Tag Archives: Price

Aardvark Marketing Consultants | Pricing strategy

You paid how much for that makeover?

You paid how much for that makeover?

How much does a roll of wallpaper cost? No, it’s not a trick question. With so much debate in the media about the cost of redecorating a certain flat in London, I found my thoughts wandering to the subject of pricing strategy again.

Here at Aardvark, we talk about pricing to almost every client we have ever worked with and very often we’re trying to persuade them to increase prices. Or at least consider the possibility of changing their pricing structure.  However, I think a great many marketing professionals don’t get involved in pricing and this strikes me as very strange.

Price is one of the four “P”s, and in my view just as important as the other three.  I know there are many more “P”s now, not to mention collections of other terms beginning with other letters (we even talk about the two “C”s in success), but 35 years’ experience has shown me that the original four “P”s remain a great foundation for successful marketing.

If pricing isn’t right, it will dilute the impact of all the rest of your other marketing activity. It could even completely undermine it.  Too high and you’ll lose potential sales (now or in the future) and allow competitors to steal your customers.  Too low and you will most obviously leave money behind that you could have taken, but can also turn off customers or attract the wrong kind of customers in the first place. As a business owner, would you rather be a busy fool, sending our numerous quotes or proposals that don’t actually lead to good business or send a smaller number to better targeted prospects and convert a higher percentage of these? We worked with a local builder who achieved a better work life balance through this approach. Better targeted marketing and new messages enabled him to stop working every weekday evening. He no longer needed to go out on a site visit, measure up and then produce a detailed quote to homeowners who only wanted the cheapest option. He was able to switch his attention to fewer, ‘on-profile’ customers who appreciated the high quality of their work.

So how is pricing set in your business.  Is it a “cost plus” approach with a target profit margin?  Is it based on competitor analysis, aiming to maintain an agreed relativity to what the competition offer customers?  Or is it based on the perceived value of your products or services?

The value-based option is almost always preferable. It will encompass competitor-based pricing and if it means your margins are thin or even non-existent, then the business needs to re-examine its cost base.  And of course, the people in the business who know most about customer perceptions of value are the marketing team.  It’s our job to understand and represent the customer within the business, and that includes knowing what people are prepared to pay for our products and services.

Are we out there, talking to customers about value and how we compare to alternatives?  By “alternatives” I don’t just mean products and services like ours, but all the things customers could do instead of buying from us.

Or are we checking our competitors’ prices on the internet, and letting sales tell us the reason (excuse) they can’t hit targets is that the competition are so much cheaper than us?  Are we giving away price because margins are good so we can “afford” to discount?

Have you implemented a price increase recently?

And a final thought; if your suppliers are putting up prices more often that you are, something is probably going wrong!  If you’d like to understand how pricing strategy can improve both your business and your quality of life, why not email or pick up the phone to Gill or Chris at Aardvark?

Competitive Advantage – Part 2

Competitive Advantage – Part 2

What happens if you don’t focus on competitive advantage?

If you don’t give people a reason to choose one brand or one company over another, then their decision will come down to price. Although we tend to think that people always choose on price, actually the reality is quite different. Price is the marker we use when there is no other way of choosing. Take bottled water – if all the containers were the same, the majority of people would choose the cheapest option. But the containers are not the same. The shape of the bottles are different. The branding on the labels are different, the way they are presented is different. All those indicators are contributing towards our choices.

The important point in marketing is making sure that you are getting your message across, so that people understand why your product is more expensive, so that they appreciate that the first class customer service you offer is reflected in the price. But if you don’t tell your prospective buyers about that – they will just assume that you are overpriced.

So it is vital that you define your competitive advantage, and then you make sure you tell people. People will pay more if they are getting more, it is our job to show them the extra benefits they are receiving with their goods or services, because if you don’t tell them, they won’t know.

Are you using competitive advantage in your business? Are you struggling to plan, implement, and manage your marketing program? See how other businesses use our marketing manager service to help them.

To learn more about competitive advantage and how we use it to help businesses, click below to watch the video.

Beware the race to the bottom| Aardvark Marketing Consultants

Beware the race to the bottom

Beware the race to the bottom

Price competitiveness – it’s a topic that always guarantees an interesting discussion with a client but one that is fraught with danger. You can see how easy the temptation is. “If we lower our prices to compete with others, especially online e-commerce competition, we would sell more and have a bigger share of the market “ .  The company who engages in this behaviour might make a small short term gain as turnover increases by more than the lost gross margin on the products sold. The problem lies in the long term trajectory –  your competitors are then tempted to retaliate by charging just a little bit less and everyone can end up in a downward price spiral. By commencing or engaging in the ensuing price war, we have to drive ever more savage cost cutting, which can mean harming the relationships with our customers, our suppliers and losing sight of our original business ethics and goals.
Seth Godin summed up these sentiments in his blog today, when he wrote “The problem with the race to the bottom is that you might win”.

I recently read an excellent article in Marketing Leader entitled “Why cost competitiveness can prove fatal” written by Dr Jules Goddard, Fellow of the London Business School. In it, he explains that the common management strategy of focussing on cost reduction measures is harmful to the long term performance of companies. His article was based on research conducted on a  large (25,000) sample of US companies over a 40 years, in which the successful companies did not focus their efforts on cost reduction practices. These practices might aim to increase sales volumes and reduce costs through economies of scale, lowering costs by out-sourcing non-essential activity, moving production to lower wage based economies and bargaining hard with your supply chain over prices.

This Scrooge mentality in a company can lead to an inwardly-focussed management rather than an outward, customer facing focus. Allowing managers to be less risk-averse means they are more likely to spot opportunities to add value for their customers through developing new and better products and services. Using Dyson as an example, the 2 rules for successful companies are:
1. Focus on being better rather than cheaper, and
2. Place more importance on revenues rather than costs.

Dyson products frequently cost 3 times that of their competition but, even allowing for higher production costs, the profitability for the company overall is much higher.
Goddard ends his article with some challenges that can change the way senior managers set their strategy. So, if your management team spend their time addressing problems such as
“What cost savings can be made without our customers noticing?” or
“What pressure can we place on our suppliers without losing their trust?”
Instead, what would happen if you switched to thinking about
“If we needed to carry a 20% premium price on our products and services, how would we change our thinking?” or
“If there were no recriminations for making mistakes in the bold pursuit of greater success, what investments would we choose?”
The first route leads to the race to the bottom, the second route leads to building better brands, higher sales revenue and improved gross margins.

Happy marketing!
Gill
The Fatal Bias by Jules Goddard, Fellow, London Business School can be found at
http://forms.managers.org.uk/sub-pages/appg/downloads/The+Fatal+Bias.pdf