Setting the most profitable prices
By Marty McGhie
Welcome to the New Year, hopefully one of prosperity and success. It seems timely to begin 2008 by discussing an area that can significantly contribute to your company’s profitability: successful pricing.
Unless you function as a monopoly-and I know none of us do-pricing your products will always be one of the trickiest, yet most critical parts of your business. So this month, let’s examine three keys to help you build a successful pricing strategy: aligning your internal pricing programs, understanding your business costs, and knowing your market.
Become internally aligned
One of the most important characteristics of a profitable pricing program is one that I refer to as "internal alignment." Internal alignment means that everyone in the company, including top management, sales and marketing personnel, accounting, production employees-all the way down to your delivery drivers-understands your company’s philosophies and goals with regards to pricing your products.
Everyone in your shop needs to be on the same page so that daily decisions are consistent with your corporate pricing strategies. Too often, management has specific pricing goals they wish to meet, but they then neglect to share their goals with anyone else in the company. As a result, sales and marketing, production, management, and accounting may all be going different directions and your pricing strategy becomes misaligned.
Begin the process of alignment by deciding on a pricing strategy. You may wish to be the low-price leader in your market place. Or, on the other hand, you may price your products at a premium and sell on high quality and great service. Most of us will typically find ourselves competing somewhere in-between these two pricing strategies, depending upon the job. Nonetheless, it’s critical that all employees in your company understand what you are trying to accomplish with your pricing. Whatever your decision may be, share it with your troops. Whether it’s your overall pricing approach or a specific job that requires specialized pricing, keeping all your people in the loop with all details of the job-including pricing-will keep everyone on the same page.