Warren Buffett, the billionaire chief executive officer of Berkshire Hathaway Inc., said he rates businesses on their ability to raise prices and sometimes doesn’t even consider the people in charge.
“The single most important decision in evaluating a business is pricing power,” Buffett told the Financial Crisis Inquiry Commission in an interview released by the panel…. “If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. And if you have to have a prayer session before raising the price by 10 percent, then you’ve got a terrible business.”
How does this aphorism help your business? And what can you do to help yourself?
Warren Buffet has bought significant shares in companies like the railways in the US and Coca Cola – businesses far bigger and with more market power than Bill’s Hardware Store. But they all began somewhere and the lessons they learned can be used by you to build a better business – a business with more profit and a higher selling price when the time comes to retire.
Most businesses never take the time to understand their customers. They are just grateful to get an order or a contract. Why not ask them why they chose you? Is it your prices, your snazzy trucks or reputation for quality work? Years ago, a firm decided with some trepidation, to do just that. They asked and expected that price would be the number one reason customers bought from them. In fact, price was well down the list, opening the door to marketing initiatives they would never have considered before.
USP. When you understand why your customers buy from you, it is time to massage that down to 25 words or less that can become your main adverting angle. Your Unique Selling Proposition (USP) shouts the answer to the questions, “why should I buy from you?” and “what’s in it for me?” When you have a good USP, it will paint a picture in your potential customers’ mind of a great business that is working hard to meet their desires. And, adding your USP to every piece of advertising or marketing material costs you nothing extra yet this will have an incredibly profound impact on your bottom line.
Value Pricing is the next step. When you can paint a picture of what your customer desires, it is time to look at what part of your pricing programme can be adjusted. This is not a simple as it sounds.
If you are selling something where everyone knows the price, like crude copper, say; what is the value proposition in dealing with your company? Is it the payment terms? Free delivery? Just in Time delivery? The sexiest sales staff? Are you pricing for delivery times but your customer wants damage free deliveries?
So there you have a 3 step programme to improve your business. Quiz your customers to find out why they buy from you and not your competitors. Distill that knowledge into an elevator pitch and use that “motto” on all your advertising, invoices and marketing materials. Finally, price for the value that you generate and your customers told you is number one.