The recession has created new competitive conditions. Led by the consumer who will no longer pay full retail, the discounting mentality has moved down the supply chain. Every business is under pressure to lower prices in order to maintain relationships. Long-term partnerships based on excellent service and high quality have fallen by the wayside under the pall of price deflation.
In this climate, business owners are forced to scrutinize pricing. Ask yourself these questions: Am I charging the fullest price possible for my products or services? Are some customers being undercharged? What will the market bear? Should I put pricing strategies in place to adjust for seasonal demand or excess capacity at certain times of the year?
Budgets and forecasts established for customers and business units will help you answer these questions. Ideally, you should know your fixed and variable costs and have an understanding or an estimate of each customer’s profitability and contribution to your bottom line. Pricing strategy based on these numbers will assist you to meet the market’s pressures more effectively. You may find that you are undercharging or that some clients may be willing to pay more, even in this climate, for value-adds such as exceptional service.
Chris Carey Advisors
Want to improve the way you run your business? Entrepreneurs, academics, and consultants from diverse industries offer practical advice on a variety of topics each business day.
To submit a tip for consideration, first check our archive of previous tips to make sure you're not repeating a tip someone has already contributed. Then send the tip to Small Business channel contributor Michelle Dammon Loyalka. Because of the volume of material she receives, she may not respond to each individual.