Thorny Pricing Issues

During a trip to a local grocery store to stock up for a college graduation party for my daughter we decided to buy a dozen red roses for the table. Cost = $8.99 or .75 a rose. A bargain, indeed!

As we continued to peruse the floral department we noticed some very special single stem roses for sale on an individual basis. These had gold-stamped lettering on one of the outside petals that read "Congrats Grad." Cost = $5.99 a rose.

We, of course, bought one.

Value-Based Pricing

My daughter, a business and marketing major, looked at me and said sardonically, "Those darn marketers!"

Of course, the marketers get the blame or glory - however you look at it. But the real point to this story is that someone somewhere in the floral business uncovered a need in the market place and adequately and pre-emptively met that need.

By doing so they came up with a way to differentiate their product from all the others "in the cooler" and get paid a mighty premium for that value.

At its very essence this epitomizes what marketing - and pricing - is all about. It's about getting paid the most for the value that you, your company, your product or service is perceived to deliver to the market served.

But What Defines Value?

Value is simply defined as the benefit your potential customer perceives he will get divided by the price he is asked to pay.

Value = Benefits/Price

In the case of the gold-stamped rose my daughter and I perceived the benefits to be at least eight times greater than that of a plain rose.

So how does this "rosy" example relate to my business-to-business clients' companies and the challenges they face?

Very closely! Read on below….

Value and Pricing Are Relative

There are three variables that influence where the value and price point should be set at any given time. And these apply equally to widgets or roses. Those three are:

1. Customers' demand - That rose would have little to no demand during a non-graduation season.

2. Competitors and substitute pricing and value - What were other roses going for and what did they "do" for me?

3. Your own internal costs - My bet is that the method to gold-stamp a rose is simple and the cost very small.

The optimal set price point is a function of these three highly inter-related variables. To rely too heavily on any one of them is to eagerly invite trouble to your top and bottom line.

Let's look at some common, current BTB pricing scenarios some of you may be facing.

1. Demand - The worldwide shortage and subsequent rising price of steel and the heavy demand for domestic residential construction products has caused tremendous pressures on companies selling steel-related products into this market. Some are benefiting from this situation, some are suffering because of it.

2. Competitors/Substitutes - You see this one across many industries today as less costly technology-based products replace high cost, outdated "legacy" offerings. Think about trying to sell the best electric typewriter for any kind of price in today's PC environment!

3. Costs - Your own internal costs can be confounding on either end of the spectrum. Too high and you can't compete. Too low and you feel you have more room to "give away margin" to make the sale, thereby bringing down the water level in the market for years to come.

Check Reality and Build Value

If you are finding that your pricing theory is not being implemented in the market place it's time for a reality check. Here is just a sampling of typical questions we use when working with clients on their pricing issues.

Value - Do your products really provide the buyer with better value than the competitors' products?

If so, how? Are your sales and customer service people well-versed in these value points and are they comfortable selling and talking about them?

If not, how can you increase your value?

Demand - Is demand truly down for your products?

If so, are you doing all you can to prove your value to those folks who are currently buying or will be soon?

If not, how can you get in front of those folks to sell and tell your value story.

Substitutes - Are there substitute products that offer a better value because of their lower price and similar benefits?

If so, what else does your company provide besides the physical product that adds value to the buyer's situation?

Costs - Are you lowering prices on high margin items to close the sale?

If so, why? Sell the value the buyer is willing to pay for.

Call us if you need help with your thorny pricing issues or join us for the August 4 Marketing Dialogue Session on this topic by visiting:

http://www.mosaicmm.com/teleseminars/
Marketing_Dialogues_Price.htm

Remember, Mosaic creates customers for business-to-business companies through specific project work, on-going retainer assignments or marketing coaching sessions.

Until next time.....

Rosemary Walter
847-483-5018
Rose1Walter@MosaicMM.com

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"By Rosemary Walter of Mosaic Marketing Management, Inc. Please visit Rosemary's web site at http://www.MosaicMM.com for additional marketing articles and resources on marketing for business to business companies."