~~It is difficult to use ART and SCIENCE in the same thought process. In business, it is essential to get both processes working together when it comes to pricing a product or service.
The ART of pricing is more about the value that is perceived by the customer. For “ME”, if I can’t see the value of any product or service, I don’t believe my customer will see the value. The truth is, it does not matter what I think; The ART lies in both the business as well as the customer being in agreement as to what the value is. I have spent thousands of hours in study group after study group talking about value proposition (In my view, a complete waste of time). Even when customers were invited to be part of the discussions, it didn’t seem to matter. The real point is that it is very hard to keep track of the market place ….. Coke one day Pepsi the next. Both are sugar drinks that are brown in colour and as generics… they are cola’s. Both Coke and Pepsi spend a lot of energy, time, and MONEY painting pictures in our minds to create space on their respective value propositions of the 2 drinks. I have spent as little as R4, 50 to as much as R15, 00 and a range in between for both Coke/Pepsi. In all ranges of prices, I have had varying thoughts on value and have felt ripped off at R4, 50, and completely okay at R15, 00 for the same drink. Over 55 years of experience of drinking the brown sugar water and I still don’t get how this happens…..only to say this: It is how I feel ……..when buying all products of value.
The real ART of pricing is the illusion and feeling of any product or service……..
• Did my supplier care about “ME”?
• Was I having fun?
• Did the product exude quality?
• Was there a high standard of delivery?
• Will the experience repeat itself or was it just a lucky once-off?
It really is very easy to work the SCIENCE of pricing. It is a pure measuring exercise. When I was farming, the price was set for “ME” by world markets (Supply and Demand). In the sixties when the market was slow and information even slower, pricing was very easy. Add up all your costs:
• Raw materials
• Manufacturing
• Freight
• Marketing Budget
• People costing’s
• Storage
• Levels of distribution (Manufacture, wholesale, retail)
• End user volume discounts
Work out all the variables between each level, work out the net costs at each level, and add your profit margin % at each level and hey presto now you have pricing. Increased pricing was the norm, if you didn’t make a profit at one point in time, you would simply increase the price and everything would workout. In today’s world, the market moves fast to compare value propositions, loyalty is hard fought and easily lost. Pricing is a real science at all levels. Customers can compare faster, at lower costs, and most importantly, there are no shortages of products/services being offered. The norm before was “increase your price and your business will make a profit”……
The market is not that forgiving now; With the internet, the customer is well-armed and makes comparisons at will.
The new market demands “EVER MORE FOR EVER LESS” on a daily basis.
So how do we survive in this market of information?
I studied with Robert Kiyosaki for many years and if he taught “ME” one thing that has stayed with “ME”, for as long as I have known him, I would say his golden rule in business:
PROFIT IS MADE WHEN YOU BUY!!
It doesn’t matter what you are talking about; from leasing a car, buying a house, paying for any products, whether time-based or physical product…… MONEY and the volumes of profit are always calculated against true cost or what is paid for all of the above; however, it is easy to make a profit if the costs and expenses are as low as possible. As a farm, the only way to make a profit was by always creating more-with-less on every aspect of farming. Robert’s golden rules made sense to “ME” from the first time I heard it.
In today’s world of numbers, spread-sheets and all the “what if scenarios”, pricing is more and more a science than an art. Yet one without the other makes it very hard to create value, which creates long term loyalty and ultimately repeat business….. which is the real More-with-Less result every business must have. Next week, I will illustrate the formula I use to create pricing for various business cases. I leave you this week with ART, SCIENCE, and Robert’s GOLDEN RULE! Before we can get into the real content of pricing, we must set-up the context. Until next week……
SABEF Struggledork Out!
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