We recently delivered a virtual seminar on the critical topic of how businesses set their prices in the current uncertain period as we ease out of restrictions.
Presented by Peter Hill, author of Pricing for Profit, it looked at some key pricing principles and how these may have changed in the current situation. Here are some of his key nuggets of advice in simple, straight to the point clarity…
- As consumers we can consider more than 20 issues when making any buying decision. More elements for large and infrequent purchases and less for lower value regular purchases. Unless the sales process ensures all these elements are considered, then the customer is only left with price as the basis for their decision.
Make sure your sales people are well trained, have the right materials and are clear on all of the elements of the buying decision that need to be covered.
- A ‘one size fits all’ pricing strategy is as flawed as a ‘one size fits all’ clothing policy… It doesn’t actually fit many people!
Try to have tiered pricing that allows you to offer premium products and services for premium prices for your premium customers, and then 2 or 3 more levels with gradually lower price points and with fewer features and benefits for the customer. Think ‘Gold/Silver/Bronze’ options for example.
- How we sell something has a direct impact on the perception of value for the customer. Selling ‘Steak and Chips’, or selling ‘Locally sourced 28 day matured steak cooked to your order, with triple cooked skin on fries and a side salad of local seasonal ingredients’. Will change the price point significantly (our research suggests by as much as DOUBLE!).
Make sure your sales materials and messaging properly describes your products or services in language that gently gets the customer into ‘buying mode’.
- Many businesses see sales as a single lump of revenue generating an overall gross profit margin. If you analyse this by customer categories (your Gold/Silver and Bronze customers) or size of transaction, you will see huge variances.
In many businesses that are large numbers of low value transactions that are actually loss making. Work out the absolute minimum cost to fulfil the simplest of sales and then work out the minimum price needed to generate enough gross profit to cover this. How many transactions do you have that actually cost you money to do?
- Why are people so bad at pricing? The blunt answer is that they haven’t put enough effort into improving. None of us are born knowing this stuff and it’s not a skill we pick up by accident.
Read books (Pricing For Profit – Amazon), go on courses, do research, test different options with sample clients, speak to experts, and set the issue higher up the agenda for monthly meetings, sales training and other strategic discussions.
- Don’t wait for a customer to challenge the price. You know this question may well come at some point, so prepare a carefully honed answer in advance. Practice the response until it is second nature.
If a customer wants to pay less, have a polite and clear way of saying ‘No’. “I’m sorry, our prices are carefully calculated to be fair to all our customers”. If you have to give something away, get something in return. “I can lower the price if you… buy more/pay up front/give a testimonial.” Or ask them what elements they would like to remove, i.e. no after sales warranty, no onsite training, or no delivery etc.”. In most cases a considered response will simply get the reaction of “Ok I was only asking” and a sale at the target price.
The key issue for the event was how pricing decisions may have changed as a result of the pandemic. Peter’s view was that far from being a period where prices may be under pressure, most markets actually have customers desperate to buy and with money to do so. 3 years of Brexit paralysis and 18 months of pandemic have left the majority of consumers (Including B2B consumers) in a relatively strong position. The problem for many is simply getting hold of stock, having the people to deliver the great service, and reconnecting their businesses after over a year of remote working and restricted operations.
Customers will pay what you want as long as you deliver great value. Right now businesses don’t need to be cheaper than their competition, they need to be better!
The full content of the event was recorded and sections will be distributed via social media soon.
Peter Hill is a Chartered and Certified Accountant and Director of Mark Holt & Co, and a Partner in their consulting business Healium LLP. He has presented a range of topics in the UK, Europe and the US, and specialises in consulting projects to drive profitability through a more sophisticated approach to pricing.