It can be difficult to motivate a price increase on your product, but maybe you are thinking about it all wrong. I was watching an interview some time ago with an executive at a large overseas freight rail company when he was asked by the interviewer about his plans to raise prices in a deflated economy. Surely, the interviewer thought, it is nonsensical to increase prices when the entire railroad industry is fighting for business? The CEO’s answer intrigued me: his company is raising prices because he knows that they are adding more value to customers than ever before. He concluded by stating that he does not focus on how well the economy performs, but purely on the value he offers to customers.
Whether we know it or not, this question of value underpins all of business. Your customer does not pay for your product, or your service, but for the value it delivers. The product / service is just the way the value is packaged, or delivered, but it is not the real end result. In fact, one can think of something’s price not as a cost, but as a fair allocation of value back to the supplier. If you offer the client R100 in value, you are allowed to claim R60 of that back, as your price. Price is thus directly related to value – not the state of the economy or your mood on the day.
In order to see it this way, you need to know what value you offer. Essentially there are only two value propositions within a B2B setting: a cost saving, or a revenue increase. Whatever you offer your customer must achieve one of these outcomes. The clearer you can be on how much cost you can remove, or revenue you can add over the lifetime of the business, the more accurately you can price your offering.
Most Entrepreneurs are desperate to grow their businesses, they make the mistake of pricing their products/services too low. The result is a chronic damper on the income statement, driven by poor pricing decisions grounded in a lack of understanding of the value proposition. Most businesses need to raise prices, not lower them. The result of a price increase is immediate – it makes you a better business!
Do you understand what value you add to your customer? Do you price offering accordingly?