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W EEKLY EDITION MAR 21, 2018 10 Tips to Better Pricing: Start Generating New Profits and Growth on Monday Morning 49 th Annual Convention and Tr ade Show Gets Underway in Portland with Rafi Mohammed to Keynote the Opening Session Pricing is one of the most powerful – yet underutilized – strategies available to businesses. A McKinsey & Company study of the Global 1200 found that if companies increa sed prices by just 1%, and demand remained constant, on average operating profits would increase by 11%. Using a 1% increase in price, some companies would see even more growth in percentage of profit: Sears, 155%; McKesson, 100%, Tyson, 81%, Land O'Lakes, 58%, Whirlpool, 35%. Just as important, price is a key attribute that consumers consider before making a purchase. The following 10 pricing tips can reap higher profits, generate growth, and better serve customers by providing options. Stop marking up c osts. 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, profit s 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). 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 yo u have options, but here are the reasons why you should buy our product." Reinforce to employees that it is ok ay 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 mar ket 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 peri odic discount serves price sensitive customers (which is a great strategy) but often devalues a product in customers' minds. This devaluation can impede future full price purchases. CONTINUED ON PAGE 4 P AGE 3