Stealthy ways to raise your prices (and profitability)
In many business sectors, the difference between a winning and a losing product or service is how you price it. Sales tests have shown time and again that effective pricing is one of the most important factors which will determine the success or failure of a product’s sales, or even of the business itself.
However, there are several myths floating around about the pricing of products and services, and some fly directly in the face of popular thinking on this subject, and these may not reflect some of the advice you are getting or reading elsewhere.
Some of the myths that can lead to poor sales performance and failure include the following:
Assuming that price is the most important buying criteria for consumers.
This is nonsense – consumers are generally a much more shrewd and informed bunch than that, and most of them know exactly what the meaning of value is.
Needing to slightly under-price your product or service in a highly competitive market.
Hasn’t anyone heard of differentiation? There are plenty of ways to do this, even by just slightly differentiating your offer other than through price.
To price your product or service, you just take its cost and then mark it up with your profit margin.
Well, since most businesses probably don’t even know what their costs are, how can they mark up their prices properly?
When sales are slow, just drop your price and orders will increase.
Unless of course you realise that people put a high value on quality and service as well as on price, and when you lower your prices you are lowering their perception of the quality you are offering.
Myths like these and commercial ignorance generally are a lethal combination when it comes to pricing and competing in your marketplace.
One pricing strategy that can be used and successfully applied to the advantage of business owners in many different sectors is that of increasing your prices – but without actually increasing your prices at all.
Here are nine ways you can increase your sales revenue without publicly announcing that you’ve increased your prices.
1. Decrease the level of discounts you’re currently offering customers.
2. Increase your minimum order volumes so that customers have to reach a higher threshold before they qualify for discounts.
3. Increase your delivery charge and start charging for any additional special services related to delivery.
4. Charge your customers for any engineering and installation services that you previously included as standard.
5. Raise prices to cover for overtime or additional time needed to deliver rushed or very short notice orders.
6. Start aggressively collecting and charging interest on overdue accounts from the last few months.
7. Begin to shift your overall sales mix towards higher profit margin products and services, and start phasing out your lower margin items. If you don’t know what your margins currently are, it will be worthwhile finding out fast.
8. Begin to write stiffer penalty clauses into all of your contracts. Think about it – your suppliers will almost certainly be doing this to you, so there’s no reason why you can’t be commercially more hard-nosed as well.
9. Find ways to decrease some of the physical or frilly characteristics of your product or service, but continue to charge the same prices.
To conclude this week’s stir on pricing, there’s one thing you should take on board and remember above everything else.
Unless you’re an exception, and have a significant cost advantage that is impossible for your rivals to match, never, ever try to compete solely on price.
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