Millions of small-business owners across America seem convinced that raising prices in a bad economy is financial suicide. Held hostage by industry pricing and recession fears, many business owners believe that working harder and earning less is the only way to survive.
But that’s wrong, says pricing specialist Dale Furtwengler, a CPA and president of Furtwengler & Associates, a pricing-consulting firm. Cutting costs is like dieting. It rarely produces lasting results. Furtwengler contends that the economy isn’t the issue. Rather it’s the inability of most small-business owners to understand the value in what they sell, to make changes if necessary and communicate that value to customers.
In his new book “Pricing for Profit (AMACOM),” Furtwengler lists four false reasons why business owners say they can’t raise prices:
1) We don’t have the name awareness of the big boys.
2) Our customers only care about price.
3) Our competitors won’t raise prices, so we can’t.
4) We’ll lose sales and market share.
The real reason that small-business owners stand pat on prices is that they don’t know how to monetize the intrinsic value of what they sell. If your profits are being hurt by low prices, here are some things you should know and do:
• Survey your customers. Distinguish between those that are “price” buyers (only interested in lowest price), and those that are “value” buyers (willing to pay more for value such as convenience or service). Recognize that not all customers are equally valuable to your business. Then identify and target your ideal customer.
• Listen to customer requests. Are the things they are asking for minor conveniences they would enjoy? Or are they actually improvements you can make that they would pay extra for?
• Calculate value of your products and services. Customers value speed, friendliness, integrity, dependability, convenience, image, service, innovation and knowledgeable salespeople. Boil this down to three – image, innovation and time savings – and attach a hard number to each of these. According to Furtwengler, the average “image” buyer will pay as much as 10 times the lowest-price alternative, while “innovation” early-adopters will pay more than two times what other buyers will pay. And experience shows that retail customers will pay up to three times as much for something that saves them recreation time as they will for the opportunity to make more money. •
Daniel Kehrer can be reached at editor@business.com.
Seifert Systems Invests in Energy Efficiency to Strengthen Operations
For manufacturers, energy is more than just another operating expense. It plays a critical role…
Learn More
