The sluggish economy has everyone
talking price. Dollar stores are thriving – Family Dollar Stores stock price is
up 60% over the past year; Dollar General’s stock price is up 27% since
November – putting pressure on industry king of cheap, Wal-Mart, whose stock
price in comparison eeked out a 3% increase over the past year as it struggles
to maintain top-line growth. What can small companies do in this price squeeze?
I contacted Rafi Mohammed, a pricing strategy consultant and author of the
pricing strategy book, “The 1% Windfall: How Successful Companies Use Price to
Profit and Grow,” for his thoughts. He offered the following 5 tips:
1. Think
Like a Consumer. Most consumers buy
based on the value offered by a product. Determining a product’s value involves
evaluating its price as well as its
attributes. Consumers choose the product that offers the best value (mix of
attributes and price). This is why convenience stores can charge double the
price for milk compared to Costco.
2.Create
a Value Statement. Every company must
create a value statement and communicate it to customers as well as employees –
a chance to “brag” about your product compared to the competition.
3. Think Like a Retailer. Retailers are looking for sales
growth in this down market. Even if your product is not the cheapest,
think like a customer (see point 1) and highlight the enhanced features the
will get customers to open their wallets.
4.
Set Prices to Capture Value. The
most common mistake in pricing involves setting prices by marking up costs (“I
need a 30% margin”). While easy to implement, these “cost-plus” prices bear
absolutely no relation to the amount that consumers are willing to pay. The key
to better pricing is to set value-based prices, that relative to the prices of
customers’ next best alternatives, capture the additional value offered by your
product or provide a discount to compensate for its
stripped down features.
5.
Offer Good, Better, and Best Versions.
Most products should offer a range of products to sell to customers with
different valuations. Many gourmet restaurants offer early-bird, regular, and
chef’s table versions. This strategy generates growth by attracting price
sensitive customers who dine before 6 PM and profits from gourmands who happily
pay a $50 premium to taste the chef’s latest creations. These pricing options
better serve customers and allows them to choose how much to pay for your
product. It’s surprising how many will opt for the best.
Credit:
forbes.com
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