At What Price?

by Dr Greg Chapman, MBA

When marketing a product or service, businesses find it difficult to set their prices. Too high, and no-one will buy, too low, everyone will buy, but you will go broke. So how do you set your prices?

The basic principle of pricing is that you should set your prices as high as the market will allow. But what does that mean? (You may not decide to do this for other marketing reasons such as trying to buy customers, or offering an introductory price to encourage people to try a new product or service. But this should be a conscious strategic decision.)

When setting their prices, the single biggest mistake that businesses make is not to understand the value they offer compared with their competitors. So you must understand why your product is better than everyone else’s.

Is it stronger? Does it last longer? Is it better designed? Does it look better? If it is a service, what are the superior results you provide? What is the value of such differences to the buyer?

If it is a commodity, then what else are you offering? For example, you can get a $2 chocolate snack bar at the service station as you are filling your car. You know you could probably get the exact same bar for 25% less at the supermarket, but you will have to make a special stop, and then you will have to wait in a queue. Its just not worth the 50 cents you will save. You are prepared to pay 50 cents for the convenience of buying the bar now. But if the bar was $5, would you buy it? Well you might if you knew that this service station was the only retail store for 200 miles!

Economists call this decision making “the cost of shoe leather” which is the amount of effort you are prepared to make to find a saving on your purchase.

When you understand the value of what you provide compared with your competitors, and that includes substitutes for your product or service, you can then better set your prices.

So if you product lasts twice as long, could you charge twice as much? Well consider the inconvenience factor of the replacement. If the item was socks, the inconvenience factor might be quite low. But if it was a special valve inside a jet engine, the replacement cost of which was many times the value of the valve, you could probably charge considerably more for the valve than twice the cost of a valve that lasts half as long, particularly if you guaranteed its lifetime.

So the value of the product has little to do with the cost of production or service. It is the value of the product to the buyer. But it is not enough for you to know the value of the product or service to the buyer. The buyer has to know as well. But it is surprising how often that a buyer really doesn’t understand the full value of what they may be buying.

If the buyer does not understand the value of what they are buying, they won’t pay what it is worth. If they don’t know there is not another retail store for 200 miles, they are unlikely to pay $5 for that snack bar. And the jet engine manufacturer may not understand the maintenance cost implications of a lower quality valve to the end user.

When you know what your product is truly worth, and you have educated the buyer of its value, you will be able to set prices that reflect that value.

If you don’t understand your value, you will forever be just another commodity seller competing on price.

If you would like to post a comment on this article, please click on the Comments link below.

Dr Greg Chapman is the Director of Empower Business Solutions and The Australian Business Coaching Club and is a Business Coach and provides Coaching and Consulting advice to Australian Small Business Owners in Marketing & Business Strategies Planning & Systems.

The Australian Small Business Blog

Diary of a New Business- 6. Getting the Marketing Right

by Dr Greg Chapman, MBA

As in any new business, the marketing was critical. It doesn’t matter how good your product or service is, if no one knows about it, you have no business. The idea of if you build it, they will come, is just the stuff of movies. Especially on the internet.

For the Australian Business Coaching Club, being an online business, eMarketing was critical. But not enough on its own. However, I also had an advantage- the pre-existing marketing infrastructure of Empower Business Solutions, the parent of the Australian Business Coaching Club.

But, before anything else I had to understand my target market.

Empower Business Solutions target market was for small businesses with a profit of greater than $100,000 but with fewer than 50 employees. The market for the new Australian Business Coaching Club would be for businesses smaller than the target market for Empower Business Solutions. And I was aware that many people on my Empower Business Solutions mailing list were already in that category. These were people ideally suited for the new business, but not ready for my existing business.

The Australian Business Coaching Club was not designed for start-ups, although they would benefit. It was designed for the micro-businesses. The solopreneur, and one-man bands. Businesses that had already started, had some history, but were struggling on what they should do for their next phase of growth. They were also unable to afford private coaching. I was already attracting many of these leads to my existing website, just due to its prominence in the search engine listings. But this business would need its own, far more focused campaigns.

Step two was to develop a website more in keeping with making an online sale to my target market. On the Empower Business Solutions website, the marketing process was to establish sufficient online credibility and a call to action that would ultimately result in an offline contact, and an offline sale. For the Australian Business Coaching Club website, the whole sales process was to be online.

When you compare the two websites, you can see a totally different marketing philosophy. On the new website, you can see, firstly, it is targeted specifically for the micro-business owner. This site would not appeal to my ideal Empower Business Solutions client. Secondly, the website copy is far more sales focused. It also has more web technology driving the website- a far higher level of automation, as is essential for a lower cost service- but more on that in another posting.

Getting the website right was critical for the business. As it was going to succeed or fail due to its web presence, I devoted a very significant amount of resources to its development. As well as the marketing technology, what is also not visible to the visitor, is the service delivery- the members area- again, watch out for a future posting for more on that.

So the critical success factor for this website was its ability to make online sales.

The copy was important, as was the follow-up strategy, as most people would not make a decision to buy from an initial visit to the site. So the website was designed so that contact could be maintained after the initial visit until they were either ready to join, or unsubscribed.

But this was still not enough. I had to have a strategy to generate traffic leads for the website.

If you are building a website have you worked out your eMarketing Strategy?

The next article in The Diary of a New Business will be: Generating Leads.

If you would like to post a comment on this article, please click on the Comments link below.

Dr Greg Chapman is the Director of Empower Business Solutions and The Australian Business Coaching Club and is a Business Coach and provides Coaching and Consulting advice to Australian Small Business Owners in Marketing & Business Strategies Planning & Systems.

The Australian Small Business Blog

What Will You Decide When It Really Matters?

by Ben Angel

When it comes to business, it isn't always easy, in fact it can be outright hard, excrutiating and hmmmm, maybe just a tad stressful at times.

But do you have what it takes to keep going no matter what and remain focused on your final outcome? I personally was given one of the greatest challenges of my life only a year ago.

My father, aged 52 was confirmed of having a 4cm brain tumour. Within a month of discovering this news, he had had an operation and was given three months to live. He passed away four weeks later.

Not only my role model and a successful businessman, I was just not prepared to lose my father yet. Being 24 years old, I was still expecting a lot more guidance from a man that has always been like a rock in my life.

Never having had a loved one pass away before, the pain and trauma this caused was great and the challenge was upon me to get a fledgling business on its feet (http://www.nationwidenetworking.com.au/) and see it go fourth into it's second year with strength and direction.

Now heading into the third year, I can safely say that I made it through the past year relatively unscathed.

So how exactly does someone who is facing possibly the greatest challenge in their life keep a business going and in fact growing against the odds?

Support! Support! Support!

Never underestimate the assistance of family, friends and business colleagues when it comes to taking your business to the next level.

Don't sit in silence, if you're stuck, you're stuck!

It's time to bring in outside help, I certainly did and I know that if I didn't I would have spiralled out of control sinking in my own silence.

This support may simply come in the form of a coffee with another business owner to share your challenges and discuss possible ways forward.

Your business colleagues are your friends and we all at one time or another must rely on each other to shine the light on our dark moments and highlight the path forward.

It is this path forward that represents the greatest opportunity for personal growth.

Now I hear business owners all the time whinging that they don't have the cashflow, don't have enough clients or aren't meeting the right people.

Stop putting your energy into whinning about your short comings and start directing your energy where it matters, the way forward! The past is in the past, look back and smile and recognise the lessons you've gained along the way but don't repeat what's already happened by bringing the past into the present moment.

You see, I had a choice when my father passed away and it was as clear as it is day. I either sit around mope and become depressed or I focus on getting the most out my of life. When the choice is that black and white it suddenly becomes simple, focus on what you want.

I've had bad days, hell I've even had bad months but I always ensured I kept pushing myself forward even when I was ready to give up.

It's important to recognise that you are a student of life, you're not always going to get it right, you're not always going to get an A+ in business but what you will get out of it at the end of the day is the satisfaction that you gave it all you could when it really mattered.

Are you in the position now where it really matters?

Now it's time for you to make your decision in black and white, you either go forward whinging about your current situation or you pick yourself up out of the gutter and go forward moulding your life to how you want it just as if it were clay in your hands.

The choice is yours!

What will you decide when it really matters?

Ben Angel is the Director & Founder of Nationwide Networking.

The Australian Small Business Blog