With few exceptions, most businesses use an outdated approach to pricing their goods and services.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?

ESTIMATING: Do you WAG, SWAG or use a Stick?

Originally published by Cast Polymer Connection, Fall 2017.

In so many small businesses goods and services are priced based on guesswork – WAG method (the Wild Ass Guess) or add just a few numbers for SWAG (a Scientific Wild Ass Guess). Perhaps you use the STICK method where every stick and nail is costed out? Why don’t they work – and why do the always result in C minus profits?

WAG is an experience based method for pricing where trial and costly errors have already taken place. The assumption is that if for the past ten years, it has cost $5000 to renovate a bathroom and presumably it will always cost $5000 to renovate a bathroom. Faced with creeping labour costs or perhaps sudden spikes in the price of plumbing fixtures, this method is frequently unable to change. Faced with a new competitor in the market who is willing to undertake the same bathroom renovation for $3500, the WAG method practitioner doesn’t know what to do. There is simply too much information that must be kept in the estimator’s head to stay current and remain competitive yet profitable. Worse yet, estimators are human and tend to respond to the last comment they had from a customer. If that comment was a customer saying the price was too high, then the price on the next job will drop. If the business owner is also the estimator, then the price can reflect not value to the customer or even costs, but the threadbare state of the bank account at the time.  Sound familiar?

SWAG method, as the name implies, has some numbers to back up the experience based approach. “OK, so that job will take 4 men 5 days to complete and I pay them $20 per hour. With labour cost at $3200 I then add $3200 for materials and then $3200 for profit, that should be about it.” This rough and ready method does not take into account travel time, overhead and management costs, payroll taxes nor a fudge factor in case things go wrong. This job might actually lose money.

The STICK method is the name given to the clumsy and time consuming method of working out the costs of each and every nail, foot of strapping, 2” by 4”, pot of paint and labour to the nearest 15 minutes to arrive at a total cost. It is very time consuming. In fact, the typical delay from computer bashing can often be the deciding factor in whether or not your company gets that job.

STICK is, in fact, an adaptation of industrial manufacturing cost accounting methods to service providers and custom builders. I have seen some very elaborate spreadsheets meant to cope with the vast amount of information. The advantage to this method, having gone to the trouble of detailing every aspect of this “virtual build” is that, if and when the customer says “Okay”, you have a bill of materials and a plan for the carpenters.

The disadvantage is that, having committed so much time and effort to the quote, the price is not easily altered to reflect customer expectations. In other words, if the quote is $7000 and the customer’s budget does not extend beyond $5000, you cannot easily   find the savings to meet the value expectation. There is simply too much information on the table to alter the quote quickly. The only line item that can easily be altered is the bottom line and doing so may mean the job makes no money. What a dilemma!

What to do? Estimating Solutions

Estimating software

Increasingly there are industry related packages for estimators. Many of them utilize the power of computers and spreadsheets to manipulate large quantities of information without error. This is the STICK method on amphetamines.

The best place to look for software packages is in trade magazines and other publications. If you choose this approach to estimating systematically and correctly, it is always good practice to have a test run of the software: entering data from an existing quote to see if the numbers work. If the software is truly sophisticated, then it will also create a bill of materials for your purchaser, saving you hours of time.

Estimating books – OEM and industry service providers

Significantly, there are companies that provide estimating in a more packaged form that quickly get to the final number. The one with which I have a working familiarity (Walt Stoeppelwerth  Estimator Books and Software. Home Tech.  www.hometechonline.com) is focused on the construction trades. They have created formulae into which you plug the square feet, height over normal, number of windows and/or doors and economy, medium or fancy outcome. In a few minutes out pops a number which is then multiplied against a regional factor to arrive at a selling price. They keep track of cost differentials through regional surveys which become a factor number that you plug in to give a final price.

Similarly, the auto body industry gets from the manufacturer, books specifying how long it will take for a fender to be straightened or a side panel to be hammered out. From this it is easy to determine what your costs are going to be and to apply a markup factor. Typically, the auto body people use this information to apply standard rates and then encourage their technicians to improve upon those numbers. If they accomplish in 24 hours what the book says will take 32 hours, the price does not change but the costs do, throughput increases and everyone wins.

D.I.Y. estimating

You can Do It Yourself. If the industry you serve has no package to offer you, you can create an estimator package to standardize your costs as follows:

  1. First list all of the steps in the information gathering stage. What types of material, size, finish, and availability? List all the extras. What does your customer expect?
  2. Then list how you currently price jobs focusing on the commonly deployed steps that must be taken. Do you always begin with a site visit? Do the raw materials always have to be sandblasted first?
  3. Apply costs to each step.
  4. Apply your markup factor to get to a selling price.
  5. And now the most important step – the virtual trial run. Review using some previous jobs that worked out well and where you made money. Punch in all those numbers


All these steps would be taken by a software developer and can be incorporated into a spreadsheet programme.

With more tinkering and constant upgrades the above can be made into a comprehensive price list that covers the basics and some of the eventualities.


You will have recognized in the above example that you are looking at a variation on cost plus mark-up, pricing. Estimating software can deliver consistent if unexciting profits because the costs are known unlike WAG and SWAG.

But it leaves money on the table.

Why? Because we have lost sight of the customer in this equation by focusing on costs.

Your customer has called you to solve a problem for them. Do they want flashy but inexpensive countertops because they are putting the house on the market? Do they need new countertops because they cook regularly and have scarred the old surfaces? Are you going to build a price for these two types of customers based on cost structure alone? Just like you, all customers are not equal in expectations or ability to pay. If they were, no one would buy Rolex watches or Mercedes cars.

The answer is to value price for your customer. This is a pricing strategy and by working hand in hand with your costing solutions will be the key to improved profits.

By definition 50% of businesses in your industry are below average. The point in having a solid grasp of costs is to get everyone to the baseline. But to soar above that you need a pricing strategy that focuses on value to the buyer.

The 4 Evils of Margin-Based Pricing Strategy

Margin-based pricing sounds great in theory — it predetermines profit for a specific product by setting a definitive goal for the difference between price and cost.

Unfortunately, the reality is that margin-based pricing creates a host of potential issues for the simple reason that determining price involves many more factors than just cost. Margin-based pricing ignores these other variables, simplifying the process but weakening your results.

To give you an idea of how margin-based pricing can negatively affect your bottom line, we’ve outlined its four biggest evils.

  1. Emphasizes Costs, not Value

Margin-based pricing relies on two major variables—cost and desired markup. It disregards a third variable—the value you create for the customer. This third factor determines what your customer is willing to pay, so margin-based pricing risks one of two undesirable outcomes:

  1. You arrive at a price higher than the value you create for the customer and lose the transaction and any associated profit
  2. You arrive at a price lower than the value you create for the customer and win the transaction, but leave profit on the table

Moreover, margin-based pricing, by ultimately depending on costs, means your prices may change even when the value you deliver the customer does not change or, alternatively, keep your prices flat even when the value you create for the customer changes. Either results can produce a disconnect between your price and the value you create for the customer, ultimately putting your profits at risk.

Take a step back for a moment and consider why your customers chose your company as a vendor in the first place. Most likely, it isn’t because you’re consistently the least expensive option out there (which is a difficult position to maintain anyway). What else are you offering them? Bundle these benefits into a value communication to your customers consistently and often. Weave them into your brand’s message, and make sure customers understand they are included in the price, in addition to the tangible product-based elements of your offering.

  1. Assumes Your Customers Are Clones

Are you treating your customers like the exact same person? You shouldn’t be. When you assume the same price fits all of your customers through margin-based price management, you create three major pricing potential issues for your company:

  1. Tailored Value Propositions are impossible to create, creating a crater-sized hole in your pricing strategy.
  2. You sacrifice increased margins from customers willing to pay more due to incremental value you create for them.
  3. You run the risk of losing customers who draw the line at a specific price point.

A more profitable pricing strategy takes these scenarios into account and plans for each of them. For example, when you outline value proposition to your customers across their various buying situations, you understand that one size doesn’t fit all. Your customers exist in different markets, seek different products, and find different things appealing in different situations. Do a little research to determine what matters most to specific customers, and use this data analysis to properly segment them into groups (“pricing segments”), each with their own designated pricing strategy.

Also consider segmenting your customers into groups defined by price responsiveness. We all have customers who don’t balk at incremental price increases either out of loyalty or an accommodating budget. And we all have those customers who pinch pennies and demand answers at every tiny price increase. This is not taking advantage of the customer – it’s a practicing a subtle yet powerful form of value-based pricing.

Instead of having pricing for all customers ebb and flow with input costs, set a profitable price for each customer segment and then do your best to hold it there. Most customers will appreciate the consistency, and your team will most likely save on the resources and time that accompany negotiation around constantly-changing prices. Of course, if there are massive changes in input costs, customers will likely be aware of this and you should temper your approach in these situations accordingly.

  1. Assumes Your Products Are Clones

Margin-based pricing also has the evil tendency to lump all of your products together as it does with your customers. Many companies employing this strategy set a margin goal for huge groups or — gasp — every single one of their products.

For example, if your company carries a standard 5 pound bucket as well as a non-standard 4 pound bucket, it wouldn’t make sense for you to charge the same price for those products, even if the costs for them might basically be the same. A non-standard product in inventory immediately gives it a higher value than other similar products, and you should be passing on this premium to your customers in the form of a higher price. After all, the 4 pound bucket has a slower product velocity, and you’re creating value for your customers by keeping it on your shelves.

For effective product segmentation, start with taking stock of all of your products and their implied value to your customers. Then segment these into smaller groups and price them accordingly. To enhance your price performance for even better profits, build upon this and a customer segmentation strategy to determine effective pricing for specific products within distinctive customer groups. This can get complicated quickly, so having an intuitive and effective business analytics solution to help you juggle, organize, and properly analyze all of your data is key.

  1. Relies on Volume for Profit Improvement

The last evil on our list is narrowing focus on growth to volume alone.Businesses have five levers to improve profitability: price, cost, customer mix, product mix, and volume. Margin based pricing takes the first four out of play completely. Prices are dictated based on a set margin percent, and costs gains are immediately passed through to customers, eliminating those levers. Margins for all customers and products are set to a single rate, so you have no ability to improve customer or product mix. This leaves you with volume as the only lever to improve profitability. Why would you want to adopt a strategy that limits you to only one lever to improve performance when you could have five levers?

Moreover, businesses that focus heavily on volume to drive growth usually end up having to cut prices to reach their goal. This, in turn, often triggers price wars and put companies on a downward spiral that’s difficult to stop. By focusing solely on volume, your company relinquishes control over your profits.

Change direction by using all five profit levers — price, cost, customer mix shift, product mix shift, and volume — in tandem to find the quickest and most sustainable path to profit.

Brilliant oroginal by : Chris Sorrow June 2, 2015

A growing number of companies are using “dynamic” pricing

Schumpeter: Flexible figures.  as printed in The Economist Jan 30, 2016



A growing number of companies are using “dynamic” pricing

IF A cynic is someone who knows the price of everything and the value of nothing, as Lord Darlington observes in Oscar Wilde’s “Lady Windermere’s Fan”, then it is getting progressively harder to be a cynic. A growing number of companies keep their prices in a constant state of flux—moving them up or down in response to an ever-shifting multitude of variables.

Businesses have always offered different prices to different groups of customers. They offer “matinée specials” for afternoon cinema-goers or “happy hours” for early-evening drinkers. They offer steep discounts to students or pensioners. Some put the same product into more than one type of packaging, each marketed to a different income group.

Dynamic pricing takes all this to a new level—changing prices by the minute and sometimes tailoring them to whatever is known about the income, location and spending history of individual buyers. The practice goes back to the early 1980s when American Airlines began to vary the price of tickets to fight competition from discounters such as People’s Express. It spread to other airlines, and thence to hotels, railways and car-rental firms. But it only became the rage with the arrival of e-commerce.

The price of goods and services sold online can be varied constantly and effortlessly, in accordance with the numbers and characteristics of those making purchases, and factors such as the weather. Competitors can be monitored constantly, and their prices matched. Amazon updates its price list every ten minutes on average, based on data it is constantly collecting, according to Econsultancy, a research and consulting firm.

The practice is spreading to physical retailers, which are installing electronic price displays and borrowing pricing models from e-retailers. Kohl’s, with nearly 1,200 stores in America, now holds sales that last for hours rather than days, pinpointing the brief periods when discounts are most needed. Cintra, a Spanish infrastructure firm, has opened several toll roads in Texas that change prices every five minutes, to try to keep traffic moving at more than 50mph (80kph). Sports teams, concert organisers and even zookeepers have embraced dynamic pricing to exploit demand for hot tickets and stimulate appetite for unwanted ones.

The dynamic-pricing revolution provides plenty of benefits for businesses. Besides helping them smooth demand (which can spare them the cost of maintaining extra capacity for peak times), it makes it easier for them to squeeze more out of richer customers. Travel websites have experimented with steering users of Apple computers—assumed to be better-off than Windows PC users—towards more expensive options. Airlines have been caught charging loyal travellers more for a ticket than infrequent travellers, on the assumption that they are more likely to be on a work trip, so their employer will probably be paying. The technology is far from perfect: ever since buying a coffee machine online your columnist (who is not good at newfangled tasks such as clearing browser cookies) has been inundated with offers for coffee machines, as if the purchase was proof not of a need that had been satisfied but of an insatiable desire.

Even if the technology becomes more sophisticated, there are two risks for businesses with dynamic pricing. The first is psychological resistance: companies’ reputations can suffer if they offend customers’ sense of fairness. Uber encountered a backlash when it increased its prices eightfold during storms in New York in 2013. Such “surge” pricing makes perfect economic sense: drivers are more likely to go out in hostile conditions if they get paid more; and many customers would prefer a high-priced ride to no ride at all. But these arguments cut little ice when prices run counter to people’s sense of equity. So, in this week’s snowstorms in New York, Uber capped its surge prices for its regular taxis at just 3.5 times the normal fare.

Psychological resistance can be fierce when companies use data collected from their customers to charge them more. That is why, in 2000, Amazon quickly dropped a scheme to charge some customers more for DVDs based on their personal profiles, and why it has trodden carefully since. Customers are learning to play the game. Some are searching for flights from an internet café instead of their living-rooms, to get lower fares. Others are piling goods into their online baskets and then failing to click “buy”, hoping this will prompt the seller to offer a better deal.


The second risk with dynamic pricing is that it ends in a race to the bottom. Companies that sell online have long been caught up in a war for the top slot on price-comparison sites: even being cheaper by a penny can make all the difference. Physical retailers are being caught in the same logic: those adopting dynamic pricing are mostly doing so to avoid being turned into mere showrooms by customers who inspect the goods but then buy online. The Nebraska Furniture Mart constantly watches what competitors such as Amazon and Best Buy are charging, and updates its in-store electronic displays each morning to meet its guarantee of offering the lowest price. This is obviously good for customers. But getting fixated on prices can distract businesses from seeking ways to make their products and services so attractive that customers will be less fussy about their cost, as the most successful purveyors of luxury items, from Ferraris to Hermès scarves, do.

The oldest form of dynamic pricing was practised in ancient bazaars, where merchants would size up their customers before the haggling began. Those retailers might not have been able to compute as many different variables as today’s algorithms. But they still have something to teach today’s dynamic pricers about the importance of establishing trust and playing on desire. Cynical as it sounds, to understand a customer’s underlying willingness to part with their money you need to pay a good deal of attention to values.

One Studied Tactic to Negotiate a Better Price

deal1One Studied Tactic to Negotiate a Better Price: How you frame your initial offer affects how high a buyer is willing to go.

Whether you’re negotiating the price of a big client order or selling your company, is it better to offer a single initial figure or a range? According to a recent study, the latter is the better option.

Researchers from Columbia Business School ran a series of five negotiation-simulation experiments involving Amazon’s Mechanical Turk workers and business school students. Participants were asked to not only guess what their partner’s reservation price (the lowest price they would accept), but were also asked questions designed to show how they perceived their partner—the study’s authors were curious as to whether certain negotiation tactics might lead to a likability cost, even if they resulted in a few more dollars for the partner.

In the paper, which was published in the Journal of Personality and Social Psychology, the researchers said that those who asked for a range were more likely to get their reservation price than negotiators who gave a single offer. There was also little evidence that a range offer would cause the negotiator to be seen in worse light.

In other words, open with a price of $7,000 for your car, and you’ll get counter-offered $6,500. But open the bidding with a range of $7,000 to $7,500, and the bidding starts at $7,000.

So the next time you’re posed with the salary expectation question, looking to sell your business, or trying to get a profitable price for your product, remember to always give people a range—you’ll reap the benefits in the end.

reprinted from Profit Report – Kristene Quan and David Fielding || April 15, 2015


china 1I will never be an expert on China. It is just too big, too complex and too old with layers of history and meaning that would take several lifetimes to unravel. As I said to my hosts, China, driven by it huge population builds big – Big airports, Big train terminals. Big road systems. Big apartment blocks. And yet you drink tea from cups the size of thimbles.

Because of the gigantic size of their market, many companies can specialise. I drove down 15 miles of road entirely devoted to furniture stores. We crossed over to the shoe district and then to the leather district. We visited a factory producing water based ink on his 10 acre site and a factory devoted only to embossing paper. On my last day, I found myself in a square mile of narrow alleyways devoted to wedding dresses and tuxedos in a quest for that right little number for my wife. In driving around, however, I was most shocked by the sight of a small shop of perhaps 500 sq. feet that sold only electric drills. In our micro market, where everyone has to be everything, all the time, it was refreshing to see a different and profitable business approach.

It reminded me of research on the US I did years ago where I found an obscure town in Nevada, I think, that produced most of the rubber pipe used in the US. The United States has a gigantic market and efficient distribution system (read road, rail and air) whereby it is possible to dominate a market and yet not be at the centre of it. Think of what we could do better with NAFTA which is in explicably underexploited by us.

How could we emulate the success of China? We have cheap power, high labour costs and some cheap raw materials. We are shipping raw goods to China. The successful Chinese manufacturers in turn buy German and Japanese equipment to operate lights out facilities and then ship back to us.  Is there a model there? Do we need ore entrepreneurs and highly skilled labour?

But China has entered a sluggish period and that is forcing a change that will have long term benefits. The old style entrepreneurs sold on price alone. Many have not found a way to break that mould. But a few have gone to the quality end of the spectrum. This is especially valuable in meeting the demands from BC over the next 10 years for the rapid development of the energy and minerals sector. I visited 2 vocational schools there that churn out 3000 CNC machine operators a year, that train 300 baristas a year – for the skyrocketing coffee culture in China. And the emphasis was on a quality product, customer service and cleanliness that would put to shame huge swathes of business in British Columbia.

China has lessons and opportunities for us. We need just to listen and pay attention – then act.



Do you have a minute? There’s something I’ve got to get off my chest. Can we keep it just between you and me? Yes? OK – here it is.

Buyers are liars.

There. I’ve said it. Buyers are liars. Maybe it’s the purchasing tactics that an organization uses to drive a bargain. Maybe it’s simply what an individual does to look good to the boss. Whatever the reason, purchasing at many businesses can push the boundaries of truth well past the level of absurdity.

You know you believe me. After all, how often have you heard one, more, or all of these lines?

“You guys are the highest priced player in the market.”  Right. As if that one isn’t completely transparent. You’ve probably already got a pretty good idea what your competitors charge. If you’re the highest priced player, odds are it’s because you’re a premium product, or you’ve chosen that approach as part of your overall sales strategy. Remarkably, we’ve heard this line even when two companies control 80%-90% of the market, with little if any price differentiation.

“Switching costs nothing.”  Your customer wants you to think you need them far more than they need you. But you buy products and services, too. You know full well that switching vendors always carries some level of cost, risk and pain. That’s the real reason behind the threat. It’s much easier to bluster than it is to actually make a change.

“You are 10% too high to get this deal.”  It’s the purchasing equivalent of the auto salesman saying, “Tell me what you can afford, and I’ll see what I can do.” Give in, and you’ll never regain control over the sales process. Purchasers will go to absurd lengths to make this lie stick – right down to fake quotes from competitors, or even fake POs to competitors “accidentally” being sent to you instead.

“You are selling a commodity. It’s exactly the same as everybody else’s.”  Outside of products traded on an electronic commodities exchange, every vendor should be bringing some degree of value add to the process. It might be the range of guarantee, freight and delivery expertise, brand recognition, technical know-how, or customer service. That’s what attracted the purchaser to you in the first place. It’s amazing how often someone thinks you’re special, only to insist you’re not, once there’s actual money on the table.

So, what’s an honest, hard working company to do, in the face of such perfidy? Over the last century, tens—if not hundreds—of books have been written about effective negotiation tactics. In the best-selling book Getting to YesRoger Fisher and William L. Ury offer five key propositions for a principled negotiation:

  • Separate the people from the problem
  • Focus on interests, not positions
  • Invent options for mutual gain
  • Insist on using objective criteria
  • Know your BATNA (Best Alternative To Negotiated Agreement)

In addition to the tried and tested techniques offered by Fisher and Ury, and the always critical building of two-way trusted relationships with your buyers, we must step into buyer negotiations armed with the right information. In our experience, the following five techniques are quite effective at cutting through the baloney.

  1. Acknowledge the truth: buyers, do, indeed, lie from time to time. Even if they’re good people. Even if they’re your friends. It’s part of the process. It’s nothing personal.
  2. Use your information: With the right database tools and analytics systems, you can regain the initiative. When a customer claims that they should get a discount because “we always pay on time,” you’ll know immediately if that claim is true, or if they’re actually habitually 15 days past due.
  3. Call their bluff. A modest investment in Web-scraping and other tools can help your staff uncover publicly available information on competitive offerings and pricing. There’s not much room for argument when you’re clearly the better-informed party.
  4. Drive the conversation in the right direction. When a customer throws out something that sounds outrageous, ask the questions that force them to produce quality answers. It will rapidly become clear if they’re telling the truth.
  5. Always offer them value. Provide a valuable, differentiated offering with excellent service to back it up, and maniacally focus on maintaining or growing the gap between you and your competitors. With a sharp focus on staying ahead, It will be much easier to turn around buyer negotiations.

With thanks to the Kini Group fro publishing this helpful . T

At the Core: Lessons in Pricing from Apple.


Apple has taught many entrepreneurs the importance of design, how to create buzz when introducing new products to the marketplace, how to pioneer new technology and the importance of superior quality.

But Apple also has wily pricing experts who have used pricing strategies to create extra profits.

The most recent example is the Apple response to Samsung’s huge presence in the India market. Apple’s products are too pricey for the average Indian, where many people still survive on $2 per day. Smart phones make sense in countries where electricity supplies and telecoms infrastructure is weak and prone to frequent blackouts. Phones add value to people’s lives by bringing them close to the markets. This has already happened in some poor fishing communities that dot the coastline. When heading back with the catch of the day, they can check the spot prices at various ports within reach and choose the best paying one. Clearly smart phones are an economic accelerator. So, how to get more smart phones into Indian hands?

Apple has used a price skimming strategy for the consumer market. Early adopters pay greatly for the newest and brightest toys. But Apple also knows that competitors can enter the market easily and quickly after Apple has pioneered the technology. So constant innovation is a hallmark of Apple products.

But that means the earliest smart phones are soon obsolete. Apple could NOT “dump” the old phones on the American or early adopter market, for fear of cannibalising its own consumer segment. So Apple took the older phones to India, effectively buying market share with a great if outdated product that has already generated all the profits Apple expected.

But not all of us have the luxury of dumping our old products on a foreign market. How can Apple’s leadership in this pricing gambit be put to use in a Canadian small business?

If your pricing model demands a profit margin on each and every inventory item you sell, you will not be able to sell the end of season or dust covered items for a dollar. You will lose money.

But Apple has a simple idea. Not all inventory moves equally. If you sell seasonal or fashion products, some product will be left over after the majority has sold. If your pricing model allowed for this hangover – check your records in prior years -, then you could sell the leftovers for $1 and make a profit.  See my prior articles on how the big box stores price this way or take a look at my book , Pricing Strategies for Small Business. If you sell strategically, you can gain new clientele. By contacting your customer list and advising of a tremendous sale, you move inventory that would otherwise gather dust and gain loyal customers at the same time.

Contact Andrew Gregson for your next convention, conference or workshop.


Results Based Pricing for Professionals

I have just read an article from November of 2013 (Managing Partner, published in New Zealand) about pricing for professionals. When surveyed about how they charge, most professionals shrug and admit that they charge what everyone else charges. It has reminded me to put value and choice at the very top of the list of how to devise winning pricing strategy that will increase profits.

shrugPricing professional services is a big problem for lawyers, accountants and anyone selling services. Professionals deal in results, but they charge for effort. The easy route is to charge by the hour but that makes it easy for a potential client to compare apples to apples. AB charges $125 per hour. BC charges $250 per hour. Therefore, AB is the best buy. But is that true?

So, would you buy a house based solely on price? House F is small, rundown, needs a roof and is in the middle of a rough neighborhood. It is listed for $229,000. House G is much larger and in a nice neighbourhood. It is occupancy ready and most importantly, your wife likes it. But its list price is $400,000. Which house has value?

In order to place value on a service for hire, the trick is to comprehend that the customer does not care about the amount of time, effort and sweat you expend. They want results. And what is the result they want? Do you ever ask? Where will the customer place the most value? Speed of service? Accuracy? No jail time? Or will  they respect the weekends you spent on their file, the late nights and the cost of years of schooling?

So we establish, state and then highlight the value on the table, first, right? But now what?

In order to get your price, though, you must offer choice. Like Goldilocks , the choices must be few- not too high, not too low and just right. Choice in pricing will allow you to take clients and customers with all kinds of budgets and thickness of wallet, without discounting. The platinum package will have the largest assortment of bells and whistles. The gold package has fewer bells and only one whistle but has a lower price tag. The workmanship is still present, but the results are fewer. The bronze package is the budget offering with the lowest price and the fewest bells and no whistles at all.

Want to be more profitable? Be brave and get a better pricing strategy.

Innovate, Don’t Ape – How to Survive the Recession


apeThirty years ago, according to a recent article in the Economist, the bosses of America’s car industry were shocked to discover that Japan had overtaken them to become the largest car manufacturers on the planet. The bosses blamed this success on cheap labour and government subsidies.

But the progressive bosses went to Japan and discovered that Honda and Toyota had raced ahead of them by virtue of a combination of innovation and inspiration. The American manufacturers quickly dubbed the methods of production “lean manufacturing”. This approach to manufacturing was in fact an American idea that was fully developed in Japan and ignored in America. The inspiration was to listen to customers who – echoing today’s demands- were looking for cars that were cheap on gas but still a quality product.

The moral of the story is that if Japan had merely aped American car manufacturers, their car industry would not have thrived. Today’s emerging economies are growing in part on cheap labour but mostly because they have innovated faster than rich countries. Kenya, for example, is the world leader in money-transfer by cell phone. Frugal innovation in the emerging world has created the $3000 car and the $300 laptop. These products were re-designed to eliminate costly steps in the manufacturing process.

The lesson for today’s businesses is an old one. Innovate don’t ape. If everyone else is offering sale priced goods on senior’s Tuesdays, and they are not making any money, why would you want to copy them? If everyone else offers the same burgers, the same landscaping service, the same financial solutions, the same furniture, then, to compete you must drop your prices in order to gain customers.

 In a conversation last week with a manufacturer in Vancouver, the owner told me that his approach during this recession had been a total reversal of the approach in the recession 10 years ago. A decade ago, the company chose to ride the storm and drop prices. This time they cut costs and left prices intact. The result: fewer sales but more cash in the bank.

 So, the question is how to innovate. Can you make your product or service better in some way than is currently offered? Will the change be a gimmick and easily copied by your competitors or can you offer something your competitors cannot?

 Overwhelmed by the thought of what to do? Do you think your business has no room to innovate? Consider this. Water and flour are commodities traded on the world markets on price alone. When mixed together, they ought to produce another commodity. However, this product has over 1000 market niches with prices that reflect not the cost of materials or the taste of this food product, but the shape of the food. I am speaking, of course, about pasta.

This is brilliant marketing to create a market based upon the shape of a food product while everyone else focused on flavour or fast food.