Pricing is one of the most misunderstood elements in the business world, especially among small businesses.
A common trap is the perception that price the most important thing in a transaction.
Globalization and the Internet have enabled price information to be more accessible to more customers so it’s easy to assume that it is the buyer’s dominant consideration.
Real-world experience suggests it is not. What is the correct price? It’s one that reinforces all of the other elements of the product — the performance benefits, quality, service and overall owner satisfaction.
Price means different things to different market segments. Repeat business is a common characteristic of business-to-business transactions. Of course price is important, but it is usually the last thing that is considered after reliability of delivery, quality and access to new products.
Only after these needs are satisfied does price enter the equation, but with a twist. Low price is desirable but price predictability is more important.
For any business that lives by its forecast, price volatility can be fatal. That’s why most large company requirements are handled via annual purchase contracts that are quantity- and price-specific.
Similar examples of the “low price is not everything” behavior exist in the consumer market.
The car market is a complex market with dozens of models and price points. If low price was the only factor, the luxury car segment would not exist.
Even Walmart, known for its low prices, is not just about price. The real power of its business model is that it offers known, branded products at low prices. Branded products have already answered the buyers’ concerns about quality, styles and reliability so the only remaining factor is price.
Still skeptical? Think about the last item that you purchased. Would a low price make up for no stock or poor quality?
Evaluate your pricing from a holistic point of view – price is just one piece of a multi-faceted business plan.
Ralph Hershberger is president of SCORE Southern Arizona, a nonprofit group that offers free small-business counseling and mentoring by appointment at several locations. For more information, go to www.southernarizona.score.org, send email to email@example.com or call 505-3636.