Tag Archive for 'pricing strategy'

Execute the pricing power imperatives

Small businesses are finding themselves between a rock and hard place.

The rock is inflation.

For several quarters, rising inflation has pushed up marginal costs and operating expenses. Some increases are dramatic, like hikes in raw materials. Others are more subtle, like increases in copy paper, which aren’t noticeable every month, but add up over the year.

The mother of all price increases is petroleum. The doubling of fuel prices in the past three years has compounded the inflation of cost of goods sold, because every tangible product has a delivery fuel ticket applied to it. And, of course, the fuel bill for company vehicles is burning cash and eating profit.

The hard place is a lack of pricing power.

A business has pricing power if it can raise prices when needed or desired; most often employed to pass along cost increases. Having pricing power is a good thing for any business, but alas, as you will see below, most small businesses don’t have it – or at least as much as they need.

Recently, in our weekly online poll, we asked small business owners this question about inflation and pricing power: “Are you able to raise prices to offset increases in costs and expenses?” Here’s what we learned.

Almost half, 49%, said, “Somewhat - but it’s difficult to match every increase.” Slightly fewer, 46%, reported that they were “not able to pass through cost increases.” And just 5% said, “Inflation is not hurting us.”

When a business experiences inflation without pricing power it puts pressure on cash flow and profitability. Younger businesses are the most vulnerable, because they don’t have the equity to withstand the cash-eating effects of this dangerous dynamic. Older companies that have retained profits can endure longer, but every day spent in the inflation-without-pricing-power vortex is an equity-eroding day closer to failure. So why don’t small businesses have more pricing power and how do they get it?

The reason is, while small businesses have many advantages, most are associated with being versatile and nimble, not with power. And the way to acquire at least some pricing power is to develop a strategy that includes the three pricing power imperatives: Communicate, Educate and Execute. This means reminding and explaining to customers in advance that your price increases are associated with the same inflation they are experiencing.

Small business pricing power requires discipline, planning and courage.


Click on one of the links below to listen or download my recent conversations with Bob Phibbs, author of You Can Compete: Double Sales Without Discounting, on how to develop a pricing strategy for your small business.

Is it time to get serious about raising prices? with Bob Phibbs

Why every small business needs a pricing strategy with Bob Phibbs

Check out more great SBA content HERE!

Take this week’s poll HERE!

Small business and the “free” stategy

If you’ve been listening to my show and/or reading my columns, you know how many times I’ve stressed the fundamental management task of generating enough gross profit to cover operating expenses and, hopefully, put net profit on the bottom line. Of course, in order to do this, you have to sell something for enough money to have something left over after cost of goods sold.

So it might seem strange to learn that I would recommend a strategy of maximizing gross profit by giving something away. But when taken in context, you’ll see that it’s not weird, but rather, just another way of looking at managing in a challenging economy.

At a time when prospects are more likely to trade down in their purchases to stretch their cash, it would be natural for a small business to react by cutting prices. And while this might do the trick of getting customers to stay with you, discounting also has the potential to do something unfortunate: diminish the perceived value of your brand.

So how do we keep customers coming in the door in a recession and protect our brand value? Develop a strategy that gives customers something when they make a purchase at the price you’ve established.

Recently, I interviewed two very smart ladies about surviving and thriving in a recession. I talked with branding expert, Karen Post, author of “Brain Tatoos,” about how to maintain brand value, and I talked with marketing expert, Lois Geller, author of “Customers for Keeps,” about how to create a solid marketing plan during a recession. Guess what? Both recommended courageously giving things away instead of wimping-out with discounts.

Take a few minutes to listen to what Brain Trust members Karen and Lois had to say on my small business radio program, The Small Business Advocate Show, as we discussed the “free” strategy and variations on that theme. And don’t forget to leave a comment or question.

For Karen Post:
For Lois Geller:

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