In the current economic circumstances, pricing is an issue for a lot of companies and this has been evident in some of the discussion on www.smallbusinesscan.com
Clients are negotiating tough and expect discounts. In retail, prices are being slashed. It
seems to be a question of sales versus margin, or turnover versus profit.
I understand the need for price reduction and I think we can expect even more pressure regarding how much we can charge for our services in the months ahead. However, rather than looking at pricing alone, there are other options. You’ll find some of these below. Accompanying this are three case histories who have been contemplating such issues.
Examine your business model
In particular, look at the use of technology, outsourcing and e-commerce as part of the model. A technique that works well is taken from ‘attribute listing’, which splits products and services into the smallest parts possible and looks for alternatives.
The same can be done for your business model. The thing to do is to visualise and describe your business process in as detailed a way as possible and look for alternative solutions and options.
I’d take a bet that at least 25% of your business process/model can be done cheaper by somebody else, and better.
Examine what your deliver
This is not about ‘better’, but ‘good enough’. What are the performance objectives your clients are looking for and what are they willing to sacrifice to lower cost? Evaluating the performance offered by the lowest-priced, lowest-quality product on the market provides a good starting point for threshold performance. Some specific areas that companies can choose to ‘dial down’ include:
Raw material — the analysis might highlight that certain raw materials that provide ‘gold standard’ performance lead to performance differences that are imperceptible to the customer. Maybe you can use less raw material to produce your product.
Sales staff — it is possible that some customers don’t value an intimate sales process with substantial handholding. Small businesses looking to find a simple way to manage their customer contacts don’t want to deal with a complicated, customised pitch. They’d rather use simple solutions (most of which can be found online).
Post-sales support — companies can expend a significant amount of money providing the wrong kind of post-sales support to customers. While some customers undoubtedly want human interaction when they have a problem, many want the ability to find precise answers to their questions quickly and see how other customers have solved similar problems. Develop online forums where customers can learn from other customers.
Features — maybe there is a ‘whiz-bang’ feature in your product that doesn’t matter that much to a particular customer set. For example, many newspaper companies have reduced or combined sections of the newspaper, or moved away from daily publishing. The readers that missed particular features could still find the information online, and the companies could save on printing and distribution.