VIEWPOINT - Robert Craven advocates a brave approach to pricing

"You can't be serious! You reckon we should put our prices up, while everyone's offering mega-discounts and buy-one-get-one-free superdeals? Totally bonkers.”

Calmly I explained the logic: "When you put up prices, the clients you lose will be the mean, penny-pinching pondlife. Buying on price, they will be disloyal and ‘clients from hell’ making unreasonable demands yet not valuing your service. You do not need them. I say “Good riddance!”

When you put up prices, your great customers stay with you. They are not buying on price, but on quality, friendliness, reliability. More importantly, they tend to be your ambassadors and raving fans who go around promoting you. More like this please. Putting up prices means you sell less, but at a higher margin. Doing the maths, if you have a 30% gross margin and you put up prices by 10% then you can afford to lose 25% of your sales unit volume and still have the same amount of money in your back pocket. Sounds good to me. If you have a 30% gross margin and lower prices by 10% you have to sell 50% more units just to make the same. Madness!

As independent businesses, we can't compete on price. There's always someone with deeper pockets and more buying power. So where's the proof we should put prices up?

Well, say a baker prices a special loaf as the most expensive in the UK. The resul? Unprecedented media attention, interest, sales and profits. Or what if an estate agent triples its fee rate? All the tyre-kickers and bottom-feeders vanish and it becomes incredibly attractive to affluent high-value clients who associate higher-than-average price with higher-than-average service.

The pressure to enter a price war is huge, but just because everyone is doing something doesn’t make it right.

about the author

Robert Craven shows MDs and owners how to grow their sales and profits and focuses on how to do this in recessionary times. His latest book is “Beating the Credit Crunch – survive and thrive in the current recession” For more information visit: www.directorscentre.com

Robert Craven©2010

publication details

First published in Growing Business Magazine - October 2010