Tag Archives: pricing

Trade secrets – selling at rock bottom prices can be good business

What they don’t tell you about starting a business…

As a rule of thumb for start-up businesses, they should compete on quality not price. A price war with bigger, more established competitors is rarely won. Discounting should only be used with great care and as part of a marketing strategy, not as an act of desperation.

That said, most high street supermarkets discount food products as they come close to their sell-by dates. For them this makes absolute business sense – it reduces food waste (a tick in the corporate social responsibility box) and it costs much less to sell the product at high discount than have the cost of disposing of it themselves. It also generates good word-of-mouth publicity in the locality, and the bargain-hunter may also buy full-priced products while bargain-hunting around the supermarket aisles

The general lesson for entrepreneurs is that, in negotiating terms with suppliers, you may be in a much stronger position than you think; a quoted first price is rarely fixed.

For other Trade Secrets in this series, go to https://enterpriseessentials.wordpress.com/category/trade-secrets

Trade secrets – you can impose whatever payment terms you like

What they don’t tell you about starting a business…

Other than terms and conditions for supply of goods and services dictated by law, you can publish whatever terms and conditions you like.

And make sure these are clear and easy to find and read; ‘the small print’ is often used as a euphemism for something which, while legal, is not within the spirit of the law

There’s a temptation to look at others operating in the same business sector and replicate their terms and conditions, particularly in a competitive industry sector. This can be dangerous when the cost-base for different businesses in the same market differs widely. The current trend in online trading in fashion – to offer free delivery and returns, no questions asked – is causing havoc to the viability of smaller operators, unable to compete with the industry giants.

Sometimes it’s possible to challenge traditional practices with success. In the low-budget hotel and Bed and Breakfast sector, you may be expected to pay on arrival (to reduce the risk of guests disappearing leaving unpaid bills). This is unusual in more upmarket guest houses, but a successful luxury B & B in Sussex does things differently.

Not only do the owners expect customers to pay for their accommodation on arrival, but they also ask for payment in cash. In three years of trading there had never been any push-back from visitors who come from all over Europe. The terms are clearly spelt out in all publicity and Tripadvisor commendations and repeat visits are testimony to customer satisfaction.

For other Trade Secrets in this series, go to https://enterpriseessentials.wordpress.com/category/trade-secrets

Value, cost and price

Tractor-For-Sale-Tinsign“Pricing based on cost makes no sense whatsoever. Cost isn’t abstract, but value is.”  Seth Godin

My Dad’s family business – the only company in the world to make hand-embroidered tapestries for the international market – liquidated around 1970. It was just about the time I might have gone into the family firm but for my father the closure was a relief; as Financial Director he’d foreseen the beginning of the end – the Equal Pay Act – a number of years earlier.

The tapestries were high quality and hand-crafted and, even before equal pay, labour costs were high. The women weavers and embroiderers, 90% of the workforce, were highly trained and the work was labour-intensive. The tapestries had to sell for increasingly high prices and people preferred to spend their money on fast cars and big houses.

And when people did buy these works of art, I remember my Dad saying “they’re more interested in telling their friends how much they paid for the tapestry than valuing the quality of the work”.

Fast-forward 45 years and I haven’t a clue about the true value of even the most basic commodity – milk. I pay twice as much for a pint at my local shop compared with our edge-of-town supermarket. I may be stupid but I’d prefer to support the shop at the end of my road while it’s still there (and while I can afford to) rather than line the coffers of the superstore with a strap-line that says ‘very little helps’ …or something like that.

And what about books? I spent 15 years in publishing and left the industry just as the Net Book Agreement – which set a book’s price across all outlets – was withdrawn. Now the price of a book seems to have no relation to its length or format. Nor, of course, does price relate to the thing we value most – the quality of the contents. The industry now seems to treat books as just another commodity, priced at what the market (that’s you and me) will bear.

Personally, I don’t see books as a commodity, but then maybe I’m out of step with current trends (I’ve shunned an e-reader in favour of ‘the real thing’ and will do so as long as my eyesight and bookshelf space allows). And it also matters to me that my online book-buying supports high street bookshops, so I use www.hive.co.uk.

With the explosion of £ shops (I’ve even seen a 95p store), Black Friday, all-year-round sales, and 2-for-1 meal deals, I don’t know what I should be paying for even the most basic items, not just milk and books. But I like the idea of restaurants inviting diners to pay what they think their meal is worth…

Until I get too old to make my own decisions, I aim to pay a fair price for what I value – stuff that’s good quality, where possible is locally-sourced and ethically-produced, and that doesn’t screw someone in the supply chain.

This is not easy, I know. But most of us can choose how and where we spend our money. Maybe we should spend more time doing so?

For an interesting insight into the buying process, go to http://sethgodin.typepad.com/seths_blog/2014/02/most-of-all-money-is-a-story.html

A useful and all-embracing list of pricing strategies is at http://bit.ly/1moB0lR