Sell right!

Finweek English Edition - - BUSINESS -

As a busi­ness owner, your pric­ing pol­icy is a key prof­itabil­ity lever. It’s also a sur­vival tac­tic. A 2% or 3% in­crease on your pric­ing has a dra­matic im­pact on your profit be­fore tax and should be con­sid­ered as inf la­tion­ary cli­mates darken our busi­ness hori­zon.

Three tra­di­tional pric­ing strate­gies gov­ern how you build your busi­ness.

There is also the Mid­dle East­ern pric­ing model which, as a former trader of goods, I came to learn dur­ing the early Nineties. Sounds sim­ple doesn’t it? You fig­ure out your cost of prod­uct, add a mark-up and your pric­ing is done. Yet I of­ten see in­cor­rect costs be­ing cal­cu­lated as the ba­sis for this model, es­pe­cially in ser­vices busi­nesses where your cost is of­ten a com­pli­cated ag­glom­er­a­tion of time and skill.

Ac­cu­rately ac­count­ing for time and skill re­quires a well-func­tion­ing back­of­fice, some­thing few busi­ness own­ers have at hand. Learn to love it, out­source el­e­ments of it if you are bad at it and de­mand timeous, ac­cu­rate and re­li­able ac­count­ing data or pay the con­se­quences of wrong pric­ing. You can­not out-price your­self from the mar­ket. So the pric­ing op­por­tu­nity here is one of dif­fer­en­ti­a­tion. Can you set your­self apart from your com­peti­tors?

Please don’t be­lieve ser­vice and care are dif­fer­en­tia­tors to jus­tify pric­ing! I think that there is a more im­por­tant fac­tor at play with com­peti­tor pric­ing and that’s at­ti­tude. Ob­sess­ing about your com­peti­tors really in­ter­feres with build­ing your own busi­ness. Keep an eye on them for sure, but sail your own ship and use cus­tomers as your bea­cons of success rather than your com­peti­tors as your mea­sure of success. This is where you ul­ti­mately see the value of a brand be­ing used to sup­port your pric­ing. Po­si­tion­ing your brand as, say, a low-cost provider re­quires two things. First, really good ad­ver­tis­ing and brand build­ing ac­tiv­ity. More im­por­tantly, you must then be the low-cost provider. Your brand per­cep­tion is de­liv­ered by mar­ket­ing ac­tiv­i­ties and will last as long as your cus­tomers’ brand ex­pe­ri­ence sup­ports it. This is de­liv­ered through your busi­ness model and that means be­ing good, really good at the nine el­e­ments mak­ing up a busi­ness model of which mar­ket­ing is only one.

In my early trad­ing days, I ac­tively worked and still do in the Mid­dle East. Here I came upon a pric­ing model that is as old as the Euphrates. This model re­quires the busi­ness owner to al­ways be present in the busi­ness and to em­ploy pre­dom­i­nantly fam­ily mem­bers as front-line sales staff. Each sales staff mem­ber has to know the cost price of ev­ery ar­ti­cle in the store. It also re­quires that sales staff have the abil­ity to read peo­ple re­mark­ably well.

As a cus­tomer walks through the door, im­me­di­ately and very quickly you are re­quired to as­sess the cus­tomer as a cost plus ‘some­thing’ cus­tomer! This will be de­ter­mined by the abil­ity to read you, see your hands and fin­ger­nails in­di­cat­ing if you are a labourer or of­fice worker, what watch you are wear­ing, how well groomed or not you are and other el­e­ments that in­di­cate your po­ten­tial to be a cost plus 30% of cost plus 70% cus­tomer. All the goods are marked up to cost plus 100%, so who­ever you are you will walk out with a deal.

Think and use your pric­ing model to build your busi­ness into an as­set of value. Turn it into a pric­ing pol­icy since the think­ing be­hind your pric­ing strat­egy in­di­cates the think­ing be­hind your busi­ness and more im­por­tantly how you per­ceive your own busi­ness. I hope it is to build an as­set of value!

Pavlo Phi­tidis is CEO of Aurik Busi­ness Ac­cel­er­a­tor, an or­gan­i­sa­tion that works with busi­ness own­ers to grow their busi­nesses into as­sets of value and a di­rec­tor of Aurik En­ter­prise Devel­op­ment, an or­gan­i­sa­tion serv­ing big busi­nesses with ED so­lu­tions. He is also a reg­u­lar com­men­ta­tor on en­trepreneur­ship and busi­ness devel­op­ment on Talk Ra­dio 702 and 567 Cape Talk.

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