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Tuesday, 2 October 2012

Pricing objections - what they really mean

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Pricing is perhaps one of the most misunderstood issues in business, if used properly it's one of the simplest ways to help you maximise your profits. Easy then, so what's the problem?

The problem with owner managed business is that they assume that they must be the cheapest to survive and are often very reluctant to raise prices, even in the face of ever rising overheads, just think of energy, fuel and courier(UPS) costs to mention a few. If I had a £1 for every time I've heard a company owner say "if I raise my prices I'll lose all my customers so I have to keep them as they are" I'd be very rich – sadly I'm not.
Gas Prices Are Up!!! Feelin' the Pinch...
Gas Prices Are Up!!! Feelin' the Pinch... (Photo credit: Clan UiBriain)

Why do so many people think like this? Much of it is conditioning, whenever we are not satisfied with a company for whatever reason we complain about the price. 

Let me give you some examples:

You're visited by a salesman who can't articulate the benefits of his product. 
What do you tell him when he asks for the business,"I'm sorry but I don't see a reason to buy this" or do you say "I'm sorry but it's too expensive".

You're visited by a salesman who you just don't like. What do you tell him when he asks for the business,or do you say "I'm sorry but I just don't think you're trustworthy" or do you say "I'm sorry but it's too expensive".

You're visited by a salesman who just doesn't get the point you're trying to make. What do you tell him when he asks for the business, "I'm sorry but you don't understand my problem so I'm not interested" or do you say "I'm sorry but it's too expensive"

You're visited by a salesman who's too pushy. What do you tell him when he asks for the business, "I'm sorry but you're the last person I'd buy anything from" or do you say "I'm sorry but it's too expensive"

You should be getting a message by now pricing is rarely the issue, price objections are mostly a cover for some other objection. So what does this tell us? The first thing is that raising your price is nothing to be afraid of. The second is that if pricing is seldom the real issue, raising your prices even in a recession wont frighten off your customers. Why? because the reason they are staying with you are not price related, it could be that you're convenient, they like you, they love your brand, you've helped their business, you are reliable, and so on....

So now you know let's look at what you can do. Well one thing you could try is to increase all your prices by 1% immediately. Why, because you can; if you're selling something for £100 pounds people aren't going to stop buying it because it now costs £101.

"I can't we're in the middle of the worst recession in living memory you must be nuts" – you say.

I say "no, its your conditioning that says that". 

I can in all honesty say that in almost every company I work with; one of the first things I do is to get them to increase their prices and having done so they are surprised that they don't lose any customers in the process. Yes even in the worst recession in living memory. Why? Am I a genius – I hope so – but no. Am I a magician – no. The answer is almost invariably, because most small companies are selling their product or service too cheaply because they've been conditioned to this as those people who don't want to buy from him use price as the objection.

Realistically as a small business owner you should understand that price is only factor among many people assess before purchasing and its by no means the main factor. Your price should reflect your costs and be sufficient to give you a decent profit. In order to price correctly you should have a detailed analysis and understanding of your costs. This is something that many businesses don't have. Only by understanding what and how your costs are made up in detail can you accurately set your prices over the long term. Whilst the general rule with pricing is that your sales price is 2.4 time manufacture costs, it's still a rule of thumb and likely to lead to a guess-timate of costs which will almost always be less than the real costs.

You should be increasing your price at a minimum annually to keep in step with the inevitable rise in your costs and additionally if there is a major change in the price of components. Don't worry if you are not the cheapest because it is rare that you will be as there is always likely to be a business with a lower price. Anyway you don't want to be the cheapest because down there is no customer loyalty.

So remember that pricing objections are more likely a cover up for other deficiencies, so don't be afraid to raise your prices and ask those price objectors what they're really unhappy about.

Exigent Consulting provides specialist services for High Growth Business Business Turnaround, and Mentoring to the Small and Medium Business. We help business owners improve the profit performance of their business. 

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