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Your EnterQuest Bulletin - Issue 241
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| Thought for the week: "Do not be fooled into believing that because a man is rich he is necessarily smart. There is ample proof to the contrary." Julius Rosenwald |
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In this week's issue:
How to price your product without frightening off your customers
Working out the right price for your new product or service can be one of the biggest problems faced by small business owners. Get it right and customers are happy. Get it wrong and you either make no sales because you've overestimated it, or you risk lowering your profit margin because you've undercharged.
So let's start at the beginning. What is the optimum price for your product or service? By that we mean, what is the best price that you can charge, without short-changing your customers or yourself?
It might surprise you to learn that all the price theory in the world won't tell you what the optimum price for your product is until you let consumers test it with their wallets. Even so, you should consider starting your test with four price points:
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What you think the price should be.
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The highest possible price you can imagine, but one to which you think that customers would still respond.
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A low price that is a great deal for the customer, but less than you want to charge.
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A fourth price that is outrageously high or low.
Now, holding everything else constant, you should be able to determine the sales from each price point. You'll probably find that the price that obtains the maximum sales and profitability is higher than what you had originally intended.
You could also consider a price-testing combination offer. By this we mean: what combination of items can you offer for the maximum sales at the highest price? Just send one stream of prospects to a web page with one combination and price and send a second set of prospects to a second web page with a different combination and price. The combination could include different product bundles, different guarantees, different service features etc.
Throughout your pricing exercise, bear in mind the teeter point. This is the price at which a consumer can't make up their mind. It's the point at which if the price of your product or service was raised by a pound you'd lose the sale, and if it was dropped by a pound, you'd win. But you need to find the teeter point by asking the right questions:
Question 1. What price is just a bit too high to buy?
Question 2. What price is almost too high to buy?
Example: If the median for question 1 is £50 and for question 2 is £45, your teeter point lies somewhere between £45 and £50.
Question 3. What is the price you usually pay for the product/service?
Pay attention here. This information is important because it helps you determine what a consumer is prepared to pay for your product/service.
Question 4. How often do you buy said product/service?
You should also answer these questions:
Question 5. On a scale of one to ten, how unique is your product or service?
Question 6. On a scale of one to ten, how important is your product or service?
The more unique and important your product or service, the higher price you can attach to it. The last question you should ask is:
Question 7. What is a fair price for your product or service?
Combined with the previous six teeter point questions, you'll have a good indication of the optimum price you can charge for the most sales.
How to get better deals from your suppliers
Every business needs to buy in supplies, such as stationery or something more important to the running of your business. However, when you deal with suppliers, you're dealing with professionals trained to get the best deal they can from you, for them. Here are some tips to help you make sales negotiations work for you:
1. Ask. If you don't ask for a better price, you'll never know if you could have had one. Even a 5% discount is better than none at all.
2. Prepare. Think about your targets in advance of your sales conversion or meeting. What are the prices and terms that you want, and how can you persuade the sales executive to meet your target?
3. Use the competition. Salespeople will be more responsive and receptive if they think one of their competitors has made you a better offer. Say straight up, 'We've been talking to X and Co. and they've quoted us a better offer. But we normally deal with you, so we wanted to give you a chance to requote'. Keep the offer unspecified so the salesperson has to better an amount they don't know.
4. Be realistic. If a salesperson wants £500 and you're aiming for £450, you'll probably end up settling somewhere in between. However, if you're aiming for £100, the sales executive will think you're a time waster and will walk away.
5. Other clinchers. Factors other than price, such as reliable delivery and expert technical backup, can often be crucial. Likewise, you may be able to get expensive 'extras' thrown in, such as product brochures, sales aids, or access to market research data.
6. Understand salespeople. Most businesspeople think the pressure is on them when talking with large suppliers, but salespeople have their own targets and deadlines to meet and bosses to satisfy.
7. Find their weak spots. Sales executives have targets and are driven by bonuses. If you ring near their deadline, be it monthly, quarterly or even weekly, you could be given a better discount if the volume or value of your order pushes them over a target.
8. Keep cool and quiet. If you sense a salesperson is keen to do business, put the pressure on them. Say 'What's your final offer?' and then keep quiet. The first person to break the silence will probably lose out on the deal.
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To receive regular tips, articles and how-to guides like these to help you run your business more effectively you can subscribe to BETTER business magazine.
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Each week we provide you with summaries of some popular or emerging business ideas in the UK and elsewhere around the world.
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Fish and meat smokery. A fish and meat smokery processes and markets a range of smoked goods. Business opportunities can include selling direct to consumers (either via a website or an in-house shop), or selling to other businesses such as food retailers and restaurants.
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Couture dress design. Trends website Springwise has reported on a DIY dress design venture based in London and Israel. StyleShake is a website that enables users to order a dress in a fabric and style they choose.
Regularly improving your vocabulary is not just about learning a new word and its meaning. It will improve your general knowledge and make you feel and act smarter in all sorts of personal and business situations.
Do you know the meaning of the word 'perfidious'?
a) disloyal
b) easily dissected
c) performing an action quickly
d) trustworthy
Answer at the end of the Bulletin.
The following topical business issues have been recently reported in the media. Did your radar pick them up?
1) Poor decisions about which business-related consideration are estimated to cost UK businesses £5 billion a year?
a) choice of premises
b) computer equipment
c) recruitment
d) choice of suppliers
2) Dial-up Internet services are dwindling fast, according to new research. What percentage of people will still be using dial-up as opposed to broadband in the year 2010?
a) 4%
b) 14%
c) 24%
d) 44%
3) A red tape review by the Department for Business, Enterprise and Regulatory Reform (BERR) which aims to recognise the fact that smaller firms have limited resources to deal with legislation issues has been launched. Views on which area of red tape are being sought to help ministers with their review?
a) company law
b) health and safety
c) employment law
d) data protection
Answers at the end of the Bulletin.
Calculate how much you can borrow
Before approaching a bank to borrow money to finance the purchase of assets or commercial property, it could help if you have an idea of how much they might be prepared to lend you. The Creative Finance borrowing calculator is a free interactive online tool that you can use to get an indication of the amount that your business might be able to borrow.
Check your business continuity
How would your business cope if things went wrong? What would happen if there was a flood or fire? This online business continuity checking tool might help you to put the necessary plans in place to ensure that your business can cope with any eventuality. The website provides details of the tool, including a free demo, a sample report and useful articles about business continuity.
Funding an artistic retirement
A new educational website has been launched by the Arts Council to help artists understand the importance of planning for retirement. Including free information, seminars, and a pensions planning calculator, the website aims to provide independent information to help artists review their situation and plan a more secure future.
UK-IPO events calendar
The UK Intellectual Property Office (UK-IPO) events calendar helps you locate seminars and workshops on the latest developments and legislation affecting intellectual property, patents and trade marks.
This book works on the premise that people should eat bananas because they're simple, provide an energy burst and are good for you. Packed with simple tips and ideas, it could help people who already own a business and those who are just starting out. The ideas include tips on winning new customers and improving your relationship with existing ones. Check out:
Just one word answer
The answer is a).
Perfidious means disloyal.
The supplier thought that his prized customer was perfidious when she switched to a cheaper alternative. |
How's your business radar? The answers
1) The answer is c). According to Recruitment Assessment firm Talent Q, poor recruitment decisions result in lost productivity equivalent to £2,400 for each bad employee recruited.
2) The answer is a). Just 4% of Internet users are expected to still be using dial-up in 2010, as the vast majority of Internet Service Providers will be providing only broadband services.
3) The answer is b). BERR is consulting with business owners and workers on how changes can be made to health and safety legislation to recognise the problems small businesses experience in understanding their duties. |
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Good luck
The EnterQuest Team
This information is meant as a starting point only. Whilst all reasonable efforts have been made, the publisher makes no warranties that the information is accurate and up-to-date and will not be responsible for any errors or omissions in the information nor any consequences of any errors or omissions. Professional advice should be sought where appropriate. |
