March Pricing Tip

February Pricing Tip

January Pricing Tip

March Pricing Tip [back to top]

BEAT THE BUDGETS NEXT YEAR WITH THE HELP OF PRICING 

Hallelujah, it coming up to the lovely time of year, budgeting time. Oh the joys to come, "What are we going to sell next year, lads? Do we count that big possible order in or not, what does that do to our costs, yes but we need more development investment, and we need a bigger budget for marketing, so what does that do to our profits? Oh yes, prices, shall we leave them as they are?" 

I'll make this as simple as I can. 

Most companies should do their budgets as the old BTR companies did them. They pushed up their profits to all time highs before the old management retired and the new management threw it all away. That's why ex BTR divisional chiefs become so marketable- they knew how to improve profit performance like no one else does. 

BTR worked on a Profit Plan, not a budget, and the first thing they put in was the proposed prices. Why? Because they knew for an absolute certainty what made most profit in the company and it was always pricing. The second figure they put in was the costs, and they always had to be lowered. You are all good at that, I've no complaints about you there. The final figure they put in was the sales figure, and the sales mix. It never fitted, so they had to keep on doing it over and over until it did. Every time they re-worked the plan, it showed that the most significant factor was the selling price. Even more than the costs. 

Now, actually, you know this yourself, but your sales people down the line don't. No, honestly, they don't have a clue how important is the selling price, and even if they do, they don't know what to do about it. (I'm offending a couple of companies here, because a couple of you do know how to get it right in your sales teams. That's why you are the most profitable businesses in your market. Feel better now? 

So, I tell you what. I can't convince you to alter your budgeting routine. But what you can do is to have a quick go yourself at top management level working out what better prices would do for your results. Then pass on a target for that to the people who prepare the budgets. Tell the finance people first, they'll love passing on those higher price targets to your teams. 

You'll end up with this problem. When the new price targets go down the line to sales they will not have a clue how to handle them. Sales teams are afraid of price, don't know how to present it or negotiate it. Price increases to customers? They'd rather have their teeth drawn without anaesthetic. 

Now give them to me for a seminar and I'll show them. They'll come out with whopping self confidence; you'll have to hold them back. They'll know what, to do, how to do it, and who to do it to. 

I've made you a fortune already, just with this idea. 

John  

PS  Available for bar-mitzvahs, weddings, sales conferences or just being taken out to lunch somewhere nice.

February Pricing Tip [back to top]     

 

These are not nice. They are designed for very price competitive markets where buyers do a lot of searching for low price deals. In themselves, these markets are not nice to trade in, certainly no fit place for a person of breeding and education. 

Buy it and cook it

 This is one used in very price competitive markets, particularly for one-off deals.

You “buy” the contract at a very low, below cost, price because you know there are going to be variations and extras later. The contract itself will lose money, which is made up by charging extortionate prices for the extras. For this trick to work the extras have to be proprietary, and cannot easily be sourced elsewhere. 

“How am I going to price Thames Water contracts, John, they are all loss-making?”

“Yes, Trevor, but we both know how you are making money out of Thames, don’t we, because your outfit is making a total of 4% net on sales” Once the customer agrees the contract, they are locked in. “Hmm.” 

5 star Hotel bar in Jakarta , I’m surrounded by electronics chiefs from around the world all bidding for the new Indonesian military radar installation worth £millions. True story.

“Hey fellows, the French are here, I’ve just seen the Minister in the official car with the Ambassador.”

“They can’t be, they were not in it”

“Well, they are now. We all may as well go home.” 

All the competitors in the bar knew how the French get contracts – I didn’t. Apparently, the deal is that the French guarantee to offer the lowest price of all international bids. The condition is that they see the rival bids first and on the day before the contract is decided. 

The French deal will be proposed at Government level by a highly ranked Cabinet Minister. It will include many free trips to France , either Mediterranean or Paris , or both, with a very helpful and attractive French guide – to inspect the progress of course. There will be numerous crates of brandy offered for Xmas or Birthdays to many levels of Generals and Officers below this rank. 

The French bid will be low, very low, so there can be no doubt about the fairness of the contract bid decision. But over ten years, with all the training, installation costs spare parts, maintenance and so on, everyone involved knows it will be the mostly costly contract of all for the Indonesian government. 

Bait and switch

This requires low price advertising or promotion to bring in the customer prospect. Prospects get tempted in with a low price, and then switched to a higher price because the original one has sold out or the conditions are impossible to meet. 

If you sell your car privately through AutoTrader they offer you a “special rate” of £5.99. The catch is that this is only for cars selling below £1,000. There are a lot of cars sold below £1,000, not. 

In my men’s wear group at Sale times (yes, I’ve done a lot of things) we always offered a “call bird” at half price or less in the window. This was a very fine suit, put in the front of the Regent Street store. Problem is it did not fit anybody, made as it was for an Andean giant with three legs.

Don’t ask us for deals, please 

Some companies establish a reputation for not dealing - in competitive markets it does not work. I could have told the old-style Marks and Spencers their attitude would not last in a market where prices are falling (“Dear me, we would never offer anything so common as an Annual Sale, dear me no”). Times have changed. 

Good one this, you can adapt it to your circumstances. The trick is that you will deal but it does not look as if you will. This stops amateur buyers from trying it on. 

I saw it first, years ago in the old Singapore airport duty free area. Labels on each garment in one shop offered a 10% discount with the little phrase. “These goods are already discounted, so please don’t embarrass our staff by asking for more” 

Wonderful, it nearly had me fooled. Did they deal? – you bet, the locals knew the game. It is Singapore , after all. But it made them money from the less experienced tourists. 

You can put it on your price lists. Show your discounts and then say that staff are not empowered to vary the terms. Or say that only on some items are deals offered. There are hundreds of ways of fixing this. 

Would you try and get a deal on postage stamps from your Post Office. Don’t be silly.

So do the Royal Mail do deals? Absolutely, try sending out 10,000 mailings. They’ll deal. But you have to ask.

 

                           

 

January Pricing Tip [back to top]

 

To quote or not to quote, that is the question. 

"Client always pays for agency mistakes" I grew up with this as a mantra in the advertising agency business as a (very) young man. If we made mistakes, then the suppliers were told to spread the charge over several bills - we always passed on suppliers invoices to clients, very ethical we were, apparently. The client could never spot the mistakes and did not understand the bills anyway. We never quoted prouction costs beforehand in any detail to clients. 

"Always get a quote, when you order printing" This was a later mantra, when I was a print buyer. When printers quote, they always allow standard costs for ink usage, machine downtime, clean up, paper wastage and so on. So do you, probably. Under standard printing terms they are allowed to charge a bit extra on top of a quoted bill for paper wastage because it is difficult to estimate in advance.  So if you've got a quote then the printer is stuck with charging just that sum, whatever costs he incurs. Mistakes are down to him. 

"Materials extra" is the standard form of quotations in the building trade. They have a lovely time. First of all, they know only too well that you are going to vary the specs for the job, and once you do so they've got you. Secondly, they've got freedom to buy what they like from whom they like and you have to pay. Half the materials used on a pals job are paid for by your job. 

I know I'm a cynic, but all of this still has the ring of truth doesn't it?. How you quote is down to you, what bits you leave out, what bits you include. They can't specify everything, not all the time. 

I offer two broad approaches. If you are the top of the market, top price, top quality and are not afraid of quoting top prices then do so and don't play games. Give them an all-in price without fancy extras. (That's what we do - travel and hotel stay are the only extras at cost) 

If you are in a normal market, then examine what bits you have to quote on in order to get the job. If you can leave out quoting the bits that will come later when the job is halfway through, because then the demand is inelastic and you can charge a standard price. 

If customers are grinding down your prices, putting you up against competition all the time, playing you one transaction after another, then all bets are off as far as I'm concerned. Caveat Emptor.  Quote your spec nice and tight, with tight conditions, leave out as much of the service and support as you can from the spec. Then charge them an arm and a leg for any variations, and charge high for service. Train your sales force in contract law. Yes, some people do. 

Two can play at their game. But they might be ready for you the next time.