Get the RIGHT strategy to succeed in business going into 2014

Pricing strategies are one of the biggest issues facing businesses going into 2014. Now that the economy is showing signs of recovery, the need to get the most out of every pound has become acute.

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27th October 2013 at 12:39 pm

Pricing strategies are one of the biggest issues facing businesses going into 2014. Now that the economy is showing signs of recovery, the need to get the most out of every pound has become acute. 67 percent of respondents to a recent report by Retail Systems Research website said that they saw consumer price sensitivity as a major concern going forward.

Which Approach is Right?

There are 3 main schools of thought in pricing:

  • Customer-based – charge what the customers are likely to pay
  • Competitor-based – charge at or below what the competition is charging
  • Cost-based – charge what it costs to produce plus X% for profit

In most instances, lowering prices often increases demand. Lowering prices is rarely effective in building a strong enough brand preference so that people return shop, particularly with small businesses because of the nature of buyers minds – a price sticker on the shelf is just not that memorable.

A Small-Business Cannot Undercut Everyone Else Forever

The strategy of most businesses is of course an obvious one – to make money. So along with price sensitivity from the consumer comes the pricing strategy of the business. The majority of small business owners aim to offer products and services at a copmetitively low cost, marking down their products so as to beat, or at least compete, with others in the same niche. In reality, it is often a bad idea to run so lean, and try to compete on price alone. Competitive pricing is not always sustainable.

Bigger companies have the chequebook to cut their costs lower than a small business do and keep their prices low for a longer period of time. By selling only on price, companies can be undercut and put out of business, simply on the whim of a larger competitor.

Faster, better, cheaper – the old adage is that customers can have any two of the three, but not all at once. Competition is not a matter of pricing alone, however making sound pricing decisions is a fundamental part of every business strategy.

Making the Right Choices

For small businesses to survive and thrive, owners often may need to adapt and change their tactics in order to remain competitive in an ever-changing market. Instead of focusing on being the cheapest on the market:

1) look at the marketplace and the demographic of buyers
2) cater the sales pitch to the most common segments, or groups, of buyers
3) examine the demand structure in the niche and adjust pricing accordingly
4) avoid price wars

In the short term, it’s possible to win over customers by lowering prices (penetration pricing strategy), but inevitably loss-leaders are not sustainable for long periods. For long term success, it’s important to carefully consider pricing and service levels with a holistic view, rather than a reactionary pricing change to rival a competitor.

Good Service = Success

Increasingly, quality of service should play a huge part in every small businesses overall strategy. A decade ago, many customers bought products and services based on price alone, but nowadays consumers are developing brand affinity based on the personality and behaviours of the person selling or pitching to them.

Rock legend Gene Simmons once said “If someone likes you, they’ll buy what you’re selling, whether or not they need it”. As 2013 draws to a close, it’s more important than ever for businesses to attract consumers by being likeable, memorable and generally remarkable, as well as offering competitive prices.

Act Today Profit Tomorrow

Every business is different in terms of the type of customer to attract or the competition in the respective niche or sector.

What we can learn going into 2014 is that all bets are off. There is no longer one tried and tested method of pricing.

Use the tools on hand to gain the advantage:

  • talk to your customers and prospects – to know them is to love them
  • keep track of the competition – prices, strengths and weaknesses
  • common sense enough to remember – don’t fix it if it isn’t broken

Now is the time to use the tools available – not to just become competitive, but gain the advantage. Manage your accounts and business strategically, using services like Kashflow, and take stock of the rest before putting that knowledge to work for the best – of your own business!

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Stu Bradley is Communications Executive at Kashflow Software Ltd which provides online accounting and bookkeeping software as a service to small businesses. http://www.kashflow.com

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