Archive for December, 2010
What factors underpin your customers buying decisions, what are they really trying to obtain from the purchase? When a person buys a designer suit, how do image considerations weigh against functionality as a garment? Buyers often display economically irrational decision processes in situations where price levels are used as indicators of quality. The pricing of vanity products such as perfume, jewelry, and some clothing often falls into this category, price and brand joining to create a certain image. Luxury goods generally rely on price messages, as do luxury services, including top hotels and restaurants. The much used adjective exclusive is loaded with meaning, of course when you think about it. Items such as work of art, expensive clothing, and motor cars are often priced in ways that have been extremely carefully designed to give important image messages.
Buyers may not need those messages themselves of course it may already have occurred to them that they posses rather large bank balances (or borrowings) – but some people’s needs include ensuring that others receive that message. It is also true that some people behave in the opposite way – quite the opposite, in fact preferring to keep their wealth level hidden. Old money may be quieter than new money, perhaps, but as always beware of generalizations. In situations when there are few other easily readable clues available about the underlying quality of product or service, customers sometimes have rely upon price itself. Together with confirming indicators, such as branding and packaging, price is often taken as a very strong hint about what is the underlying much more difficult to differentiate a service from competitors’ offerings than it is to differentiate between products, many service providers use pricing as a key indicator of quality.
As a marketing tool, prices are easy to understand and relatively easy to change. To maximize the profits generated by your business, your objective is to set prices at the maximum levels that customers are willing to pay for the benefits they obtain form the product or service. Pricing has roots in the accounting numbers, but is in reality much more a function of customers’ perceptions of a number of factors, including brand image, quality, and value for money. Note that we are referring to perceptions again, not to objective reality.
Pricing decisions nearly always contain an element of subjective judgment; they will always be more than just a function of a business’s cost structure. It follows that pricing issues sit firmly within the marketing section of your business plan. They do require some financial input, as we will see, but ultimately the pricing of a product or service relies on judgment, not science. That said, possessing a clear understanding of your business’s cost structure is essential, and certainly allows better informed pricing decisions to be made. Since price levels can be changes easily, when used as marketing tool they can have a rapid effect upon dales volumes. Set prices too high and your business will lose customers or fail to win them, set them too low and you will not maximize profits.
Tips about pricing
Simply talk to your existing and prospective customers, make it interesting for them, how do they perceive price levels in your industry? How do they see your pricing structure as fitting in? Those views are not difficult to obtain and will let you fine-tune prices with much greater confidence.
Reliable market research is a formidable weapon. Strong business plans use it to provide evidence of buyer’s needs and to confirm how those needs have been objectively established. Market research lets businesses test out ideas on people that really matter. The feedback obtained allows adjustments to be made to the business offering, and a framework for marketing activities to be designed. Market research techniques are designed to collect and then analyze data that will provide information about the following questions:
1. What are buyer’s needs in the areas concerned, real ones and perceived ones?
2. What does your business’s offering look like from the buyer’s perspective?
Research can involve directly obtaining the views of selected target groups, by talking to them, and by using surveys and questionnaires. It may also involve the use of published data and statistics, available from business libraries and from the internet. Since your correct business focus is on buyer needs, then the more accurate the focus, the more closely you can match your business’s offering to them. Strong business plans back up their assertions about customers with credible and objective research. Always quote your sources, and be especially careful to double check any data that you obtain from the internet.
Everybody wish to promote their business in an effective manner and if you want to build a successful business then you should consider the following factors:
. Determination to succeed. Without that, nothing.
. That you identify and locate customer groups whose various needs your business’s offering meets better than competition’s.
. That large enough numbers of those customers can be persuaded to purchase from your business at price that product enough profit to reward the effort and the level of risk involved.
Two of those statements focus upon the customer, the essential prerequisite to being in business. You must get that market focus very clear from the outset, since that perspective must stay visible throughout your business plan. It all comes down to you, your skills and determination to shape your businesses offering by various means so that it means customers’ needs better than any other. It is not about, most emphatically not about, trying to persuade customers that they really do need what your business happens to sell. If you go that way your business will eventually fail. Planning your business in a well manner is very much essential to find success on your business. In terms of your business plan, thinking about your business itself in the biggest terms poses a challenge. At First, this may seem like an easy task, but you will find that as you start to consider the many issues that relate to your business, and the sheer width and depth of the factors that impact upon it, things become much more complicated. At this stage your task is to obtain perspectives that will give you a whole panorama in due course.