Finding the Right Price to Attract & Hold Customers

Pricing is a challenge because it must represent your cost of production as well as meet your customer’s value for your product or service. Typically, a business will set a selling price on either a value based or a cost plus based system. Market conditions dictate, which approach, is used. For example, to use a value based approach you need to set the selling price at a level the consumer is welling to pay because the product or service meets their needs (it has value). A value based method is practical in highly competitive situations since the customer has alternative suppliers of comparable services or products, while the costs of providing such a service or product various. The cost based approach is generally used when your competitors are operating from the same costs of production and the pricing is highly competitive.

Calculate Your Costs

Finding the costs to provide your product or service is a critical first step. The process includes identifying your production costs; this includes fixed and variable outlays involved to offer your product or service. Rent, salaries, property taxes, insurance and any other expenses that remain constant are considered fixed costs, while variable costs include those expenditures that fluctuate with the number of products produced or services offered, and, may include raw resources, hourly wages, sales commissions, and other related costs. Generally, you would add up all of these various expenses to determine your product or service cost per unit sold. Next, you will want to establish the markup value of your product or service. This will require research and discussions with a number of people in your industry, trade, and community; your objective is to determine a competitive percentage of markup. Of course, a number of factors will play into the percentage of markup that you establish, and, even then, you will vary your price on occasion to meet the marketing needs you encounter.

A Competitive Edge

The most critical questions to be answered in establishing a selling price are your competition and the price you pay to produce the product or service you offer to consumers. Your competitive edge is always driven by the purchase price you paid to offer a service or product. In today’s world, this can mean other local venders, but, just as likely, it can mean large multi-state or even international companies, such companies have the ability to buy larger quantities of products or offer a wider range of services, thus, the potential to offer a lower price. In this case, you may have to adopt a market strategy that involves business practices that attracts customers for other reasons than price alone. This means to remain competitive you may need to depend more on service, location, or other strategies.
Remember, you can set different prices for different customers to take advantage of higher profit margins when possible and, alternatively, seek higher volumes when lower prices justify market penetration.

Remain Flexible

The point is remain flexible in your pricing policies by taking advantage of the uncertainties in the business cycles, stay alert to your consumers’ values of your business as well as your competitors. The guiding principle in setting prices is to focus on the amount of gross profit produced by the volume of sales in relation to operating costs. Thus, know your operating costs to measure your survivability in pricing your product or service, be aware of your customers’ needs, and be watchful of market trends to avoid any adverse changes that might affect your business.

One Satisfied Customer Leads to More Referrals

The end goal of every business is to make a profit. Many marketing studies show that a company’s resources are better spent by keeping existing customers than acquiring new ones. This may be true in some cases; however, for the vast majority of us, the reality is we need to continually add new customers to just stay even, let alone, to grow. How we achieve the goal of a profitable business depends upon the marketing approach or pricing scheme employed.

Let Happy Customers Create More Business For You

For the purpose of this article, we will focus on the benefits of seeking new customers through our existing retained customers. The fact is successful businesses are those which manage to enlist their satisfied customers to partner with them to develop new customers because customer retention influences your company’s profitability by lowering expenses and operating costs. There are a number of ways an increase in customer retention rate can increase profit, but, it should be noted, the person easiest to accept your offer is likely to be the one who is the quickest to defect. Price discounts are clearly an ideal means to obtain new customers; your challenge is to retain the customer. To be effective in retaining new customers, two factors, typically, considered as essential elements for retention customers are perceived service quality and customer satisfaction.

Many of our clients have explained to us how they, through the use of direct mail advertising combined with a strategy to generate customer satisfaction by providing quality services, have been able, within a years or two, to increase the number of customers as consistent, frequent users of their products or services. These customers have more than paid for the advertising costs. Further, marketing studies have identified significant benefits of retained customers, such as, they tend to prefer stable, long-term relationships, inherently spend more, pay promptly, and require less service.

We have found the most important benefit of a retained, satisfied, consistent customer is their ability to generate second and third generation leads by referrals to your business. The company’s return on investment in advertising cost will certainly be increased. The multiplier effect of one retained customer generating just one other retained customer who in turn generates another retained customer is very significant to the company’s bottom line. And, this is not even calculating the number of customers who are drawn to your business because of casual referrals by your retained customer. But, this is certainly how your business grows when you cultivate your customers through a business strategy that involves you and your employees in finding and recruiting customers by producing better products and services that have value to your customers and their referrals.

Know Your Customer's Values

Too often, we promote our company’s values to the neglect of the customer’s needs. A common mistake is to sell your product or service from the first meeting without understanding the needs of the prospective client or customer. The classic example is trying to sell your product or service on price alone, typically assuming the lowest price will close the deal. This may be true in some cases, but a number of marketing studies show that that approach, overtime, if carried too far, will reduce your profit margins to a drastic level of inefficiency. Rather, you should start any initial presentation by focusing on an understanding of the prospective customers perceived values. A customer’s definition of the value of your company’s services or products are limitless. Thus, you need to be alert to the different ways in which a potential customer will determine their level of need to use your company. Each potential customer, even in the same line of business, will consider different factors before they elect to obtain your services or products. You cannot assume one approach will work in all cases.

Get to Know Their Needs

Start your initial conversations by having prospective customer tell you about their business and some of the issues that keep them up at night. From these early comments, you might begin to ask questions that would cause your prospect to tell you the values they consider important to solve their problems, they will then be able to identify the level of significance, relevance, and interest necessary to achieve resolution to their concerns. Your objective should be to have a conversation with your prospect that includes so much value that they thank you for speaking with them, and that they welcome future conversations with you. How do you achieve this degree of acceptance by your prospects? Well, as it turns out, it is easy. Most often, none of us are asked meaningful questions that help us clarify our problems and how much they cost us. Offering clarity of thought and appropriate business information is enormously valuable. People will see you as a person with unique skills and will want to have further conversations with you. These types of conversations will develop an on going relationship that will allow you and your prospect to possibly identify ways in which your company can be of assistance. In most cases, this approach will have gained for you an appreciative customer who is receptive to listening to your suggestions because you seem to understand their needs and the value they place upon certain approaches to running their business. You have in essence, provided a valuable service by helping to solve a problem and justified a buying decision that added value that your prospect accepted as mutually important.

Creating an Uncluttered Ad

Have you ever flipped through a magazine, or a newspaper and came across an ad that just had TOO MUCH STUFF on it? I know that I have and sadly, it happens all too often. It seems like so often, a business owner will sit down and look at the space that he is given to advertise his business and think to himself  "Since I am paying for the space I need to put as much information on this ad as I can," but this can be one of the worst things a business can do. Too much information = too much clutter = No one will stop and look at your ad!  I would like to share with you some of my secretes to creating a clutter free ad; whenever I start working with a new client we will always go over the following goals and steps. Come on, play along with us. Write down your goals and follow the steps as we go and by the end of this article you will have created a clean, readable, EFFECTIVE ad.

What are your goals with this piece of Advertising?

What is your Primary goal?

1. With any advertising, it will likely be one 3 things:
2. To bring in more customers IMMEDIATELY
3. To build up your brand identity
4. To promote a new service

Sometimes it can be all three, and there are occasional exceptions, but as a business owner who is putting together an ad, you should always ask yourself which one is your primary objective.

What is your Secondary Goal? What do you want your customers to do?

Call...Come In... or go to a website? When your potential clients knows what you want them to do, they will be able to either call or come in to find out answers to their specific questions. The majority of businesses will see a better ROI when they have potential customers call or come in. With these 2 methods the business owner can ask the right questions and help solve their customer's problem.

What Message would you like to use?

Keeping your goals in mind, make a list of everything that you would want to put on an ad. For the purposes of this exercise, I'm going to create a list for a pizza restaurant.

Primary Goals

1. Bring more customers in immediately
2. Build brand identity and recognition
3. Promote free delivery

Secondary Goal

Have people come into the restaurant

Step One: List ALL information you'd like to put on the ad

• Company Name
• Phone Number
• Logo
• Address
• Map
• Shopping Center or Landmark
• Menu
• Type of Restaurant 
• 50% Off Any Pizza Offer
• Free Delivery
• We are the best pizza in town
• Find us on Facebook and Twitter
• Accept cash and all credit
• Open 7 days
• Open Late
• Hours of Operation
• Photo of Restaurant
• Photo of Pizza
• We Cater
• We have a banquet room
• We are New York style pizza
• We have thin crust, thick crust and stuffed crust

 WOW that's a lot of information!

Step Two: Prioritize the information

Keeping your goals in mind, choose your top 10 most important points and number them in order, with 1 being the most important.

1. Company Name
2. Phone Number
3. Logo
4. Address
5. Hours of Operation
6. Photo of Pizza
7. 50% Off Any Pizza Offer
8. Free Delivery
9. Map (Only use if your location is hard to find!)
10. Find us on Facebook and TwitterShopping Center Name or Landmark

Accept cash and all credit
Open 7 days
Open Late
Photo of Restaurant
We Cater
We have a banquet room
We are New York style pizza
We have thin crust, thick crust and stuffed crust

You might be asking yourself "Why did she not rank the others?" To answer your question, it's important to focus on the really important info, instead of piling every single thing on the ad. There are certain things that are generally known and accepted. By inlcluding your hours of operation on the ad, you've covered that you're open late AND seven days a week. If you have a map on your ad, it will surely have the name of the shopping center on it. If you design the ad and feel that it could use a few other pieces of information to help the design, then keep on with the numbering so that you're adding elements in order of importance

Voila! That is it you have created a clutter free ad that works and gets all of your needs met.