Looking for a one-word answer? If only! As you might have
guessed: It all depends. When considering price
integration, it’s important to remember that products and services must
meet minimal standards based on each specific circumstance. Simultaneously, risks
need to be taken as you strive for an exceptional customer experience. As you
develop your own strategy for price integration, consider the following questions:
What are the differences between a good quality
meal at a reasonable price vs. an expensive gourmet meal with special ambiance?
When it comes to gas, for how much of a savings
and to what distance are you willing to go out of your way to purchase cheaper
gas rather than utilizing your local station?
How much do you buy on impulse vs. shopping for
specific needs and taking time to search/compare prices before purchasing?
How important are image, brand, and experience
in your purchase decisions?
Do you prefer being unique or do you tend to
buy the same old thing? (i.e. Do you stick with what you know—say, hamburgers or
pizza—as opposed to trying new things?)
Provided the quality meets acceptable standards,
do you value quantity or quality?
These questions illustrate how varying factors take
precedence in different situations. Therefore, it’s essential to have a
comprehensive grasp on what it is you’re offering while also fully
understanding what your consumer views as important.
Before we move on, let’s define some key terms:
Value is
the perception of the utility relative to the cost.
Price is
the amount of money per unit or total that a consumer spends.
Quality of an
item refers to the actual craftsmanship or durability of the item or service.
Quantity, of
course, is how many of an item you get for the price.
Cost is
not exactly the same as price. Cost can also refer to the amount of effort
involved to obtain the product/service or the “opportunity cost” of missing out
on some other deal or experience by buying your product.
Here are a few key things to consider when it comes to
price integration:
Don’t try to be all things to all people—you
will probably fail at most of them. In some places, for example, customers view
the most important aspects of ordering a cup of coffee to be speed, quality,
and freshness. In other places, customers value the conversation that comes
with the service.
Product definitions keep changing. Airlines add new fees, restaurants bundle meal offerings, and
warrantees get updated in both price and characteristics. One of the most
critical aspects of pricing, often considered from more of a cost perspective,
is the product or service offering itself.
What is your
competition doing and what do your customers expect? For example,
warehouse clubs thrive by selling multiple units at lower prices per unit while
other industries (think candy bars and airfare) raise prices by creating the
ever-shrinking product/offering. Another factor to consider is shipping fees—free
shipping is virtually expected with most online purchases.
Logistics, sourcing,
and distribution efficiencies are critical factors in your marketing efforts.
They may be used to reduce costs for you and lower prices for your
customers. For example, sharing resources like Amazon, Uber, Air B&B,
and Grub hub can eliminate complexity and create efficiencies . Similarly,
shipping times, delivery methods, using direct shipping, etc., can affect consumer
perceptions and satisfaction.
Ultimately,
the CONSUMER determines the effectiveness of your offerings and whether or not your
offering has the characteristics they’re seeking.
Discussing price
integration can often feel a little like asking the age-old question, “What
came first: the chicken or the egg?” However, when factored in together, value,
price, quantity, and quality will determine what the weakest link is in any price
integration strategy. Each aspect deserves singular attention at specific
times, in various circumstances. But try to avoid exclusive focus on any single
element for too long—it may be devastating to your business. Knowing your
strengths is great, but not recognizing your weaknesses can ruin you. In order
to succeed, it’s crucial to identify what you do best and how you can effectively
make your product/service stand out from the rest.
Interested in a FREE business
consultation? Email or call and we’ll set up a time to discuss the strengths
and weaknesses of your price integration strategy.
With a PhD from the Sloan School of Management at M.I.T., Dr. Bert Shlensky prides himself on his customized approach to help each client address their specific business needs. He’s mentored a few thousand clients at Score and his own practice, grew Sure Fit products from $50 million dollars to $150 million in, was President of WestPoint Pepperell’s Apparel Fabrics Business, and headed the $400 million Culet Shirt Group. He knows how to take a business to the next level and can help you lead your company to greater profitability and success. Visit StartupConnection.net today!
Pricing products or services used to be simple and straightforward. Production and distribution techniques have changed dramatically and become more efficient. This has resulted in great value and pricing opportunities for huge retailers like Costco and Amazon. Online store price changes occur instantaneously, with immediate visibility and accessibility to consumers. There is more diversity in consumer pricing behavior today. The high-end consumer who buys $1,000 shoes in better department stores visits merchants like T.J. Maxx and Amazon to shop for unbranded commodities at a 20-40% discount. Here are some effective pricing strategy ideas to consider for even small businesses:
Analyze
bundling and unbundling.
To coin a phrase, “Do
you sell it your way or our way?” Bundling — if done
correctly — can both improve a product offering and satisfy the
customer, such as selling complete meals or LEGO sets. Bundling can also
be a way to increase profit by adding elements such as high margin warranties
to low margin items like electronics. Bundling can also enhance sales and value,
such as offering extra services in places like fitness centers or nail salons.
Unbundling has also
become popular. Spirit Airlines offers no-frills fares and charges for every
service to maintain perceived low prices. Generic brands represent another
form of unbundling by charging lower prices in exchange for lesser branding.
Pricing
psychology can also dramatically affect your image.
After you have worked long and hard to develop a rational and effective pricing strategy consumer can react strongly to psychological presentations. These can include practices such as: pricing at “$9.95” (instead of $10.00), eliminating the actual dollar sign, unmonitored purchase limits, offering some items for free, selling two for $9.95, or changing colors and font sizes.
Varying Prices
can increase volume and Increase Profits.
One of the most
successful efforts by sports teams and airlines is variable pricing. The
simplest thing is they have ranges in seat prices by location, game or time. The
biggest change is in varying prices by time, seasonality, or holiday, to
develop revenue in off peak periods. While these examples can utilize
sophisticated and expensive computer models, the most noted model is very
simple. Specifically, the early bird special in Florida has been around as long
as I can remember.
“Free” is not
a dirty word
The
concept of “Freemium” is more than a business model. It’s also a pricing
strategy. Offer a free product or service, then offer ‘pay-to-upgrade’
features, and you have a Freemium strategy. Remember that companies like
Google and Facebook were built on free offerings for entry, followed by a host
of upgrades and “for pay” services. Ancillary aspects of the Freemium
strategy include samples, blogs, demonstrations, contributions to charities,
etc. — these can all create awareness and build long term volume at little or
no initial cost. An older variation is to basically “give away razors and
printers” to sell the “blades and ink.”
Consumers
Love Promotions
Contrary
to some popular opinion, “promotion” is not a dirty word and the use of
promotions is not synonymous with diluting the value of your brand. You have
many opportunities to find new ways to increase volume today, including pop up
shops, selling through Amazon or Wal-Mart marketplace, seasonal programs, and
bundling.
Manage your
Product Mix
Essential
to the process of effective pricing is to understand the entirety of your
product mix. Getting people into the store with loss leaders is a proven
strategy. Seasonal retailers use promotions like “back-to-school” or national
holidays to drive traffic to the store (or website), where customers will load
up on the non-sale items. Most important have the items customers want in stock
and avoid items or products that don’t sell like odd colors, sizes or
contents
Consider Service
and Quality After the Sale
Many customers will opt to stay with a company in large
part because of the quality their service after the sale. Some other factors that can affect price decisions are quality,
availability, selection, return polices, and guarantees. When you have a small
business, you have the flexibility to look your customer in the eye and take
that extra step to make sure your customer is happy. A key example is that restaurants
and retail stores can suffer major declines if customers have to wait too long.
Use Efficiencies
of Logistics, Sourcing and Distribution
Another aspect of effective pricing strategy that can provide major competitive advantages has to do with logistics, sourcing and distribution efficiencies. These may be used to reduce costs for you and prices for your customers. For example, Amazon is able to employ such efficiencies to operate on a 15-20 percent margin while traditional retailers have to work on 40-50 percent margins. Similarly, shipping times, delivery methods, using direct shipping, etc., can affect pricing and profits
Final Words
Entrepreneurs who recognize that traditional pricing models no longer apply in today’s world of business will be better able to price their goods and services appropriately in this “Brave New World.” Effective pricing strategies vary widely depending upon the factors we have discussed. The most important suggestion from this blog is to consider alternative pricing tactics and consider the entire pricing package. You must aggressively manage and innovate your entire pricing package rather than simply reacting to short-term changes in the market or competitive pressures.
I’d love to hear your examples of how managing pricing has enlarged your perspective without harming your brand. You can find me at Bshlensky@startupconnection.net or 914-632-6977
Dr. Bert Shlensky earned a PhD from the Sloan School of Management at M.I.T., mentored a few thousand clients at Score and his own practice, grew sure Fit products from $ 50 million dollars to 150 million in sales including $ 60 million of direct internet sales, was President of WestPoint Pepperell’s apparel fabrics business and headed the $400 million Culet shirt group. In short, he knows what works and can help you lead your company to greater profitability and success. StartupConnection.net provides small business owners real solutions to real problems. Contact us today!
It would be pretty cool to be a super-secret agent like James Bond, or Jack Bauer, or Jason Bourne — or ETHAN HUNT! Yeah, that guy from the films “Mission: Impossible” played by the one and only Tom Cruise. What’s funny is that the best business culture out there embodies the secret agent accomplishing amazingly insane feats, hanging by a thread on a plane or scaling a big building. Maybe disabling a bomb with a toothpick? Now I’ve got your attention, but you’re pretty confused: how can your business culture be like that? Easy:
The Trick to Your Business Culture Being Like Espionage Is Competitive Analysis, Namely KNOWING HOW TO PRICE YOUR PRODUCTS EFFECTIVELY!
And it’s no easy feat. Take our word for it. Many small businesses have the tough challenge of trying to price their products at the right amount — not too cheap, not too expensive. They want to be competitive enough…. But not sell themselves short. And honestly more often than not, you’ve got a lot of businesses out there pricing way too low.
The trick is to analyze the competition. Spy on them. Sort of “break in” to their secret facilities and know how they operate. This is especially the case when it comes to the biggest e-commerce giant Amazon as the lead competitor. How it relates to business culture? Your team, your entire business, needs to review everything the competition sells, in and out.
Scout the websites. Look at what Amazon is doing. What they’re selling. How they’re selling it. How much are they selling their stuff for. See if you can dynamically offer something better, something more unique. Match the price, look at your overhead. It allows you to be more competitive when you’re willing to spy on the competition, and believe me: it’s a lot easier to do that!
No lasers to do cartwheels over. No masking the traps or finding the loopholes. Back in the day it was hard trying to analyze the competition given the brick-and-mortar, but nowadays with websites just a click away, it’s pretty easy slipping into Amazon and getting the inside scoop.
So Make Sure Your Business Culture Is Doing Exactly That: They Need to Be Go-Getters, Predictors, Forecasters, Finders…. TRENDSETTERS. SECRET AGENTS.
Now we won’t say you could ever take Amazon down completely…. But you’ll definitely carve your niche and let the big boys know that you own it. And no on else will. Want to know more?
Dr. Bert Shlensky, President of The Startup Connection, directs all small business clients toward maximum sales and profit thanks to his 40 years of high-quality experience. He does this through technological, social, and online integration, supercharging your business success into the next level, so don’t hesitate to sign up for a free consultation RIGHT NOW.
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When you want to stand out, reach out to Bert for the tools that will build your “sticky” brand. My focus is on understanding and analyzing your dilemmas and challenges, so your company becomes profitable faster.
Call (914) 632-6977 or email me at bshlensky@startupconnection.net. Don’t leave without signing up for our useful free eBook!
Feeling stumped or overwhelmed? Contact Bert at (914) 632-6977 or Email to start the process. Thanks!
