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It's All About Value
| Guest post by: David Flannery |
Article Overview: Cost plus pricing, the method of pricing where a business adds on a specific amount over the cost of their products and services to give themselves a profit margin and to ensure all costs are covered. It is easy to implement and the most used method of pricing in the business world today. It is also a hugely flawed methodology
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Free Download - Advertising: the nuts and bolts of making it work: Step Five: Make sure your ad does not look like your competitors. By David Flannery |
It's All About Value
Cost plus pricing, the method of pricing where a business adds on a specific amount over the cost of their products and services to give themselves a profit margin and to ensure all costs are covered. It is easy to implement and the most used method of pricing in the business world today.
It is also a hugely flawed methodology, for the following reasons:
1. The method is based on determining a price based on your costs. I can tell you that there is not a customer in the world that cares about your costs, they only care about their own costs.
2. If you are using this methodology in your business, you are leaving profits on the table.
Think about it, no person ever said to themselves, " I am willing to pay x because it cost the seller y to make it!".
So if cost plus pricing is not the way to price your services and products, then what is? Good question, I am glad you asked!
The number one concept I want to give you in this post is the understanding that your price level should correlate to the value that your customers place on your products and services. You must understand that the price your customers are willing to pay is all about the value they place on your products and services. The higher the perceived value, the higher the price, the lower the perceived value, the lower the price.
As a simple example, during the winter season, holiday companies increase their prices for holidays to sunny regions to take advantage of the higher value people place on getting out of the cold to sunny countries, and then discount the same holidays during the summer season.
Valentine's Day is another example, roses are at their highest price in the weeks and days before Valentine's Day, why? Because boyfriend's, husband's, partners etc. place a high value on them at this time of year. Florists know this and price accordingly.
The New Year Sales are another example, why is it that you can buy the same toys at 25% off after Christmas? Get the picture?
Remember, your price must be in line with the value your customers place on your products and services. Value pricing will help you understand your customers better and at the same time maximise your profits.
Your pricing must be flexible in order to capture the ever changing value perception that your customers place on your products and services.
© 2010, Profit Growth Dynamics International. All rights reserved.
Article Tags: business owners, business world, price, pricing, profit margin, value, value based
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About the Author: David Flannery RSS for David's articles - Visit David's website David Flannery is the founder of Profit Growth Dynamics International helping companies methodically and systematically increase their sales and profits, reduce their customer losses to their competitors and separate themselves from their competition. He is the author of The Profit Crisis Exposed report and the soon to be published book The SETE Five Step Action Plan For Doubling Your Profits. For more information on growing your business profits visit http://www.massiveprofitgrowth.com now Click here to visit David's website   12 Steps to Implementing Anything in Your Business Overview Why You Need A Sales System Advertising the nuts and bolts of making it work Step Four Be clear about your offer and what you want your prospects to do and give them a reason to take immediate action 12 Steps to Implementing Anything in Your Business Step Eight Follow UpFollow UpFollow Up Advertising The Nuts And Bolts Of Making It Work Step Three Make sure your advertising is specific has substance and is credible |
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