Issue link: http://psai.uberflip.com/i/1097209
WEEKLY EDITION MARCH 27, 2019 10 Tips to Better Pricing: Start Generating New Profits and Growth on Monday Morning by Rafi Mohammed, PhD, author of The Art of Pricing 2018 PSAI Convention and Trade Show Keynote Speaker The following 10 pricing tips can reap higher profits, generate growth, and better serve customers by providing options. Stop marking up costs. 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. As a result, profits are left on the table daily. Set prices that capture value. Manhattan street vendors understand the principle of value- based pricing. The moment that it looks like it will rain, they raise their umbrella prices. This hike has nothing to do with costs; instead it's all about capturing the increased value that customers place on a safe haven from rain. The right way to set prices involves capturing the value that customers place on a product by "thinking like a customer." Customers evaluate a product and its next best alternative(s) and then ask themselves, "Are the extra bells and whistles worth the price premium (organic vs. regular) or does the discount stripped down model make sense (private label vs. brand name). They choose the product that provides the best deal (price vs. attributes). Reinforce to employees that it is okay to earn high profits. I've found that many employees are uncomfortable setting prices above what they consider to be "fair" and are quick to offer unnecessary discounts. It is fair to charge "what the market will bear" prices to compensate for the hard work and financial risk necessary to bring products to market. It is also important to reinforce the truism that most customers are not loyal – if a new product offers a better value (more attributes and/or cheaper price), many will defect. Realize that a discount today doesn't guarantee a premium tomorrow. Many people believe that offering a discount as an incentive to trial a product will lead to future full price purchases. In my experience, this rarely works out. Offering periodic discount serves price sensitive customers (which is a great strategy) but often devalues a produ ct in customers' minds. This devalu ation can impede future full price purchases. CONTINUED ON PAGE 4 PAGE 7 Create a value statement. Every company should have a value statement that clearly articulates why customers should purchase their product over competitors' offerings. Be specific in listing reasons… this is not a time to be modest. This statement will boost the confidence of your frontline so they can look customers squarely in the eye and say, "I know that you have options, but here are the reasons why you should buy our product."