PRICING STRATEGIES FOR SMALL BUSINESS
Andrew Gregson, BA, MA, MSc (ECON)
Self-Counsel Press
(a division of)
International Self-Counsel Press Ltd.
USA Canada
Copyright © 2012
International Self-Counsel Press
All rights reserved.
Introduction
How to Get the Most from This Book
I have written this book as a journey that seeks to explore the nooks and crannies of pricing, since it is a matter of great concern for small businesses. As such, it is long and involved.
If you have the leisure to read this book from page one to the appendices, then good for you. If, as I expect, you need to prepare a price for a customer tomorrow morning and want an answer now, then the outlines below will serve their purpose.
Although I would not normally recommend reading a book in reverse order, I believe there are instances where that is necessary — when an answer is needed tomorrow and reading the entire book and absorbing all its content is not possible.
Where to Begin If You Need to Solve a Pricing Problem Tomorrow Morning
• First, read Chapter 10, “Diagnosis and Prescription: What Should I Do to Fix My Pricing?”
• Read Chapter 9 on “Financial Analysis” and Knowing Your Real Costs.
Next, choose your industry.
If you are a contractor:
• Read “Estimating Solutions” in Chapter 3, page 22 and “DIY (Do It Yourself) Estimating,” page 24.
• Read “5 Business Wreckers” in Chapter 3, page 36.
• Read “Risk and Return” in Chapter 3, page 31.
• Read Chapter 4 “Positioning for Price: The Role of the Unique Selling Proposition.”
• Read “Contracting: A Recommended Strategy for Finding the Customer’s Buying Price” in Chapter 5, page 56.
• Read about “Reference Prices” and “Gain Loss Framing” in Chapter 5, pages 64 and 69.
• Read “Nine Guidelines Presenting your Price” in Chapter 7, page 104.
• Read about “Bundling and Unbundling” in Chapter 7, page 108.
• Read “The Winner’s Curse” in Chapter 7, page 110.
• Read Chapter 7 on “Learning to Lose a Percentage of Sales,” page 109.
If you are in retailing:
• Read Chapter 4, “Positioning for Price: The Role of the Unique Selling Proposition.”
• Read “Know Your Costs” in Chapter 6, page 77.
• Read “Retailing: Testing the Water” in Chapter 5, page 56.
• Read about “Selling Best, Better, Good” in Chapter 7, page 112.
• Read “Meeting the Price Objection” in Chapter 7, page 86.
• Read about “Bundling and Unbundling” in Chapter 7, page 108.
• Read about “Reference Prices” and “Gain Loss Framing” in Chapter 5, pages 64 and 69.
If you are in a service business:
• Read Chapter 4, “Positioning for Price: The Role of the Unique Selling Proposition.”
• Read “Nine Guidelines for Presenting your Price” in Chapter 7, page 104.
• Read Chapter 7 on “Bundling and Unbundling,” page 108.
• Read about “Reference Prices” and “Gain Loss Framing” in Chapter 5, pages 64 and 69.
If you are a manufacturer:
• Read all of Chapter 8, “Pricing Models.”
• Read “Pricing Down from Value versus Pricing Up from Cost” in Chapter 5, page 54.
• Read Chapter 4, “Positioning for Price: The Role of the Unique Selling Proposition.”
When you have overcome your immediate problems, then the entirety of Chapter 5 on “Value Pricing” is designed to expose you to the most current thinking about how to offer value in your pricing. If you have constructed a solid company with the basics outlined in the financial chapters, value pricing will make your company truly profitable and valuable.
1
Why Is Pricing Important?
The purpose of this book is to help small businesses with a neglected and vexing business problem: how to get prices right. They should be high enough so that the business makes a profit and yet low enough to keep customers coming through the door.
This is a neglected issue since most publications on this topic are for scholarly consumption, but judging by the current flurry of articles and books, pricing is becoming the next big business topic. Most of the books and articles I read for my research on pricing methods are struggling to find a framework for a new pricing “system.”
This is also a neglected topic since most publications are directed at big businesses and draw most of their examples from huge corporations. There may be similarities in pricing logic between General Electric and the corner shop selling used clothing, but the similarities do not immediately rush out and take you by the hand.
Pricing is a vexing subject. Have you ever had customers respond badly to your pricing structure? Having a customer walk out or outright declare that your price is a “rip-off” is a horribly discouraging experience typically accompanied by a sick feeling in the pit of your stomach.
How do you get the pricing right, while in most markets there is competition from big-box giants like Wal-Mart or from chains bringing in Chinese-made goods, reducing your most profitable lines to a commodity that is bought and sold on the world stage based on price and nothing else?
“All too frequently, executives will complain about price problems and price pressures, but are these are rarely mere pricing
problems. They usually deal with communication, branding, image, product, distribution, service excellence, segmentation, and other ill-conceived, ignored or poorly executed functions of a marketing strategy that isn’t focused on value.”[1]
When you are finished reading this book, you will have a working knowledge of many different pricing mechanisms. Moreover, you will have the tools to examine your own business to enable you to measure the impact of a new pricing scheme. But best of all, you will have many pricing options to choose from, options that will help you to set prices so that your business will clobber the competition.
When I began preparing this book for publication, I began with my consulting experience for small companies that had not yet got the basics right. For the most part my clients didn’t grasp their real costs. Bidding on a job was something that happened on some distant planet in their imaginations,