Subvert Growth and Employment , but for now it’s sufficient to know low-price strategies being employed today are based more on cost shifting, than innovation.
When a large organization declares it is going to pay its vendors in 120 days, it shifted its financing costs to vendors who have a more difficult time obtaining financing and, consequently, will pay higher prices for that financing. This results in a less efficient use of resources in the economy and hampers economic growth, which limits employment.
Takeaway
Stop ignoring evidence. Reposition your offerings for premium prices and you too, can enjoy the success of companies like Verizon. If you’re not sure how to go about it, give me a call and, together, we’ll make it happen.
Dale Furtwengler is author of the internationally acclaimed book, 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.
In a June 3, 2011 article in Booz & Co.’s strategy + business entitled A Sweet Victory, Reed Holden and Mark Burton highlight Hershey’s victory over Nestle in the Krackel vs. Crunch war.
Using an aggressive pricing strategy, “...a 30 percent trade discount on Krackel where other brands hovered in the 5 to 10 percent range,” Hershey drove Nestle from the vending machine market “...boosting the brand’s [Krackel’s] revenue by an incremental $25 million.”
Let me see if I have this right. Hershey is shifting production capacity to produce an additional $25 million dollars of candy bars at a margin that’s 20% to 25% lower than the industry average and they think they won. It’s 8:30 on a Friday morning and I feel like I need a drink already.
The thing that amazes me about strategies like this is they always focus on the additional revenues generated, not the profits. In other words, they’re looking at market share instead of profitability. I guess if that’s your measure of success, you did win.
But for those of us who measure success in terms of profits generated, Nestle is the hands down winner in this one. I’m sure Nestle didn’t sit around bemoaning this loss. It merely shifted its resources to markets and products that produce higher margins. The best and brightest simply don’t play the fool’s game of following a ‘competitor’ down a path of rapidly decreasing prices.
So what’s the message here? If you feel an inclination to drive one of your competitors out of the market using low prices, do the math and you’ll quickly discover who the loser will really be. And it won’t be your competitor.
Dale Furtwengler is the author of the internationally acclaimed book, 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.
A November 2, 2011 Barron’s article reports that Kraft Foods’ third quarter net revenues grew 11.5% in part due to a 7% price increase.
That means Kraft’s revenues grew a whopping 64% more than the price increase. For many business leaders this seems impossible. After all, conventional wisdom says buyers tend to find alternatives when prices go up, right? In reality customers have greater confidence in a product or service when its price reflects the value they’ll receive.
What does this mean for you? That you too can enjoy the results Kraft experienced. Here are the keys:
Let’s continue with the Kraft example to see how these apply.
Kraft has a reputation for quality that’s spanned more than a century. The good news is you don’t have to be around that long to develop a reputation for quality. But consistent delivery of quality, however you and your customers define it, is essential to having revenues that grow faster than your price increases.
Kraft knows its customers have discerning tastes and are willing to pay a premium to get that taste. Their customers also value consistency in the product. In addition, their customers have an intuitive sense Kraft has their best interests at heart - that Kraft wouldn’t take risks in the manufacturing of their products that might cause the consumer problems.
Kraft’s premium pricing adds further assurance of the quality, consistency and concern for their customers. Higher prices affirm customers’ beliefs and attract even more buyers to Kraft’s products. That’s how Kraft can enjoy 11.5% revenue growth with a 7% price increase.
As you can see, there’s nothing magical about what Kraft has done. This approach works for any business, of any size, in any industry. It’s up to you to employ these keys so you too can enjoy a similar level of success.
Dale Furtwengler is the author of the internationally acclaimed book, 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
Some days, despite your best intentions, you fumble the ball. Such was the case at the Retail Customer Experience Executive Summit when I was asked, “Who [among retailers] does a good job of pricing?” My response was “most companies.” What I should have said was ‘most companies initially.’
Most companies have a pretty good sense where they fit on the spectrum versus competitors. Using the image spectrum:
Using image as the focal point for each of these companies, their initial price positioning makes a lot of sense. Unfortunately it’s all down hill from there.
The first mistake they make is to price ‘competitively’. That typically means at, or below, industry pricing for their segment of the spectrum. They choose to price this way despite the fact they claim to offer ‘more’ or ‘better’ of whatever they deem their value to be.
The second mistake most retailers, indeed companies in every industry, make stems from the extremely poor job they do communicating value. You don’t have to trust me on this. All you have to do is look at the ads the companies cited above offer, then answer this question “Does the ad emphasize their position on the image scale?”
Of course not. With the possible exception of Nordstrom, most ads are about their latest sale. If their marketing messages did a better job of helping their customers experience their stores without being there, they’d be able to command higher prices than is typical for the area of the spectrum they occupy.
The third mistake is sales these retailers regularly offer. Fluctuating prices confuse consumers about the real image value of their offerings. These sales take many forms including discounts, rewards programs, coupons and loyalty programs, to name a few.
These sales muddy the water for customers. The concept of value, whether that value is image, innovation or time-savings get lost in the myriad of sales offered. In the process we train customers to wait until we offer a discount to buy.
That means the customer is postponing the satisfaction of owning your products/services. For you it means lower profit margins and additional marketing costs to acquire enough new customers to not only replace those lost profits, but to grow them.
Now back to the original question, “Who [among retailers] does a good job of pricing?” Companies I think do a good job are:
Panera
They repeatedly raised their prices throughout the recession and experienced sales growth in excess of the price increase.
The only criticism I have of Panera’s pricing is their rewards program. Reward programs are effectively discounts. Rewards programs do not increase my desire for their offerings. I’m not going to visit any more frequently or buy larger quantities because of the reward. That means that they’re offering me a discount to buy what I’d have bought at a higher price. Rewards programs increase retailers costs in two ways – establishing and maintaining the reward program and providing a discount to customers who are willing to pay higher prices. Ouch!
Apple
The key word with Apple is consistency. They consistently charge premium prices on all new offerings and tend to hold those premiums throughout the product life cycle.
The one faux pas I recall was reducing the price of the original iPhone by $100 within 60 days of its release. The hue and cry of the early adopters resulted in a refund of roughly $100 million to those early customers. That’s what happens when you move away from your value proposition in an attempt to garner market share which is what I believe the motivation was for the price reduction.
Apple may be on the verge of making another pricing mistake. Rumor has it that they’re coming out with a new tablet to compete with Google’s Nexus 7. If they do, it’ll be interesting to see how they launch that offering. If they offer a better product and price it accordingly, the market will continue to view them as an industry leader who is entitled to premium prices.
If, however, they price the new tablet to compete with the Nexus 7, they’ll appear to have relinquished their industry lead and be reduced to ‘commonplace’ in the eyes of the consumer.
Kraft Foods
I don’t recall Kraft having raised prices during the recession, but as soon as it appeared the recovery was under way they immediately began raising prices and continue to do so with some frequency. Like Panera, they’ve experienced sales growth in excess of their price increases. Indeed, their sales growth was 50% higher than their price increase in the 3rd quarter of 2011. The keys to these companies’ success in pricing are:
The pricing mistakes that companies like these are most likely to make are:
Basically, any company that:
…is doing a good job of pricing.
For those at the summit, my apologies for the fumble. Hopefully I’ve recovered the ball with this post.
Do you have a clear brand promise? Find out by using my confidential Brand Promise Self-Assessment.
Are you getting compensated well for the value you provide? Use my confidential Pricing Self-Assessment to evaluate your company’s pricing.
Are your marketing messages attracting the right customers? If you’re getting primarily price buyers you may want to use my confidential Marketing Self-Assessment to discover why.
Is your sales force putting pressure on you to lower prices? Our confidential Sales Self-Assessment can show you why. Check out Dale’s latest ebook, Brand Promise: What Do YOUR Customers Expect? You have a brand. The question is “Is it the one you want?”
If you’d like to increase your prices, profits and customer base, call Dale at 314-707-3771.
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:
In part 1 we dismissed the argument value is ‘vague’ by demonstrating there are only three things any buyer buys - image, innovation or time savings. This realization has the added benefit of removing complexity from the value pricing process. Then we looked at a sample result highlighting the fact that value-pricing results are demonstrable. Now we’re going to discuss two concerns many business leaders express, that value is a moving target and that price pressures prevent consistent use of value pricing.
Moving target
There is no question value changes over time and that, in todays’ world, change occurs more quickly than ever before. Movement through a product’s life cycle from innovation to mass market, and the to saturation, occur at an ever-increasing pace.
This reality doesn’t alter the fact that early adopters of innovation often pay 3 to 4 times what the mass market pays. It simply means the mass market is going to enter the market earlier than it did previously.
Once we realize basic buying habits haven’t changed, and the only difference is when buyers enter the market, we find value pricing is easier to implement than expected. We have the same pricing triggers that let us know when it’s time to lower our price for the mass market or for the late adopters, assuming we even want to serve that group.
The key is to realize value has always changed over time and the majority of customers still pay for value when they can see it and quantify it. Those are our challenges, to identify what customers value, provide that value, quantify the value for them so they can see it and then communicate that value effectively. When we do this work for them, our customers reward us with premium prices.
Doubt that? Then why do Mercedes buyers pay 7.5 times as much as a Chevy Aveo buyer for a sedan? Why do Nordstrom’s customers pay 12 to 13 times as much for a sweater than a Walmart customer? Buyers continue to demonstrate a willingness to pay premium prices to get what they want, yet we ignore their pleas and focus our attention and theirs on price instead of value. Shame on us.
That brings us to the question of price pressures - from our competitors and customers.
Price pressures
Nothing keeps business leaders up at night as much as the fear of not being ‘competitive.’ That’s why competitors’ pricing and customers’ challenge “...but your price is too high” put so much pressure on them to lower prices.
Fear is an ugly thing. It triggers an emotional reaction. Emotional reactions preclude objective analysis. If it didn’t, then why would we see so many businesses following their competitors down the rabbit hole of reverse auctions? Why do we see earlier and more frequent discounting during peak selling season? Why do we see businesses giving away ‘improvements’ in their offerings instead of charging for them? Why do we see businesses invest heavily in process improvements only to give away the savings in lower prices?
Absent the fear, we’d quickly realize that when we relinquish control over our pricing to our competitors and customers we become one of many providers. We commoditize our offerings, which serves to validate our customers’ limiting perception that what we’re offering is a commodity.
Conversely, when we’re able to look those customers in the eye and say, “This is how we’re better, this is the value you’ll get and this is why our price is...” we establish ourselves as leaders in our industry. And leaders, by virtue of their nature, command respect. When we establish that leadership role, we distinguish ourselves in ways that are attractive to the vast majority of the people in our markets and we do so at higher prices than our competitors get.
The choice is yours, cave to price pressures and commoditize your offerings or distinguish them by demonstrating value and commanding prices commensurate with that value. Choose wisely.
Lesson
Hopefully I’ve been able to demonstrate that value pricing:
If you’re not using value pricing, you’re not only leaving a lot of money on the table; you’re depriving your customers of the ability to make informed buying decisions. If you truly care about your customers that should be motivation enough.
In Part 1, we addressed the concern that value is vague. We did so by recognizing the fact that even though each of us defines value a little differently, there is a commonality to our humanity allowing us to create categories of buyers based on what they value most - image, innovation or time savings. This week we’re going to address two more concerns - the complexity of value pricing and the ability to produce demonstrable results.
Value pricing is complex
As we saw last week, even though you may be dealing with thousands or hundreds of thousands of customers, you’re only dealing with three categories of value. These categories simplify the identification of market segments and value prices for each of those segments.
I’m sure some of you are thinking, “Dale, you have no idea how many products (SKUs) we sell. It isn’t just the customer that adds complexity, it’s the array of offerings we have.”
No doubt what you say is true. Two questions for you:
Why do you have so many SKUs?
Adapting Pareto’s principle, which 20% of them are producing 80% of your profits?
Regardless of your answers, the solution is to establish a process for identifying your 20% most profitable offerings, identify who’s buying them and eliminate the rest. Not only will you simplify your life, you’ll use your marketing dollars a lot more effectively. You’ll very likely free up a considerable amount of cash as well.
If that strategy is a little frightening to you, then eliminate the 20% least profitable SKUs. From experience I can tell you once you see how little impact it has on your sales and what a dramatic improvement is has on your profits, cash flow and employee productivity, you’ll quickly eliminate the next 20% least profitable until you arrive at my initial suggestion.
Which brings us to the next concern many business leaders have, being able to determine which results can be traced to value pricing and which are related to other operating decisions.
Demonstrable results
Often business leaders point out margin improvements can be achieved from a variety of operational changes including:
Or simply from an improving economy. So the question they ask is “How do we know the margin improvement came from value pricing?
The answer is all of these factors are, or should be, part of your value pricing strategy. You can’t establish an effective pricing policy without evaluating all of the factors that influence value creation. Recently I helped a client improve his margin on one line of business from 24.8% to 41% by streamlining the sales process and eliminating back office processing. We accomplished this without raising prices.
While we were evaluating his value creation process, we were also able to justify a 12.5% price increase by calculating the value of his offering. How? By identifying what he was selling was time savings and using demographics to identify the value buyers in his market were placing on their time.
With the 12.5% price increase, his margins more than doubled from 24.8% to 53.5%. If that isn’t a demonstrable result I don’t know what is.
Next time, we’ll discuss the two remaining reasons business leaders avoid value pricing - the perception that value is a moving target and price pressures.
It’s no secret the quickest, easiest and least expensive way to grow your top line, margins, and bottom line is to raise prices. Why, then, are you resisting value pricing?
Is it because:
Of course there are other reasons. As a senior leader you might be:
If you’re a senior leader and any these last three conditions resonate with you, I’m going to save you a lot of time and energy. STOP READING! The likelihood of you employing value pricing is so small reading the rest of this blog will be a waste of your time.
For the rest of you, we’re going to address each of the concerns highlighted in the opening.
Value is ‘vague’
Value is personal. Each of us determines the value a given product or service has for us and it’s often much different for us than for our family and friends. Naturally the question that comes to mind is “How do I establish value prices when everyone values things differently?”
The answer lies in the commonality of our humanity, which is manifest in our buying behaviors. There are only three things any of us buys - image, innovation and time-savings.
As sellers, any benefit we claim to provide fits into one of these three categories. For example, quality can enhance our customers’ image, save them time by helping them avoid repairs or a combination of the two.
Some of Apple’s customers by iPhones and iPads because they love innovations Apple builds into their products. Others buy because they love the look and feel of those products. Why? Because it enhances their self image.
The good news is that customers who value image are willing to pay as much as those buying innovation. Indeed there is readily available buyer data to show exactly what premiums people are willing to pay, depending upon where they fit on the image, innovation or time-savings spectrum.
So while value is personal, there is enough commonality to our humanity and enough buying data to allow us to categorize markets, design offerings and price based on the value to each of those market segments.
For those of you selling B2B, don’t forget you’re selling to people not organizations. Those people represent organizations, but each also possesses a self-interest motive that influences their buying decisions. So don’t dismiss the commonality of our humanity as a B2B phenomenon.
Next, we’ll explore the complexity of value pricing to see whether or not it’s a valid reason to avoid adopting value pricing.
It never ceases to amaze me how addicted people get to low prices. You probably think I’m talking about buyers, don’t you? Well I’m not.
As I’ve stated in many of my earlier blogs we, as sellers, have trained buyers to be price conscious because we place price at the heart of every marketing piece we create. What I hadn’t, until recently, realized is we’ve been drinking that Kool-Aid so long we’ve become addicted to low price strategies.
This realization came as I watched yet another JCPenney’s square deal adds that highlighted the days when their customers could get the ‘best’ prices. These ‘deals’ come from a company that recently declared itself different than other retailers by ‘eliminating’ discounting.
Why is it that we, as sellers, have become so addicted to low prices? There are several reasons that come to mind:
Walmart’s Success
Certainly Walmart’s success with a low-price strategy has been greater than any company in the history of commerce. Companies trying to emulate Walmart’s success overlook several realities.
First, there is only one low-price leader in any industry. Unless you have a plan for leapfrogging your industry’s low-price leader, you’re setting yourself up for failure.
Second, low-price strategies eventually fail. Yes Walmart is still enjoying revenue and profit growth, but it’s in countries in which they are still adding new stores. For those countries in which they’ve saturated the market, Walmart is struggling to maintain revenues and, here in the U.S., could only do so by giving up over 2% of their profit margin. That’s roughly 10% of their original margin.
Third, your customers may not value the same things Walmart customers do. Which brings us to the second reality; most companies do a very poor job of profiling their ideal customers.
Poor Customer Profiles
I’ve spoken to JCPenney customers who say they wouldn’t be caught dead in Walmart. Others tell me they go to Walmart for cleaning supplies, but not for clothing. What do these comments tell us?
These consumers have an image of themselves that’s quite different than what they perceive to be Walmart’s ideal customer. The questions JCPenney should be asking their customers are:
These are the kinds of questions that help a company create a clear, concise profile of their ideal customers. With this profile, it’s much easier to craft marketing messages to attract customers who like what you have to offer and sales scripts to close the sale.
This brings us to the third reality of our price addiction - internalizing our own beliefs.
Internalizing Our Beliefs
Years ago I had a client comprised of seven entrepreneurs who had pooled some of their resources and invested in businesses around the country. Each of the seven was responsible for running a different business.
One of the seven crafted stories to explain his company’s performance (or lack thereof) to the other members of the group. These stories always had some element of truth, but were designed to hide critical facts.
I watched this man relate the story so convincingly that even I, who knew better, felt myself being drawn into believing what he was saying. How was he able to accomplish this? He rehearsed the story so frequently he actually came to believe it himself. That’s what’s happening to retailers suffering price addiction.
These retailers have trained their customers to be price conscious and, in the process, come to believe customers are price conscious - of their own volition. Consequently they’ve stopped trying to differentiate themselves on anything other than price. In the process they’re ignoring things that are truly important to their customers’ self-image.
By the way, the situation I outlined above afforded me one of the greatest learning experiences I’ve ever had. I had to learn how to introduce facts that contradicted some of the story being told without making that partner appear to be misleading his fellow partners.
Lesson Learned
Don’t become addicted to low prices! If you are, use the questions in ‘Poor Customer Profile’ section of this blog to overcome your addiction. You’ll quickly get back on track to serving your customers in the way they’d most like to be served.
For more pricing tips visit http://www.pricingforprofitbook.com. To discover how you can get higher prices for your products and services, call Dale at 314-707-3771.
Great strategy?
Or sheer folly?
It’s early spring. I’m listening to the radio when I hear an ad for the premier carpet cleaning company in our city. The woman in the ad is telling her friend how dirty her carpets after having dirt, sand, salt and grime tracked in all winter long. Her friend recommends the carpet cleaning company touting all of its benefits.
The ad is clever and well-constructed until the friend says the company is offering a discount. What? Offering a discount during peak selling season? Why would they do that? Ostensibly, to increase market share, right?
Is that a good strategy? Let’s play this out to its conclusion. First, the company is giving up profit margin with its ideal customers to garner a larger share of the market. It’s peak selling season. They’re already swamped with orders yet they’re pursuing more orders with their discounts. How is the work going to get done? Overtime and temporary help.
Employees that work incredible amounts of overtime are fatigued. They’re going to make more mistakes. That’s going to hurt the company’s reputation. Indeed, given the claims made in their ads, the company has set expectations they aren’t going to be able to fulfill.
Temporary help is an alternative, but these workers aren’t as knowledgeable about the process. They, too, are going to make mistakes and damage the company’s reputation. Plus it’s going to take them longer to complete the work. Not only does the company incur additional costs, it angers a lot of customers because the temps are consistently behind the schedule they were given.
Then there’s the strain on equipment. When the company is operating its equipment at full tilt 12 to 14 hours a day, six or seven days a week, there’s no time for maintenance. When the equipment breaks down, which it inevitably does in this environment, it throws the entire schedule off; once again, damaging the company’s reputation.
Of course you could add more equipment to handle the increased demand, but then what do you do with this excess capacity in the off-season? Offer more discounts?
It’s counter-intuitive, but offering discounts in peak selling season to garner a larger share of the market is one of the costliest strategies this company, or yours, could possibly employ. Don’t fall into this trap. When it’s peak selling season, hold your price. You’ll not only enjoy greater profits, you’ll do so with fewer headaches.
For more pricing tips visit http://www.pricingforprofitbook.com. To discover how you can get higher prices for your products and services, call Dale at 314-707-3771.
Has this ever happened to you? You’ve just found a stain on your favorite dress; the one that has everyone using words like “drop-dead gorgeous” when describing how you look. Or, for men, it’s the power suit you wear whenever you’re getting ready to close a big sale. Either way, you’re at risk of losing the image that’s so vital to you.
As you’re bemoaning your loss, you hear an ad claiming it’s stain remover:
You’ve heard all of this before and have always been disappointed to find the claims were unfounded. Still, if you don’t do something, you’re not going to be able to wear the outfit again.
You do a little research and find the claims made about this new stain remover, have all been substantiated by independent testing labs with stellar reputations for fair and honest appraisal of products it tests. Maybe there’s hope yet!
Off to the store you go, encouraged by the possibility of saving your favorite outfit. You find the stain remover on the shelf and, much to your surprise, find it’s actually cheaper than competing brands. Quickly, what are you thinking?
Does the Hallelujah chorus come to mind? Or are you wondering whether the product is as good as touted? Is this yet another example of advertising hype? But wait, the testing labs all supported the product’s claims! Hmm, I wonder if the testing labs aren’t as independent as I thought?
These are the kinds of doubts we experience every time there is a disconnect between the marketing message we’re hearing and the price we’re seeing. In essence, when your price doesn’t support your marketing claims, you’re asking the buyer to choose which to believe - the marketing message or the price. When faced with this choice, which do you believe?
Typically we, as buyers, believe the price. Why? Because anyone can claim anything. We learn that at an early age and our skepticism grows as we grow older. That’s why we’re skeptical of advertising claims and are more trusting of the price we’re seeing.
Let’s continue with our example. Despite doubts you’re experiencing you decide to buy the stain remover. Why? You don’t have a choice. You know the other products you’ve tried don’t work. This is your one shot at salvaging the look you treasure.
You’re earlier excitement has turned to doubt and anxiety. Yet you return home with the stain remover and, after several tests on old clothes, you apply it to your favorite outfit. It works! You breathe a sigh of relief and thank the powers above that it worked. Gee, wouldn’t it have been nice if the manufacturer had actually gotten the credit?
Seriously, is this the kind of experience you want your customers to have - one that’s plagued by doubt, fear and anxiety? Is this the kind of experience that’s going to keep them coming back again and again? Will it make them want to sing your praises? Or will their stories of you be littered with pain and anguish?
Here’s another classic example. You walk into an auto dealer’s showroom and find just the right car. As you were considering your decision, the salesperson touted the classic look, sporty feel and luxurious comfort - not to mention the incredibly great mileage the car gets. You sit down to discuss price. You tender an offer. Of course it’s unacceptable. He takes it to the sales manager and returns with a counter-offer. On and on the process goes until you finally settle on a price.
What’s the one question on your mind as you leave the showroom? “I wonder if I got a good deal?” Why are you wondering that? Because the car didn’t change, but the price did. Again, we have an example of price and sales pitch not meshing.
So what’s the message here? If you want loyal customers, make sure your price supports your marketing and sales claims. Customer loyalty hinges on a number of factors. Customers must feel good about their purchase. Feeling good means feeling confident about the choice they made. Confidence in their choices comes from knowing they made an informed decision. Where did that knowledge come from? To a great degree, it stems from the fact that the price matched the marketing claims.
This concept works regardless of the level of quality or service the buyer desires. If you’re looking for disposable plates for a child’s birthday party, a one-time-use product for people who could car less about aesthetics, you may go to one of the dollar stores. The price matches the quality. You know you’re not getting much quality, but you’re paying an extremely low price as well.
On the flip side of the coin, if you’re looking for a high quality item with image enhancement capabilities, the price better reflect both or you’re likely to pass on the item. Why? If the situation calls for high quality and that quality is going to reflect on you, you don’t want any doubts about the purchase. You’ll go to an alternative that has a more congruent marketing/price message.
Stop confusing the market! Make sure your pricing supports your marketing claims. You’ll enjoy greater revenues, higher margins and greater customer loyalty.
For additional business, pricing and sales strategy, check out Dale Furtwengler products and services at his websitewww.dale@pricingforprofitbook.com
The CEO of a staffing firm asked what I did for a living. When I told him that I help companies get higher prices regardless of what their competitors or the economy are doing he said “That’s great if you’re in an industry where you control your pricing. Our customers control our pricing.” A few weeks later I saw an article in stltoday.com entitled Could medical pricing transparency control runaway costs? The article cited the fact that healthcare consumers are bearing more of the cost of healthcare in the form of higher co-pays and deductibles. The article went on to suggest that United Healthcare’s new online cost estimator could allow healthcare consumers greater control over the prices they pay for healthcare.
Are these new trends in pricing? Has control shifted to consumers? These are the questions were going to explore today.
There are movements afoot that are driving providers away from their traditional pricing models. In some instances the change is long overdue. In others buyers are completely unrealistic in their expectations.
The legal profession is being pushed to a fixed fee pricing model instead of the their hourly rate model. The only surprise here is that it has taken so long for consumers to press for this change.
In essence, the hourly rate model has basically said to the consumer “You have to take all the risk. We don’t know what the outcome will be, how long it will take or what the total cost will be, but here’s what you’ll be paying per hour.” What consumer wouldn’t rail against that kind of arrangement?
On the other end of the spectrum I know of one Fortune 500 company that has demanded to see its vendor’s costs so that they can assess whether or not they’re getting a fair price. The vendor is also a Fortune 500 company.
That’s over the top. Why would you want to penalize an efficient company for being efficient? That’s exactly what would happen if the customer knew the vendor’s costs. The customer would take the cost and add what they felt was a ‘fair’ margin to it which has the effect of penalizing their more efficient vendors. That’s crazy. We need to incentivize efficiency both for our own welfare and for competitive advantage in the world economy.
The short answer is ‘not really.’ In the case of the legal profession consumers are simply pushing for more transparency, more predictability in the pricing. There will still be buyers who will pay multiples over the lowest price alternatives to get the ‘name’ firms, the political connections they have or to create the image of success that comes from using the most expensive firms available.
Similarly, United Healthcare’s push is designed to help consumers become more aware of what their options are so they can make an informed decision. The consumer will still choose a higher priced alternative based on other factors like speed of access, care and concern of the physicians, nurses and staff, convenience of location and the provider’s reputation in the market place.
It’s no different than buyers choosing Walmart over Nordstrom or vice versa. Each buyer places a value on the products/services they’re buying. Some are very valuable to them and they’ll choose the top of the line because it is important. Others are necessities they’d just as soon avoid, consequently they’re going to choose the lowest-priced alternative.
I’m sure you’re wondering about the staffing company’s CEO’s claim that customers control his pricing. That’s absurd.
Without realizing it this CEO is, in essence, saying that he doesn’t see the difference between what he’s offering and what his competitors are offering. If he saw a difference he’d be able to communicate it in a way that would help buyers decide whether or not it was important to them.
Because he can’t see the difference, they can’t either. That simple reality explains why he feels he’s at his customers’ mercy when it comes to pricing. Indeed, it’s why any business, in any industry, feels trapped by industry pricing.
The seller doesn’t understand how his offering is different than his competitors or he doesn’t know how to convert that value to dollars and cents. Either way, the buyer doesn’t have the information he/she needs to make an informed decision. The result is the consumer pushes for lower prices.
Sellers can control pricing as long as they:
Consumers will make their decisions based on the information the seller provides and what’s important to them within the context of the lifestyle they’ve chosen. It’s their choice where they spend their money, the seller controls the price.
The first step in gaining control of your pricing is to make sure that prospective customers know what to expect from your products and services. To help you communicate that message more clearly I’ve created an ebook, Brand Promise: What Do YOUR Customers Expect?
They didn’t define their production costs well. They had included some of their production costs in the operating expense category, consequently when they added the traditional industry profit margin to their production costs their prices were too low to cover their costs.
Lest you think this an aberration, I’ve worked with hundreds of companies over the years and most don’t know what their costs are. Why? There are a variety of reasons, some:
Don’t have a clear understanding of how to categorize costs.
Allocate overhead costs to production using subjective, irrelevant bases for the allocation.
Use standard costs which typically include ‘cushions’ to protect the production group from being criticized for cost overruns.
Indeed, one VP of production had included a 60% cushion in his standard costs and no one in finance knew it.
As if those weren’t enough reasons, Eliyahu Goldratt in his famous book, The Goal, shows that traditional cost accounting drives up operating costs rather than reducing them. His book, It’s Not Luck, demonstrated that the same is true for service organizations.
Finally, and most importantly, production costs have nothing to do with the value to the consumer. That’s true whether you’re selling B2B or B2C. Allow me to illustrate this point.
Let’s say that I’m a milk producer. I buy milk from farmers, process it and distribute it through grocery stores. Let’s assume that it costs me $1.12 to produce a gallon of milk. Now, let’s look at the various markets available to me as a milk producer.
Young families will typically place great value on milk because it’s essential for the child’s development. The elderly also have a health issue, osteoporosis, that adds value to milk for them.
Many adults, whose children are grown and aren’t yet concerned about osteoporosis, value milk only if they enjoy it’s taste. For the others in this group, milk has little, if any, value.
For people who are lactose intolerant, milk has no value. Indeed, it’s a health risk for them.
As you can see, the fact that it costs me $1.12 to produce a gallon of milk has no relationship to the value customers place on it.
Hopefully this simple example along with the challenges in defining costs outlined above will be enough to dissuade you from cost plus pricing.
Want to move from cost+ pricing to value pricing? You’ll find the tools you need in Dale’s book, Pricing for Profit. Available online atAmazon.com and BarnesandNoble.com
