Category Archives: Profit

If first impressions count, then what are you telling your customers?

Have there ever been more options for pricing than there are today: one day deal sites, online pricing, freemium, optimised pricing, auction sites are just a few of the possibilities for setting a price, and an impression. So if first impressions count, then what are you telling your customers?

But of the four P’s of marketing, price usually receives far less thought than the other three. Not only does the price of your product or service say so much about what you are offering but it’s so important to your business’s survival.

If you have a new brand getting the price right is often very difficult. And while there is some room and time to fine tune things the longer the price remains unchanged the harder it will be to adjust customer’s perceptions.

Your business may suit being involved in an auction site where people bid for seasonal products e.g. Buystand. Alternatively you may have a more perishable product in which case there’s a real benefit in selling each days ‘stock’ for the best overall profit you can. That’s where price optimisation can help. One company who work in this area are Pricetech.  Their tagline appeals to me and gives you an indication of what to expect: revenue management and profit optimisation.

One thing’s for sure is that there will always be people willing to pay for the best, or even just willing to pay the most. This applies to houses, equally as it does for hotels, services, food, electronics … you name it. So depending on your product I’d always suggest seeing if you can get the highest price in the market. If your market share ambitions, brand, and the other elements of your marketing mix allow could you have a sustainable business by pricing as the most expensive? If not what’s involved to get there and how feasible is it?

But actually, you don’t have to have the highest price to get people wanting your brand. The point is that matching your price with the rest of your marketing mix will ensure satisfied customers even if customers pay very little for what they buy from you.

What about giving your product away? In the software game it’s called ‘Freemium’. One of the best articles about Freemium why and how comes from Techcrunch. On a similar vein I share thoughts in an earlier blog about Goupon type offers.

Go 2 Market principle: create the right impression with your customers by ensuring your price matches the rest of your marketing mix. You’ll create a positive impression with your customers and your bottom line.

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Airlines do it best, but you too can increase profits

Fries with your burger? Internet with your room? What are the add on sales you can make to enhance your customer’s experience?

Did you know that airlines worldwide will net US$36 billion in fees and upsells? That’s a lot of money! Their growth area is targeting the most lucrative customers with new products. Who are your most lucrative customers? And what are your add on sales?

Airlines seem to be flying highest (pardon the pun) with added sales. They are always searching for new opportunities to make more money. For example, paid apps are mostly not as successful yet major budget airline, Ryan Air’s £3 booking app is top of the iTunes chart!

So how can you go about gaining add on sales? I’d suggest you start by breaking down your product/service offer into as many pieces as you can. I’d encourage you to also have one or two comparisons from other industries to help you see what’s possible. For example, when booking airline travel who would have thought there could be so many choices and add ons. Certainly ten years ago there wasn’t!

Now think about the differentials you can offer, and charge for:

  • different opening hours for select customers
  • a unique product, or a standard product
  • special delivery
  • higher level of service
  • different payment methods and terms
  • complimentary products or services
  • faster service
  • additional service e.g. personalised, pickup or in home service
  • automated repeat order at a set date
  • early order discount, or higher cost for last stock item.

There are many options to differentiate your product or service, and therefore opportunities to increase demand for your offer. The outcome will appeal to different customers with offers that better match their needs e.g. travellers with or without bags, or travellers who like/dislike airline food, or taller travellers wanting more leg room. Here’s another example, where an e-reader service is letting readers pay per page!

By breaking down your offer you can then isolate pricing and also costs. As a result you should be more likely to make each cost pay for itself, and be able to renegotiate better prices from your suppliers. But at a minimum you’ll have a better understanding of which are the most important elements of your customer offer and where you make the most money.

Go 2 Market principle: what all business operators should want is a way to satisfy customer needs. By breaking down your offer into multiple parts you can differentiate your offer and better satisfy their needs plus your own to make a healthy return.

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Who copied my idea?

I’ve already blogged about being a flexible thinker and starting to take a different perspective. Here’s another article that writes in general about the same topic (don’t be put off by ‘startup’ being in the title): Why You Should Embrace Opposing Views at Your Startup

The point is, whether it’s your sector or a different one, don’t dismiss ideas that deliver to customer need. In fact go looking for what your competitors and others are doing, and consider why and how they’re doing it. You may copy the idea (staying clear of intellectual property issues) or adapt. When it’s incorporated as part of your total offering no one is likely to know or care.

As an example, a useful business trend right now is to suggest other products or services that align with a purchase. They might either be complementary, or popular with other people that have bought the same product. This isn’t anything new, rather returning to good old personalised customer focus. Technology is the enabler for this now. For example, Air New Zealand sent me an email with some accommodation, rental car/campervan suggestions based on a booking I’ve made with them. They also included some non-sales information about our destination too. To me their approach is unobtrusive, easy and practical.

Fashion items including clothes, books and music all provide an opportunity for adding more benefit (and sales). But there’s many more businesses that could do the same surely, e.g energy companies selling energy efficient products; florists providing a service to manage all your special occasions; motor vehicle dealers arranging insurance; sports stores that suggest complementary items, to name a few. Think of it as: ‘what problem can I help solve for my customer?’

I’d suggest you want to understand what emotion is being stirred up in users when a different approach is being used and replicate the good stuff. Also ensure it’s aligned with your brand and customer needs.

Of course you have to try and find this stuff. Talking to your customers is always the best bet. Try to do it yourself, but otherwise engage with partners that are interested in your success. Customers will know what your competition are doing.

Go 2 Market principle:  don’t be precious. Adapt others ideas to help create your success.

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How to spend it wisely

Finding time to work on the business is a challenge for many small business owners but the results of doing so can be significant.

Most people running small to medium businesses find it very difficult to stop working in the business in order to improve it. As a business owner you are responsible for everything and sometimes that involvement can stifle thinking time. However, without making the time the danger is that very little will change proactively and your business will be at risk.

A friend of mine runs a water blasting business. He ran a water blaster himself for many years and knows the work well. But what sets him apart from his competitors is that he has hired others to do the water blasting to provide him time to add value to the business. He has used the time to get more work, more profitable rates, go to new areas of the market, and spend time managing the business.

Cashflow is often tight for a small business, but make the time to work on the business, if necessary by hiring someone to free you up. The cost of hiring someone to do less value producing work will be minimal compared to the value you can add to your business by spending time working on improving it.

Set yourself some regular time to be ‘unavailable’. Put in place the necessary elements to use the time e.g prepare an agenda, have a business mentor or someone else come along to help brainstorm or test ideas, make action points, talk to your staff about your plans.

The upsides of working on the business are that you will:

  • be more in control of your business and managing its success
  • feel and look more in control, breeding confidence
  • improve the value of your business.

The only downside may be the cost of paying for someone to cover for you while you are not working in the business. If you use your time wisely this additional cost will be small in comparison to the value you add to your business in the short and long term.

Go 2 Market principle: spend your time wisely. There’s no substitute for managing your business, and failing to plan means you are planning to fail.

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Can’t do without one of these

A while ago I was asked by a friend to help her develop a pricing model for a product she was importing. My friend knew how valuable a cost to retail spreadsheet could be, so I happily obliged. If you’re an importer or selling locally feel free to access the spreadsheet and make your own cost/profit/markup/retail scenarios.

A spreadsheet like this allows you to create multiple scenarios depending on what you enter as the costs and/or the retail price. For example, you can change the assumptions to get the cost you need based on the desired retail to make the revenue (price x quantity) you’ll need to open/stay in business.

Use the spreadsheet to see the impact on profit:

  • for new products
  • of changing supply chain costs (either proactively or reactively)
  • of different exchange rates
  • of changing the wholesale price e.g special pricing.

It’s also good to cross reference the spreadsheet with the actual average margin you’re making to see if the actual costs are in line with budget. And of course it’ll be useful should GST change again.

Most times your costs won’t change too much unless you’re dealing in different currencies. If you are dealing in foreign exchange it pays to use a conservative rate. By doing so your product should be viable even if the exchange rate drops.

The spreadsheet will also allow you to plan the pricing, revenue and margin over a product’s lifecycle. The introductory pricing will probably start higher, then for the next tranche of buyers some added value may be required, and then a lower price as it reaches maturity or even a run out price. By planning your pricing ahead of time the resulting product profitability at the end of the lifecycle won’t be a nasty surprise.

Go 2 Market principle: product profitability needs to be managed. A cost to retail spreadsheet is a must.

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