Marketing
What's All the Fuss About Price?!by David Rich
It’s a dilemma as old as dilemma’s itself. You want to sell more, but you don’t want to give away the farm. Businesses have been searching for that magic formula that will send their products flying off the shelves, yet at the same time, maintaining an acceptable, profitable margin. It’s the quantity vs. quality argument, volume or margin. It’s a big issue and if I had a magic formula, you can bet I’d share it with you. Unfortunately, there isn’t one. But information does exist that I think can shed a lot of light on the matter. Let’s look at the facts.
First, the average business life is 7 ½ years, and 75% of all start-up’s fail within the first 2 years. Second, businesses fail most often under the following three conditions: 1) following a period of declining gross margins, 2) wages as a percentage of sales increase, 3) following a period of sales volume increase. Almost always, all three are true. At first glance, it doesn’t seem logical, but the lethality is in the mix. Let’s examine the sequence of events. A business wants to gain more market share, so they mistakenly adopt the deadly strategy of cutting prices with the hope of making it up in volume. This works in the short term. Volume is up, wages as a percentage of sales increase, and of course, margins decline. The company lulled into a false sense of success either expands their operation, or they try to return to previous prices. Either way, they are doomed. It is extremely hard to return to higher prices after customers have experienced a lower one. The perception has been established and many customers will then wait to buy when you have a sale, or begin to shop around. The message is clear: sell by price, die by price! Business success is not about volume, it is about margins. If that weren’t the case, you wouldn’t see billion dollar corporations filing for bankruptcy. It is in a desperate last stand that many companies sell at any price to anybody. In a price war, it is rarely honest competition that you are up against, but rather failing competitors on their last leg. Resist the battle. I believe you are better off to sell less make more money, than to sell more and make less money!
So, let me give you a little 4-scenario equation for you to see if you are on track with your price. Scenario 1: Sales are high/Margins are high. Smile all the way to the bank. Obviously, this is utopia. Don’t, however, get too greedy too soon. Never sacrifice margins for the sake of sales. Scenario 2: Sales are high/Margins are low. This is where your price is too low. Raise prices slowly and continue to look for ways to add value for your customers. Every price increase MUST be accompanied by an added value increase. Scenario 3: Sales are down/Margins are high. Here your price may be too high. The market place may not see the value in what you do, and it is virtually impossible to change market perception. You’ll need to be innovative and come up with ways to re-package your product or services. Give your product or service a makeover. Even subtle differences can be enough to jump start sales. Of course, disappointing sales with high margins could also be the fault of sales. Either you need a house cleaning or immediate training. If you’ve got the right people, they may simply need some help. Give it to them right away. But remember, no amount of training can teach a cat to bark. Scenario 4: Sales are down/Margins are low. Look out below. Change course or suffer the inevitable fate. Here, both of the above changes are in order. Your product or service needs a makeover AND your sales staff needs to be evaluated. Don’t bury your head in the sand. Take action today. It may not be too late!
Everyone is price conscious. That won’t change. But, you’re in business to provide a necessary or desired product or service to your customers and make a profit. It’s often the profit part that gets neglected!
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David Rich is a professional speaker and author of the book, HOW TO STAY MOTIVATED ON A DAILY BASIS! He can be reached at 1-800-717-RICH or through his web site at www.eRichIdeas.com
