With few exceptions, most businesses use an outdated approach to pricing their goods and services. Whether they sell manufactured items, wholesale or retail or even provide financing, the conventional wisdom surrounding pricing was created in the late sixties and early seventies – a time when profit was evil.
The conventional wisdom is built upon following the lemmings, built on fear that customers will leave you if you charge too much, built on ideas that you can buy market share by being the low cost provider, built on notions that need to be swept away.
What is that conventional wisdom that stifles innovation in pricing? It has many faces like strict adherence to a notional margin number; like cost plus pricing; like customers buy on price considerations only. Successful companies are finding ways to break that mold.
Just look at the banks. They have done a terrific job of convincing us that the interest rate is the sole criterion for choosing a lender. But I can tell you that there are other considerations like the term, amortisation period, balloon payments, fees and renewals.
The point of this discourse is to convince you to take an innovative look at your pricing strategy. You have been to sales training, correct? And you have paid attention to doing the job right, the first time? Well sales and marketing are the promise to the customer. Operations is the delivery of that promise. But pricing makes or breaks a bottom line.
What would happen if you could be the price leader and charge 25% more than your competitors? I know… Your first thought is that all your customers will head for the nearest exit. If that is your issue then you need to invest in your branding. Apple conducted an experiment that showed that if they raised their prices, only 20% of their customers would leave. Burberry, maker of luxury overcoats did the same and doubled their prices deliberately in order to lose 20% of their customers.
But what if you could keep your pricing more or less the same and double your bottom line tomorrow by innovative use of pricing strategies?