Price

I often talk to businesses where they spend all their time working out how they can save a few pence so that they can reduce their prices. If you have become a habitual discounter, you might want to take another look at how you can differentiate your offer more.

Your pricing policy should be a weapon in your armoury. Unless your business deals in commodities, price is only one factor – and is often not the most significant. It is vital that you understand exactly how you got to the pricing that you are using. If you find yourself constantly trying to be 1% cheaper than your competitor, you may well be missing a trick.

Review

Review your prices – at least annually. Assess your prices against two factors:

1. Your competitors;
2. The value your clients and customers perceive you deliver.

Value

When assessing your prices, evaluate the total cost (perceived cost) to your client and compare this with the value that Your Client perceives you to deliver.

Improve Your Margins

In this model, where at the outset, variable costs are 30% of selling price, a 3% price increase has the same impact on margin as a 10% reduction in cost.

Costs, overheads and margins all vary substantially from business to business – make sure you understand yours.

Discounts

Make your discounts work for you. If you feel obliged to give an extra 1% in exchange for a signature “Now” –request a testimonial as part of the deal.

Statistical Back-Up

In the third quarter of 2007, Services Producer Price Index (SPPI) inflation was 2.6 per cent, up from 2.5 per cent in the previous quarter.

The SPPI net measure monitors the price changes of services supplied by businesses to other businesses, local and national government outside of the corporate services sector. SPPI inflation is the percentage change in the net sector index compared with the same quarter in the previous year.

This was a guest post by Paul Fileman of SPS who are a national team of proven senior management professionals, passionate about working to help businesses achieve their next level of development and performance. Whether they are facing market changes, financial problems, people/skills issues, or are preparing a major project, they offer dedicated support from a multi-disciplined team of experts.

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