2010 Update: I made the decision to bring Say “Alaka‘i” here to Talking Story in late May of 2010 when the Honolulu Advertiser, where the blog previously appeared, was merged with the Star Bulletin (Read more at Say “Alaka‘i” is Returning to the Mothership).
Therefore, the post appearing below is a copy of the one which had originally appeared there on January 29, 2009, so we will be able to reference it in the future when the original url it had been published on is no more…
Set your price, charge it, and stand behind it
Had an interesting conversation with a local businessman recently about pricing, and all the variables which go into your decision on pricing a product or service.
There are the obvious ones, like covering costs and getting some kind of a return on your investment, but then there’s that great equalizer, at least for the vast majority of business people who have not yet achieved the euphoria of a winning brand’s monopoly, and that equalizer is supply and demand.
However, an overly obsessive concern with supply and demand can make variable costs and expenses weigh much too heavily in your decision-making. You’ve got to ride any ebbs and flows with more confidence, knowing your pricing decisions were sound in the first place.
Talking about when the balance scales of supply and demand shift —in either direction— and coming up with changes in your pricing is
a) Too complicated when it doesn’t have to be, repeatedly pulling your attention away from other growth pursuits
b) Completely at odds with getting your own staff to believe in, and understand your value equation, so they represent you well
c) Extremely annoying to your customer: For example, think about how you only get “a deal” when you are a brand new wireless telephone buyer, and not when you are a long-time loyal customer (unless your plan is up for renewal). Whoever got the whole industry to adopt those practices should be ashamed of themselves.
We who sell goods and services have trained our customers to game the system. We have trained them to deny our right to make a profit —and thus make a decent living for ourselves as their fellow human beings— so they can get some wildly unfair deal when we are down.
Let me propose a better way. Set your price, charge it, and stand behind it.
Set your price
Do I propose you ignore supply and demand? No, not at all. I simply propose you deal with it just once, and exceptionally well during that one time; during the construction of your business model and business plan. If you have a sound business model, there will always a customer for you; if not, you didn’t have a sound business model to begin with.
This past Tuesday’s blog (S-e-l-l can’t be a 4-letter word in business) assumed that you already had a customer in hand, one who was ready to buy, and who needs you to make the buying process easy and enjoyable, but what about when they truly are “just looking” and still comparison shopping?
In both cases, price needs to be just slightly less than perceived value. What you need to concentrate on is the perceived value, and figuring out if you are willing, and able to deliver it at a decent profit for your efforts (the ROI thing). Second, you must remember that every winning business is in the service business ”“ every single one. I cannot think of a single product that comes without necessary service in its delivery, and the better your service, the more you can charge, for service becomes the added value to the product.
Barter may be making a pretty decent comeback (love the concept), but even those who trade and barter set their price and stand behind it so there is a transactional number which makes things easy. And know this: There is leadership in pricing too. Leaders know their worth, and they state it proudly.
Drive through Waikiki right now, or stroll through one of our shopping malls, and there are 4 lousy letters that yell at you:
Get those “For Sale” signs out of your window (literally – trash them), and clear their negative self-coaching out of your attitudes (figuratively, and for whatever you sell). You never want to be “for [discounted] sale” no matter what your product is. If you must post a sign, write one that says: “No loss-leading prices here; we charge what we’re worth, and you deserve to have our value, for you are worth us being better too.” Get that attitude out on your sales floor, in your telephone conversations, and in every other presence you have internally and externally.
Then get to work with whatever product knowledge you must teach to every single person on staff so that they fall head over heels in love with who you are (as a business), and what you do you (as a service provider). Champion the love and devotion; coach the sharing of it. Don’t hire anyone who cannot provide great customer service from the primary standpoint of they themselves being one of your most fanatical, loyal customers too. When they “sell” they need to be sharing their product knowledge and adoration, enrolling your customer into their personal fan club.
Stand behind it
If you can’t stand behind the prices you set, honoring their integrity, how in the world can you expect people to pay them, and honor your integrity with setting them too?
The easiest way to stand solidly behind your prices is to illustrate your worth.
If you get to work on putting yourself in the customer’s shoes, focusing your intention where their attention is, you will figure out what is valuable to them about what you sell, and what features you must “put on stage” basking in the limelight. That’s product. Then, service is what you offer as the added extra that wows them, and gets them to stand up, cheer for you, and yell “Hana hou!”
No more discounting. No more sale signs. Discounts and sale signs tell a customer you screwed up with your business model. Discounts and sale signs get a customer to wonder about how else you might be ripping them off.
Do mistakes happen in business modeling and sales projections? Sure. The difference is what you do about them, and parading them in front of paying customers is a lousy strategy.
You are better off just giving away whatever you have to liquidate as promotional goods or to charity, helping those in your community (when they are asking for help versus looking to buy) as a way of saying “mahalo for honoring my price integrity whenever you do have cause to buy from me.”
Two steps back for one biggie forward
If you don’t yet have this pricing integrity I am advocating, chances are you have to retrain your customer out of the bad habits you’ve enabled in them.
So retrain us. Ultimately, we all have to have an entrepreneurial mindset as individuals and you’ll be doing us a big favor. (For more on the entrepreneurial mindset, see #3 in this article: The Top 7 Business Themes on my 2009 Wish List).
Be brave. Change the game. That’s what Alaka‘i leaders do.