Pricing Strategies for Small Business

by Andrew Gregson

Overview

Small business owners are frequently faced with challenging pricing dilemmas. Should you give Bob a better deal than Joe? Should you jack up your prices in one big jump, or frequently in smaller increments? If you raise prices by $1.00, will you make more money, or will you lose money because customers will go elsewhere? Pricing can make or break a small business.

Product Details

ISBN-13:	9781770407428
Publisher:	Self-Counsel Press, Inc.
Publication date:	04/15/2012
Series:	101 for Small Business Series
Sold by:	Barnes & Noble
Format:	eBook
Pages:	180
File size:	4 MB

About the Author

Andrew Gregson has an M.Sc. in Economics. He has 26 years’ business experience as a senior manager, consultant, and business owner and he has worked in the wholesale, distribution, manufacturing, and service sectors.

Table of Contents

CONTENTS 101 SMALL BUSINESS for INTRODUCTION xv 1 WHY IS PRICING IMPORTANT? 1 2 HOW TO KNOW IF YOUR PRICES ARE ALRIGHT 4 Is Price Just a Number? 5 What Makes Pricing Successful? 5 How Do You Know That Your Pricing Is Not Right? 11 Summary 13 3 TYPICAL PRICING METHODS IN USE TODAY 15 Classical Economics and Ye Olde Supply and Demand Curves 15 Where to begin? Follow the Crowd! 19 WAG, SWAG and STICK Methods 20 Estimating Solutions 22 DIY (Do it Yourself) Estimating 24 The Trap of Customer-Driven Pricing 26 vi Pricing strategies for small business The Un-Trap of Customer Driven Pricing 27 Myth Busting: Market Share 29 Creating a Benchmark — Cost of Doing Business Surveys 30 Risk and Return 31 5 Business Wreckers 36 Summary 36 4 POSITIONING FOR PRICE: THE ROLE OF THE UNIQUE SELLING PROPOSITION 38 What is a Unique Selling Proposition (USP)? 38 How to Develop a Unique Selling Proposition 40 Franchises 47 Perceived Value 48 Who Is Your Customer? 48 So What, You Say? 49 Think Like a Customer 50 Summary 52 5 VALUE-DRIVEN PRICING 54 Pricing Down from Value versus Pricing Up from Cost 54 Contracting: A Recommended Strategy for Finding the Customer’s Buying Price 56 Retailing: Testing the water 56 Consulting 59 Service Businesses 61 Selling Industrially or Working with a Professional Buyer 62 Distributing 62 Customer Behavior and Perceived Value 63 Reference Prices 64 Perceived Fairness 67 Gain-Loss Framing 69 Pricing on Purpose: Applying Value Pricing 71 Summary 72 Contents vii 6 COST-DRIVEN PRICING STRATEGIES 73 Cost Approach Strategies 74 Know Your Costs 77 What Happens in a Strong Market? 81 Summary 84 7 MARKETING AND SALES: WHERE YOUR PRICING DECISIONS BECOME REALITY 85 Captive Product: Finding Value in Linked Products and Services 85 Meeting the Price Objection 86 Sales and Promotional Pricing 90 Price Discrimination 95 On Customer Behavior 98 On Keeping Customers 100 Sales Training 101 Nine Guidelines for Presenting Your Price 104 The Value of Persistence 106 Pocket Price Banding 107 Bundling and Unbundling 108 Learning to Lose a Percentage of Sales 109 The Winner’s Curse 110 And What of That Feeling That You May Have Left Money on the Table? 111 Selling Best, Better, Good 112 Using the Price Structure to Motivate Sales Staff 114 Responding to a Price War 115 Summary 116 8 PRICING MODELS 117 Influence of Capacity Utilisation 118 New Product Introduction 120 Market Skimming 121 Penetration Pricing 123 Neutral Pricing 125 viii Pricing strategies for small business Activity-Based Costing (ABC) and Pricing 125 Marginal Cost Pricing 127 Summary 131 9 FINANCIAL ANALYSIS 132 Know Your Real Costs: Labor 133 Know Your Real Costs: Product 134 Know Your Real Costs: Overheads 135 Know Your Real Costs: Debt 136 Know Your Real Costs: Transaction Costs 137 The Impact of Discounting Prices 138 Goal Setting From the Top 142 Summary 147 10 DIAGNOSIS AND PRESCRIPTION: WHAT SHOULD I DO TO FIX MY PRICING? 148 Where Are You Not Paying Attention? 150 What Are You Giving Away for Free in Your Product That is Not Reflected in Your Prices? 152 Examine Your Customer Base. Do You Know What Your Customer Wants? 154 What Need Are You Satisfying for Which You Are Not Charging? 154 Check your Unique Selling Proposition 154 Test the Waters 155 Train Your Staff 155 Test Different Pricing Strategies 156 Going from Analysis to Action: Implementing a Price Increase 157 Summary 160 11 TRUE LIFE BUSINESS SCENARIOS: THE CASE STUDIES 161 Paying Attention to Pricing — Examples from Other Companies 161 Contents ix Case Study Pocket Price Banding — Castle Battery 163 Case Study GENERIC Truck and Diesel Ltd. “Resetting the Clock” 168 Summary 173 APPENDICES I CALCULATING GROSS MARGIN VS. MARKUP 175 II FIXED AND VARIABLE COSTS 177 III ANALYZING YOUR FINANCIAL STATEMENTS 180 IV CALCULATING RETURN ON INVESTMENT 182 V CALCULATING LABOR COSTS 185 VI CALCULATING THE BREAKEVEN 187 VII CALCULATING HOW MANY EXTRA SALES ARE NEEDED TO OFFSET A PRICE DECREASE 190 VIII READING LIST 195 IX WEBSITES 198