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Sales: Pricing strategy

Posted on March 2, 2015 by Rich under Sales and Marketing

Pricing Strategy

Prices pic

Small businesses almost invariably get this part of the business wrong, partly because the focus of the business is on the delivery and not the real cost of what it takes to get it there. There are two main things to consider…

1. The real cost of delivering a certain product

2. How your competitors have priced their products

It sounds simple but with point 1 in particular, the overlooked items (such as the time spent on setting up for a shoot perhaps) have usually not been properly considered in relation to the end price to the customer. To get this right, you must examine each part of the delivery process and put a time and a cost to each one. If the end price is too high or not competitive enough, there will be areas in your process where savings can be made.

The Real Cost

Cost of your raw materials. This is not necessarily the cost of reusable items such as your camera (fixed costs) but the materials that get used and discarded, and are therefore no more use to you (variable costs).

Time spent on planning and activation. This is often the most undervalued aspect and underestimated especially in the early stages of a business. The idea of delivery seems very straightforward but the logistical implications are longer than anticipated, such as unforeseen hold-ups and costs. Delays with transport or understaffing for example will impact the process.  The slicker your processes and systems, the less time spent on this part.

Production and final tweaks. There are inevitably late stage changes and obstacles in production which further impact on time and cost.

Pricing vs. Competition

Low cost. If you are going to undercut your competition, you had better prepare for drastically cutting your delivery and production costs somehow. Your competitors may be bigger or more established, in which case they can beat you with efficiency via economies of scale. As a small company though you can, in theory, offer a better, personalised service.

High cost. A small business can justifiably demand a higher price but the end product must be perceptively equal in value to the cost.

Bundling your products. Your products may have different price points but more expensive products can be sold by bundling up with the cheaper ones. The perception being of value to the consumer. ‘The lowest priced item is free.’

As a small business you are expected to be competitive but this does not mean you have to shirk on offering a high-end product or not offer the kind of service that marks you out from the competition. Differentiation from the rest of the market and spotting areas in the market where there is a gap for a particular product or service are key factors in how you price differently or make a slightly better margin for the business. Customers are looking to you for guidance and expertise, and you should be confident in your pricing, the strategies behind them and a strong awareness of your margins. With that you will be competitive and profitable.