Increase Your Prices by Packaging Value

by Dr Greg Chapman, MBA

In any buying decision, this is question that must be answered by the buyer: “Is the product or service worth it?” Or more generally, is the offer made by the seller is equal to the dollars that they are asking for it.

Let’s take a simple example, water. If you wanted a drink of water, and you went to a pub, and they served you water from a tap, what would you expect to pay? It would probably be free. If you went to a kiosk, you could buy bottled ‘mineral water’ in a basic plastic bottle, and it might be $2-3.

If you were at a boutique restaurant, you might be able to get water from the Greenland icecap, presented in a special designer bottle with a stunning label, a bottle that you would like to take home as a souvenir. It might cost you $87.

It is still just water. Only a chemist, with certainty, could tell the difference between the three by measuring the levels of trace minerals in them, (although the tap water may be obvious if it has a lot of chlorine in it).

Is the water from Greenland worth it? Sure there is cost to get it from Greenland to the restaurant in Australia, but the cost of the water, the packaging and delivery might be $10 with bulk production, compared with $0.50 for the bottled Australian mineral water production and delivery. You also have to pay for the restaurant’s overheads, but they usually provide water free anyway. Even if you could you really tell the difference between this water and the water from an Australian mineral spring, how can it be worth $85 more?

So why would people pay for $87 for a bottle of the Greenland icecap water? This water could not even be considered rare, since the Greenland icecaps are 3km thick and contain enough water to raise global sea levels by 100m, but it is novel and ties into the quest by some people for the natural and unusual. It would be for the ‘experience’. To be able to say that they have tasted it to their friends. They have the beautiful bottle on display at home as proof and an opportunity to recount the experience to whomever will listen. Perhaps to impress their guests. There may have been other reasons, but I bet it wasn’t because they were thirsty.

Do you think they would have paid $87 for the water if it came out of the restaurant’s kitchen in a plastic cup? Of course the waiter would have treated opening this bottle in the same way as an expensive bottle of wine, and it would be served in beautiful crystal water glasses. The waiter would have poured it reverently, stepped back while you tasted it, and nodded your satisfaction. In this process, the waiter is acknowledging your good taste and sophistication. This would have all been part of the experience— and the packaging!

While packaging is one of the most common ways to increase prices of a product, it also applies to services. You can either sell your time by the hour or package it and sell the value of your service, at a higher rate. To do this however, you must change your service so it can be offered as a package.

[This is an excerpt from Issue 106 of the Small Business Achiever – Business Owner Brief where strategies for packing your products and services are explained in detail. The Small Business Achiever is your Unfair Business Advantage, where all the steps are revealed.]

May Your Business Be – As You Plan It!

Dr Greg Chapman

Over to You. What do You Think? Post Your Comments Below.

Dr Greg Chapman is the Director of Empower Business Solutions and The Australian Business Coaching Club and is Australia's Leading Advisor on Emerging Businesses and provides Coaching and Consulting advice to Australian Small Business Owners in Marketing & Business Strategies Planning & Systems. He is also the author of The Five Pillars of Guaranteed Business Success.

Share This Article: Increase Your Prices by Packaging Value

To send this article to a Friend, click here

Share this article with your online social network when you click on the links below.

del.icio.us * Digg it *Furl * Netscape * Yahoo MyWeb *StumbleUpon * Google * Technorati * BlinkList * Newsvine *ma.gnolia * reddit * Windows Live * Tailrank * Slashdot

The Australian Small Business Blog

Buying and Selling on Price

by Dr Greg Chapman, MBA

All businesses should endeavour to create points of differences for their product or service, but what about if you are selling an undifferentiated product, something that is truly a commodity, such as petrol or even bottles of Coca Cola (which of itself is not a commodity, but you will get exactly the same product whether it’s from a milk bar or supermarket, here or across the country). Businesses that sell commodity products tend to sell with price as a point of difference.

There are two things that influence this:

• geographical location (convenience and cost of supply), and
• buyer knowledge of the market place.

Taking the first point, geography, this is about how far you are prepared to chase a bargain. You might drive across town to save $100 on a refrigerator, but would you do the same for a $1 saving on a six pack of Coke? Probably not. Economists call this the cost of shoe leather- this distance and effort you would give in time and money to achieve that saving.

What does this mean for your business? When setting commodity pricing, you only need to survey your competitors in your ‘economic’ neighbourhood.

The second factor influencing this is the buyer knowledge of your price difference. If they don’t know about it, they will not find you and may pay more than they should. This is why petrol stations have massive signs proclaiming their prices. Which brings me to the latest government efforts to increase consumer knowledge of prices. Will this really help small business and give lower prices to consumers?

First of all there is FuelWatch currently only operating in WA. Most motorists when they are low on fuel, like to fill up while they are already in their car on some other errand, rather than make a special trip. Generally this means they may pass half a dozen petrol stations (depending on the length of the trip) and will be able to see variations in price on station signage, and would be able to determine a good price for that part of their city at the time they are wishing to fill.

Service stations are highly competitive changing their prices several times a day. Can you think of any other product where that happens? The station owner will opportunistically drop their prices if their sales are low, and increase them when it is high. This is exactly how a good market should operate. By enforcing the price changes once per day, the motorist will be the loser. I would also expect that the independents will lose, as they are the most nimble. This will ultimately see a loss of competition- the opposite of what the government is trying to achieve.

The other scheme introduced by the government is GroceryChoice. In this scheme, the results that are reported are a month old, while grocery prices change at least weekly. (At least FuelWatch reported daily.) Also the baskets used are not transparent, so you have no idea whether this represents what you would buy. So consumers will ignore this, and still look to newspapers to see where the best prices are every week.

At one level, you might argue that this is a largely harmless waste of taxpayer funds, but there is a more ominous side. While people will not use this site much, when they do it will re-enforce the supermarket duopoly between Coles and Woolworths (Safeway). These two chains monitor their competition’s prices very closely. The website results prove this with only cents different between the two.

Where there is a significant difference is between the big chains and the independents whose prices are higher. Now there will be independents that are cheaper for some things than the big two, but because there are so many of them, the government has lumped them all together. However, from the consumer perspective, it ‘proves’ that they are cheaper than the independents. No wonder Coles and Woolworths love this! Once again, by interfering in the market, the government will drive the independents out and lessen competition, resulting in higher prices.

If businesses are selling commodities, and selling on price, advertising that fact is important, but when governments involve themselves in the marketplace to fix something that is not broken, casualties are inevitable and ultimately consumers and small business owners are the losers.

Dr Greg Chapman

Over to You. What do You Think? Post Your Comments Below.

Dr Greg Chapman is the Director of Empower Business Solutions and The Australian Business Coaching Club and is Australia's Leading Advisor on Emerging Businesses and provides Coaching and Consulting advice to Australian Small Business Owners in Marketing & Business Strategies Planning & Systems. He is also the author of The Five Pillars of Guaranteed Business Success.

Share This Article: Buying and Selling on Price

To send this article to a Friend, click here

Share this article with your online social network when you click on the links below.

del.icio.us * Digg it *Furl * Netscape * Yahoo MyWeb *StumbleUpon * Google * Technorati * BlinkList * Newsvine *ma.gnolia * reddit * Windows Live * Tailrank * Slashdot

The Australian Small Business Blog

Why You Should Increase Your Prices & Why Most Owners Won’t

by Dr Greg Chapman, MBA

Before I answer this, try answering the following question:

Why are You in Business?

People give all sorts of reasons. Often they refer to some higher purpose, such as helping people in some way or providing for some personal lifestyle needs. This is all very well and good, but all these objectives will be compromised if the one overriding purpose of any business is not met- that is to make a profit!

Why is making a profit so important? If you are not making a profit, you are just breaking even, or more likely, making a loss. (Even when owners believe they are making a profit, they often aren’t as they have not considered the sustainability of their business.)

If your business is losing money, your energies and resources for any other purpose will be drained. You can’t continue helping people if you are going out of business. Likewise, if your lifestyle business is making a loss, it won’t be a very happy lifestyle. So if your business is unprofitable, the chances are very small that you will achieve other objectives through your business.

So let’s agree that making a profit is the prime purpose of your business. What then are your options to make your business more profitable? You can:

1. Reduce your Costs
2. Increase your Sales

Pretty basic really. Lets look at the first – decreasing costs. This is a limited strategy as at some point, you will compromise your sales. Whereas, increasing your sales is a no limit strategy.
There are five strategies you can use to increase your sales. These are the Five Turnover Drivers:

• Increasing Enquiries
• Increasing Conversions to Sales
• Increasing the Average Value per Sale
• Increasing the Number of Times Someone Buys from You, and
• Increasing Your Prices

Good businesses will focus on all five turnover drivers, but the one most find hardest to implement is to increase their prices. Let’s look at why people don’t increase their prices.
When setting prices, businesses look at what their competitors are charging. If they charge too much, they know they will lose business because their competitors are cheaper. But…

Are these businesses really your competition?

Regular subscribers to the Small Business Achiever - Business Owner Brief will already know who their competitors are. (Issue 101 – Standing Out with Your Points of Difference). If the people who you are comparing yourself with are not your true competitors, why should they influence your prices?

In Issue 102 of the Small Business Achiever I explain the fundamentals of how to increase your prices so that the fear of business loss will no longer trap you in the price taker role in which most businesses languish. In fact, this strategy will transform your business!

In Issue 102 of the Small Business Achiever - Business Owner Brief find out:

The Easiest Way to Increase Your Prices

How to Start Getting Your Business Organised

Being Found on the Internet - Paid vs 'Free' Search

Get step-by-step advice that will improve your business every month.

May Your Business be as You Plan It!

Dr Greg Chapman

Over to You. What do You Think? Post Your Comments Below.

Dr Greg Chapman is the Director of Empower Business Solutions and The Australian Business Coaching Club and is Australia's Leading Advisor on Emerging Businesses and provides Coaching and Consulting advice to Australian Small Business Owners in Marketing & Business Strategies Planning & Systems. He is also the author of The Five Pillars of Guaranteed Business Success.

Share This Article: Why You Should Increase Your Prices & Why Most Owners Won’t

To send this article to a Friend, click here

Share this article with your online social network when you click on the links below.

del.icio.us * Digg it *Furl * Netscape * Yahoo MyWeb *StumbleUpon * Google * Technorati * BlinkList * Newsvine *ma.gnolia * reddit * Windows Live * Tailrank * Slashdot

The Australian Small Business Blog

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