Think that there’s just three options available for pricing our goods, and services, a low-range, a medium-range or a high (premium) price and that’s all there is to it? Wrong. There is a real focus, almost single-minded determination required when it comes to the pricing of products and services, because without it you’ll struggle to have a sustainable business over the long-term. Here at GDM, we mostly work with manufacturers and retailers, and although their customer groups vary, both groups operate in highly competitive environments despite being in some lucrative niche markets. So, with so much competition, how do they steer a path that means they’re not willing to compromise on their long-term success? Well the simple answer to that is that all of our clients are prepared to walk away from a deal, if it’s not in their interest, something too many others find difficult to do.
This single-minded, almost bullish stance about developing their brands and protecting it tenaciously regardless of the what’s happening in their sector remains paramount especially during more challenging commercial periods. It’s at times like these, when some of the staff around them are having doubts about the agreed corporate direction, they will understandably create some personal doubt amongst the senior team. So, if you’re in this position also, you’ll need to appreciate quickly which ‘generals’ you want alongside you for reassurance, support and guidance. But isn’t that odd, that in a blog about price we’re referencing the importance of people? Well it shouldn’t be, because if you are determined to be the best that you can be, even as a retailer whose business is driven by RRP’s, your awareness of the roles your staff have with your suppliers and the senior team will give increased confidence and reason to press on.
From the outset of any planned strategy involving premium pricing you need to cosset and nurture your carefully chosen suppliers and defend your route to market with them vigorously. Doing so will enable you to build lasting relationships through the face of adversity whilst providing you with the basis for developing the kinds of products that you can deliver to your customers at a price and service that makes sense. As you continue to progress you can use your relationships with your customer base and your carefully selected suppliers to further elevate your position as you further strengthen your brand.
Selecting new innovative suppliers who share your vision at trade events and through research and invitation, will help keep you ahead of the curve; as will researching the needs of your customer base to understand what both parties hope to gain from such a relationship.
Unfortunately, in retail we often see some companies introducing new products that aren’t quite as strong as the original core offering and whilst this helps to retain a large customer base, it invariably weakens the original attraction of the higher spending consumers. Consequently, what you tend to find is a narrowing of advantage and a blurring of the lines that only reduces your appeal and increases the likelihood that product discounting will become the mainstay of your business for years to come! Hardly ideal if you’re thinking of building a business that you can profitably exit from in a few years’ time. It’s at this point it’s worth reminding you of why we said previously about the importance of the quality and single-mindedness of the team around you as any softening of the original stance, will gradually play into the hands of every competitor you have.
In retail, price skimming is a frequently used initiative where new goods enter the fray at a higher price, before margins are eroded as they become widely adopted by increasing numbers of retailers who target the large majority of non-value driven consumers. This generally sees those early retailers further lowering their prices too and thus begin eroding their value differential which they often fail to see.
This is a complex challenge that often sees turnover being levied as the rallying call rather than profit, so you’re going to require exceptional selection choices around: products, suppliers and logistics if you are to have a platform for building your brand, but you’ll also need meticulous understanding of your consumers needs too. This doesn’t mean offering a wide choice to satisfy the broad demographic groups within them, but merely requires you to be entirely in-tune with the niches that exist within your customer base in order to establish your place in the hearts and minds of those you intend to retain and develop.
There’s no simple answer to this without investing more time and energy, unless of course you outsource the strategy to a competent and highly credible partner. Such an external partner should be able to support your single-minded approach, and that of your ‘generals’ so that you continue to steer an appropriate course towards the consumers who accept that premium pricing has a value. If this is already proving difficult, our advice is that you don’t leave it too late before making such a bold and decisive move, because reversing this issue over long periods of time is not without considerable pain.
Once this ‘brand value’ team is in place they’re free to review the company’s supplier relationships, products supplied, prices charged and the various consumer groups before making recommendations about more intricate levels of pricing within the three
fundamental methods e.g. your use of geographic, psychological, bundling, skimming and penetration pricing to name a but a few. Once done, you’ll be in a better position to prove you can add value to your relationships over the long-term. But remember, whatever you choose to do with your pricing strategies be sure that any advertising claims you make don’t contravene the ASA (the Advertising Standards Authority) guidelines.
If you are a bricks and mortar retailer (or manufacturer) and would like to speak to me about any of the issues raised in this post, please email me, Nigel Davis.
Nigel Davis was voted ‘One of Britain’s Top 50 Small Business Consultants’ & is an MCIM Chartered Marketer.