The Authority Guide to Profitable Pricing

How to develop a powerful strategy to boost turnover, profit, cash flow and business growth

Shaz Nawaz

• Editorial: The Authority Guides
• Año: 2017
• ISBN:
  9781912300112
• Categoría: Negocios y empresa
• Categoría: Finanzas

Make a fast, effective impact on the financial success of your business. Setting the optimum price for your products and services that's right for your customers and market, is vital to success. But how do you know what you're charging is doing the best job possible? In this smart, savvy Authority Guide, pricing expert Shaz Nawaz takes you step by step through everything you need to know to build a solid, reliable pricing strategy for your business. Thrive, flourish and open the door to instant increased turnover, the best customers and accelerated growth with the key to profitable pricing.

1. Why price matters

In my experience, when people set up a new business, they pay a lot of attention to matters such as:

• The nature of their core product, service or business offering
• Renting the right office
• Staffing
• Office paper letterhead and stationery
• Advertising
• Website and social media

However, what I find time and again is that new businesses – and established businesses, too – pay little attention to their pricing. Their means of arriving at prices is often cursory in the extreme – they may do a web search to see what other companies are charging for something similar, see what is the highest and the lowest, and use somewhere in the middle to come up with their price.

This is despite the fact that, in nine cases out of ten, if you ask the owner of such a company whether their product or service has any distinctive or even unique qualities, they will not hesitate in saying yes and will also start listing them. Yet the pricing they have does not represent this distinctiveness – representing a massive wasted opportunity. You might as well write on your website, ‘You can see from our pricing that there is nothing distinctive about what we want to sell to you.’

Another pricing strategy that I come across frequently with new companies, in particular where an individual has struck out on their own after working with another company, is making sure that they price their offering lower than their old boss’s. They do this in an effort to gain a competitive advantage and take business away from the other company, whose set-up they know very well.

Both these approaches are wrong – they are simplistic, misguided and ineffective. I’ll show you why as you read through the chapters of this book.

Pricing for new and established businesses

Once a new business is established, the owner may soon start to think, ‘How can I get more customers?’ A less than optimum level of pricing may be somewhat more understandable when you’re new in the field, but once you become established it is absolutely crucial to get your price right and improve your margins. I find, time after time, that once a business is established the owner will begin to realise that:

• the intentions and projections in their original business plan are not being reflected in where they are now
• bank balance and cash flow statements are not reflecting the position the owner had hoped for
• profitability is lower than expected.

So it is at this point that the owner is likely to be more open to acknowledging that the pricing is not right.

In this book, I will show you that it is a lot easier to adjust your pricing in order to get it right for maximum profit, rather than only making a big effort to win many more customers, which takes a great deal of time, effort and money. The ideal scenario for a new business, of course, is to get the pricing right from the outset, thus getting your customers used to your optimum prices from the beginning. And, of course, this is all the more urgent for established businesses of any size.

So being fixated on getting new customers, as an activity pursued on its own, does not make any sense – far better to see it as an integrated natural outcome of getting your pricing policy right and reaping the wide range of benefits that can flow from this.

The subject of getting the price right in relation to the effect on your margins is covered in-depth in Chapter 2.

Attracting the right customer

But it’s not just about your margins and your cash flow and your profitability – getting your price right means getting the right type of customer, which is perhaps the most central issue in any business – and one that I often find neglected. If your prices are too low, you will tend to attract the wrong kind of customer, the kind of customer that’s not good for your business – one who just looks for the cheapest and is not so interested in getting their needs met by an offering that delivers real benefits.

Take a customer, for instance, who buys a Casio watch – this person will differ in crucial ways from one who will buy a Rolex watch. The Casio customer may well only possess one watch, and mainly owns it in order to know the time – and will want it to last as long as possible so as not to have to spend money on a replacement.

A Rolex customer, on the other hand, buys a watch partly in order to know the time, but more importantly as a value statement about who they are. This type of customer wants to get additional benefits from the purchase – and for this reason can deliver much more significant benefits to the business who sells the watch. For instance:

• they will be willing to pay £500 or maybe even £20,000 for the product
• they are likely to buy more than one watch, and may become a collector
• they will be happier to pay for servicing and supplementary purchases because they want their watch to hold its high value
• owning a product like this gives them ‘bragging rights’, so they will be giving word of mouth appreciation and publicity to their friends, which will benefit the supplier of these products
• they may well also talk about their new purchase and show a picture of it on social media – which they’re not going to do with a Casio, are they?

This is why the most successful and highly profitable companies in the world are those who are well known for offering a premium product at a premium price – think Apple, Harrods, Gucci, Rolls-Royce, private jet companies, yacht companies and other premium or luxury suppliers.

So that, in a nutshell, is the difference between the kind of customer you want and the kind you don’t want – and how you can price accordingly, because optimum pricing demonstrates that you understand the value of your offering to your customer. We will look into this important distinction in customer mindset in more detail in Chapter 5. The closely related issue of how you position yourself relative to others in your marketplace is explored in-depth in Chapter 8.

Other issues affected by pricing

Optimum pricing also enables you to enhance other important aspects of your business, which in turn support more sales, more turnover and more profit. This can mean, for instance, that:

• you can employ better staff
• you can give a better service to your customers
• your customers will stay longer with you, make more purchases and spend more money with you
• your customers...