| How much should you charge for your products and | | | | long-run - as you can see when you drive by |
| services? | | | | furniture and clothing stores with "going out of |
| Well ... it depends! | | | | business sale" or restaurants with "under new |
| If you are Walmart, and you can squeeze every last | | | | management" signs! |
| penny of profit out of your suppliers, you can be the | | | | Revenue maximization pricing may sound good, but |
| "everyday low price" leader. If your name isn't | | | | you are probably buying fools gold for your business. |
| Walton, then that pricing strategy probably isn't the | | | | Ouch! Is there a pricing solution? |
| best strategy for you and your business. | | | | The third pricing strategy is value-based pricing. |
| Let's start with pricing strategy number one - | | | | You know your costs. You know your competition. |
| survival-based pricing. What's your price when you | | | | You know your market. |
| are in survival mode? It's whatever price you can get | | | | Most importantly, you understand the value of your |
| for your widget or your time. | | | | products and services and can translate that value |
| How do we get stuck in survival-based pricing? | | | | into benefits desired by your focused target market. |
| First, we don't really understand our own costs. | | | | One of our favorite clients runs a services business. |
| Second, we look at our competition and "assume" | | | | The competition for this service runs from $40 per |
| they know what they are doing, so we set our | | | | service to as much as $200 per service. What's our |
| prices just a little bit below their prices. | | | | price point? $125! Why? |
| After a few months of this, we realize we're not | | | | We know our costs - cold! We know our competition |
| making any money. We scratch our head wondering | | | | - inside and out - on both ends of the pricing |
| how our competition makes money at that price, so | | | | spectrum. We also know our target market - and |
| we try to raise our prices to finally make money, or | | | | what loyal customers will consistently pay. |
| lower our prices to get more sales. | | | | We're not interested in $40 clients and don't need to |
| The irony is your competition probably isn't making a | | | | fight for the high-end at $200 per visit. We simply |
| profit either, so all you have done is confuse the | | | | own the market for the $125 market - the |
| market by reinforcing that the price was right. | | | | customers who will utilize our services over and over |
| Survival-based pricing isn't where you want to be - so | | | | and over again - while telling their friends how much |
| get out of that space now! | | | | they love us! |
| The second pricing strategy is revenue maximization | | | | How did we do this? |
| pricing. | | | | We know our target market. We engineered our |
| In this case, you do know your costs. You do know | | | | products and services. We know every aspect of |
| more about your competition. You are clear on your | | | | our fixed and variable costs. We have deep insights |
| objective - gain market share. | | | | into our competition. |
| So, you consciously (rather than unconsciously in | | | | Finally, we can translate the value of our products |
| survival-based pricing) set your prices to beat the | | | | and services into the benefits realized by our clients. |
| competition by stealing their customers by offering a | | | | What's the impact of value-based pricing? |
| "sale." | | | | Profit Optimization - where we achieve the highest |
| You may be losing a nickel on every sale, but you | | | | level of profitability from both a percentage of |
| are confident you can make it up in volume! | | | | revenue and a total dollars perspective. |
| There is a time and a place for revenue maximization | | | | When will you start Optimizing Your Profits With |
| pricing, but it is a short-run strategy at best. There is | | | | Value-Based Pricing? |
| a high price to pay with this pricing strategy in the | | | | |