Supply & demand
At it's most simplest, we recognise that the dynamics of supply and demand in the marketplace is a basic law of economics that we cannot escape. And the more exclusive your service or product is perceived to be, the higher the price you could potentially be charging.
Sometimes price is negotiable
We also recognise that the price point where we position our product or service must exceed our costs by a certain margin that allows us to make a sustainable profit. Sometimes, we will be willing to negotiate and will agree to vary our prices based on the volume of an order or on the terms of payment of the customer. And there will be times when we run promotions on certain items, and will discount our prices.
Increasing your profit
We're in business to make money. In broad terms, there are 3 ways of increasing profit in your business.
i) increase the volume of your sales (up-selling, cross-selling, improve your marketing and sales conversion)
ii) reduce your operating costs (negotiate better rates from suppliers)
iii) raise your prices, thereby increasing the profit margin per sale (being careful to assess effects on sales volume)
But before making any decision to change your prices, what else should you consider?
An interview with a pricing expert ...
Secondly, where possible, I recommend to my clients that they always try to offer customers three choices. If you give the customer one choice, you've got a 50:50 chance of closing the sale. If you give customers two choices, you are putting them in a position where they have to make a price-based decision. But when you give the customer three choices, two things happen. Firstly, they start thinking to themselves "which one do I buy?" (not, should I buy from this vendor?), and secondly, you're now asking them to make a value-based decision.
Thanks for your thoughts and tips on pricing, Jon.
There's no doubt that small business can't compete with larger businesses on price alone - because of their advantage with volume, their costs will be lower. So it is essential to look creatively for opportunities to "add extra value" to the experience of the customer if we're going to succeed in building customer loyalty. Of course, if you can also build brand awareness within your local community, this will provide your business with some protection in the event of a "price war" erupting in the wider market.
Brian Carroll is the founder of Performance Development, a corporate training company in Melbourne, Australia. He is a qualified psychologist, experienced management coach and an engaging presenter, with a passion for helping people develop their full capabilities. You can find out more about Brian at his Google + profile