This past weekend, I ventured out and attended several “amateur” sales events close to my home. Better known as garage sales, these mini one day retail ventures offer some great insights into how prices are set and negotiated in the business world. Similar products at different locations varied greatly in price and other products displayed prices that seemed to have no rhyme or reason to them. A good example was paperback books, 4 for a $1.00 at one house, $1.00 each at another on the same street! I don’t need to tell you where the dollars were going.
Translated to the business world, that equates to two different stores setting their price using 2 divergent formulas for sales. “Entrepreneurs tend to keep prices too low,” according to business author Reed K. Holden. In experience, sometimes we don’t see ourselves as a contributor to the value proposition, or take fully into account the real value the product or service brings to the customer. Larger companies may have a tendency to utilize the “mark up on cost” tactic which incorporates a variety of costs involved in bringing the product or service to market, then simply adding on a viable profit margin, sometimes with little regard to the competitive environment.
Setting your price is a critical part of the marketing mix and all things need to be considered such as your total costs including time, marketing, sales expenditures and transportion to name a few, the competition, the aggregate need, the decision making process of the buyer, the elasticity of demand (which in simple terms means the change in demand at various price points) and the position that it will be delivered to the market in, those positions being: is it new and “revolutionary”, is it an improvement or “evolutionary” or is it a similar product or service to many in the market already or ”an also ran”
In considering all of the above, the most important factor has to be the overall value that your product or service provides to the buyer. As a sales coach I constantly reinforce the value proposition in the sales process, and it is no different in the pricing approach. Businesses need to put dollar figures to the benefits the features provide. By monetizing the value to the customer the pricing consideration can be more clearly evaluated. A real quick example would be, if I introduce a product similar to others in the market, with improvements that are proven to save maintenance, shut downs and costly delays, is it wise to price it only a few dollars above the current market value, or is it worth much more in dollar savings over time for the customer?
Garage sale economics may dictate put the “stuff” out, price it to sell and close at noon to enjoy the Saturday, but if your price is too high it may need some fixing to avoid a long day standing on the driveway and a future trip to the dump.
Jeff Bowman, the “Attitude” in The Marketing PAD, provides workshops and sales consultations for businesses looking to grow. http://www.themarketingpad.com