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In this increasingly competitive and financially unstable world, where more and more businesses are looking to generate income, and where customers are getting more and more astute about where to buy their products, the thought of putting prices up is making some business leaders break out in sweat…

Yes the economy has been hurting and many companies reacted early on in the recession with big price cuts to try and keep their machines, shops and people busy. Many people who did introduce discounts early saw their competitors do the same and so had no real edge. Now the Government Cuts are kicking in and further jobs at risk some people and some business are holding back their purchasing power even with those price discounts. 

An example of this is what Domino’s did in late 2009. The chain had been charging about $9 for a medium two-topping pizza, but to boost sales it began offering recession-weary consumers two of its two-topping pies for $5.99 each. Several weeks later Papa John’s and Pizza Hut fired back, offering large three-topping pizzas for just $10—at least a third less than the usual price. Soon they improved the deal, so that customers could buy a large pizza with unlimited toppings for $10. Sure enough, sales at all three chains rose—and even now many chains are offering discounted pizzas.

On the surface, this type of price-cutting makes sense but it is now August 2011 and in many sectors demand is weak. Organisations that did discounts have lost margin even if they held sales volumes. On the flip-side many of those Companies that held their prices has still seen a drop in sales and profits. Now people treat any discounted prices as normal, any positive leverage they gave us is long gone. 

Those of us still in business have survived the downturn but more companies tend to go out of business on the journey along the bottom or on the upswing of recovery. Is your business in a reasonable state of health to survive what comes next..?

How else can we bolster sales in a time of weak demand?

Shift our attitude

A simple 2% overall price increase across a product range (40% margin) with no loss of sales volume or increase in costs would generate an additional 5% of profit. If you put up prices by 10% at the same margin you could afford to lose 20% of your turnover without affecting overall profit. If you are 100% confident in the value you offer your clients, then you have absolutely nothing to fear from raising your rates.

Sell Value not Product or Service

People don't buy products or services; they buy value, the value or benefit that product or service delivers to them. It is true that the buyer defines that value for themselves. It is also true that effective marketing and sales can guide them along the path – either the low road or the high road. Product differentiation - in the eye of your customers - can greatly influence your pricing power.  If you can make your product or service stand out from others and demonstrate it offers benefits your customers believe no competing product has, you will be in a greater position to increase prices.

It remains your job to figure out the most effective marketing and sales path to get them to join you at that same price-point conclusion.

Ditch the Discounts

Many Organisations would improve profits substantially by eliminating unnecessary discounts. By careful analysis of your customer based most of us would find the top customers generate some 80% of sales. Good old Pareto rules as usual.  Now work out the PROFIT contribution of all your current customers. The likelihood is that 10% of your current clients are costing you money… Find the dumb-bell pricing data – which smaller clients are still getting big client discounts. Which people are costing you money? Ditch all or at least all unnecessary discounts.

Start using Adaptive Pricing

Some companies have avoided the trap of lost profits by using adaptive pricing, which capitalises on the fact that different customers have different needs and therefore place different values on a given product or service. The key to adaptive pricing is realising that price, like colour or style, is simply one of a product’s attributes. And companies routinely vary colours and styles to appeal to different kinds of customers. They sell through different channels (online, direct sales, brick-and-mortar stores) and sometimes charge vastly different prices based on the channel. By using adaptive pricing, companies can adjust a product’s attributes to better appeal to customers’ sense of value without necessarily dropping the price.

The simplest adaptive-pricing method is called versioning; offering “low cost” “good,” “better,” and “best” varieties of the same product. A lower-priced version (poorer quality, smaller quantity, fewer features) can be a powerful magnet for price-sensitive customers. A high Premium option will attract someone for a totally different reason. This may allow you to offer a “discounted and slimmed down service or product” while keeping your “signature product” at it’s current price and gaining an overall price increase of 2% across the range by developing a top end version. 

Sweeten the deal

I’m sure you’ve heard it before and it is still worth repeating… client retention is much easier and cheaper than client acquisition. So what does that actually mean to your business? It means that focusing on keeping your existing clients happy whilst you’re on the hunt for new clients is a smarter strategy than focusing all your energies on constantly generating new business to the detriment of existing ones. That being said, this is not a reason not to raise your prices! Your existing, loyal clients are probably loyal because of the service and value you give them, not the prices you charge give them.

If your loyal clients’ feathers get a little ruffled when you raise your prices, then have an offer ready to smooth over the ripples and sweeten the deal. They pay the new price AND get some added value element which means a lot to them and doesn’t cost you too much, if anything.  Perception is everything or in the case of price – Perceived Value is everything

How can you bolster sales or profit in a time of weak demand?

That is the job in hand – not cutting prices and costs. With more self-confidence, a better understanding of the value add to our customers, better marketing, fewer erroneous discounts and the use of adaptive pricing of product / service variants we can prices and profits…

Like to know more..? Contact us