Introduction

Increase your prices – increase your profits. It really is that simple. This book will show you how to do it, and give you the confidence to tackle a subject that is crucial to your business success, so let me be crystal clear. This stuff works. By adopting these simple ideas, every single organization I have worked with has seen dramatic improvements in their business. These range from significant increases in their bottom line profits, to being the difference between survival and failure.

In this introduction, we will consider:

Who should read this book

As a guide, this book has been written with the following people in mind: CEOs, finance directors, sales managers, marketing analysts, accountants and strategic planners, and anyone selling directly to customers, in organizations having between 1 and 10,000 employees. The techniques and ideas covered apply in manufacturing, retail, warehousing, transport, professional services, construction, and in every type of buy stuff – sell stuff or buy stuff – make stuff – sell stuff businesses. It is also increasingly applicable to those government departments, schools, universities, hospitals and not-for-profit organizations that are finding themselves forced into developing more private sector elements to their activities.

Organizations come in all shapes and sizes. There are microbusinesses, often just a single person or husband and wife team running their business from home or a small shop. Everyone in this category will learn some great techniques and ideas to help them dramatically improve their approach to pricing and, as a result, their profits. Statistically, over 80 per cent of these businesses fail within their first three years. A focus on pricing would have been enormously beneficial to them, but sadly their business focus was almost always on non-pricing issues.

Then there are many established businesses often referred to as SMEs, or Small- and Medium-sized Enterprises. Whether just a handful of employees or hundreds, these are still predominantly owner-managed businesses with an entrepreneurial leader driving them. Those business owners will get huge value from this book, not only in terms of ideas and techniques they can apply, but also in understanding where the pricing issue gets lost in translation throughout their organization. Additionally, many members of their team such as finance managers or production managers will reap huge rewards from reading the book, and applying the ideas covered. Certainly anyone on the frontline, whether sales manager, shop counter staff or on-the-road salesperson, will get many great tips and techniques to use.

Let’s call the final group Big Business. You may be the Chief Executive Officer (CEO) of a very large business, or the finance, sales or marketing director for example. This book will help you to see the simplicity of some pricing issues that often become lost when organizations reach a certain scale. This back-to-basics approach to pricing will be a good reminder or it may be a prod in the ribs to get your organization back on track on this all-important issue.

In reality, if you are involved in any area of business and want to improve your skills and develop personally so that you can add value to your organization, then you will benefit enormously from understanding and applying the ideas in this book.

It does not matter what it is that you sell. Although the examples in the book are specific, the concepts and ideas explored apply to all manner of services or to products across a very wide spectrum. You need to read beyond the specifics of the examples and see how the principle(s) can be adapted and adopted by your business.

There is one further category worth mentioning. If you work in a local government or a civil servant role, or perhaps in education or the charity sector, you may find some of the detail frustrating, as it could be much harder for you to implement change within these public sector and not-for-profit organizations. Or if the price of what you do is regulated in some way then clearly your ability to affect change may be limited. The provision of care for the elderly is often funded by local authorities or indirectly by government, and flexibility over price is difficult, but many businesses that feel they have no ability to affect their prices can actually do things in the support areas of their operations. In these businesses you must focus your attention on increasing the value you offer to your end consumers rather than the price you charge.

Increasingly, hospitals, schools, universities and other such organizations are being forced to become more accountable and more independent of government funding, and to become much more commercially aware than ever before. University students now paying high-priced tuition fees are much more demanding on value than they were when that education came free. Applications for degree places fell in the UK when the price appeared to simply treble with no change in what the students received for it. Universities will need to have a much better grasp of the concept of pricing what they offer. Applying the lessons in this book will give anyone in these types of organization a much clearer perspective of an issue that will become increasingly important to them.

How to read this book

The first five chapters cover principles and the basics of pricing, so these offer a valuable refresher for all readers. Chapters 6 to 15 address issues specific to individual areas of pricing, and you may therefore opt to read first the ones that apply directly to you. Overall however, my advice is to start at the beginning and read to the end, because every chapter has content that can lead to profit improvements.

Each chapter closes with Action Points. I urge you to stop there, ensure you have absorbed the key messages and start doing stuff! Take time to reflect on each chapter before you move on, re-reading it if needed. You will be able to take many of these actions and apply them with immediate benefit, so don’t delay implementation until you finish the book. It may well be that several of you in your organization should be reading the book simultaneously, and there will undoubtedly be merit in agreeing how the lessons learned can be applied in your business.

You will get the most from this book if you scribble notes on these Action Points of the things you want to investigate and apply. When people read a book straight through there is always the danger that they get to the end and only remember the points in the chapters most recently read. So pause at each chapter and ensure you have considered how you will take the points and adapt them for you and your business.

Bonus resources

Throughout the book you will find reference to various worksheets and downloadable material to help demonstrate the impact on your profits, and to clarify where you currently are on these key issues. Often you will be asked to gather customer or business information. Some data will be used immediately, and other pieces will become helpful in later chapters. Visit our website at www.markholt.co.uk and follow the links or use the QR code shown at the end of the Action points on page 11.

Is it just textbook theory?

The results of getting pricing right are almost instant, always beneficial, and sometimes life changing, but the actions needed are nowhere near as complex as people think they are. That’s why the word stuff is so important. If we use words like strategies or implementation programmes there is a real danger that some business people will switch off. The simple truth is that the ideas and messages apply just as well to Apple as they do to the corner shop selling apples. That’s why I use simple language.

This is not a theoretical book on the economics of supply and demand or the psychology of human decision-making. It is simply intended to get decision-makers in businesses to think a little bit harder about the tremendous opportunity to increase the financial performance of their business by applying various ideas and techniques to their own pricing activities. It does explore some of the basic human reactions and decision-making processes to see how they can help in the ‘selling’ process and hence the pricing decisions on what to sell at. It is absolutely based on practical reality but please don’t make the mistake of thinking that it doesn’t have substance or isn’t backed up by experience, evidence and facts.

Can you really apply these ideas in your business?

Yes. The ideas explored and techniques used are real. They have been used in real businesses with real customers and real problems. They are practical ideas that can be applied immediately in any business. Your challenge as you work through the book is to identify the ones that apply to you and your business, then to adapt and adopt them appropriately. The biggest challenge is of course to do them!

While writing this book, I have drawn from the experiences I have learned working with my own clients (although I have changed their names for obvious reasons), and enhanced this with well-known high street businesses and global companies to make various points. The examples of smaller businesses help to demonstrate the simplicity of some issues, and the others underline the fact that the principles apply whoever you are and whatever you sell. The logic behind all of the ideas will apply to anyone that sells something, whether that is a small one-man plumbing business, or a complex £50m turnover (but still owner-managed) company, or even the likes of Tesco and other huge multinational organizations. So please don’t read this book and think this may work on large business, but not in my small operation, or vice versa. Read it, and think how can I use that in my business?

However, in order to apply the content it is crucial to recognize that everything in business is a moving target. However successful you may be, the world is marching ever forward. Expectations of customer service levels are constantly increasing, technology improves at a faster and faster rate, and legislation, taxation and the general economy are all changing at sometimes alarming speed. Businesses have just not moved forward with their approach to how they set their pricing in the same way. They invest no time thinking about it, devote no resource to the subject, and worry more about relatively minor administration issues than they do about the issue that has the greatest impact on their financial future. It’s like wanting better performance from your car and deciding to improve the level of your breakdown insurance. The point is that you will need to keep revisiting the ideas and concepts in the book. There is no single-fix solution.

People don’t always focus on the key issues

Some of the issues really are simple, and I often get clients reacting with ‘Oh my god, we do that!’ or ‘Ouch, we make that mistake all the time!’ However expressed, the reaction is simply the realization that we often fail to see what is right in front of us.

If you are therefore reading this book and looking for a magic answer, or a piece of software that you can plug and play, then you will be disappointed. Although the ideas are simple common sense and sometimes blindingly obvious, they all require action!

You need to take the idea that applies to you, and do something about it.

Let’s start with the first Ouch!

Let’s look at a typical business seeking to improve profits. How frequently did they address the topic of pricing over the last year? How many hours did they spend reviewing their pricing strategies, researching competitors and adjusting their prices to maximize their bottom line?

Now compare that to the hours they spent discussing whether their salespeople should have an iPad or not. That debate involved every salesperson, every sales manager, every branch manager and the IT team. It took most of the year to resolve, and even covered the internal politics of whether the executives should be issued with one first, whether they needed one or not!

Now think back over the past year of your business. How many hours of effort did your organization put into the critical issue of pricing compared to time spent on issues like the iPad debate? For the bulk of readers, the honest answer will be that pricing is not even on the list of issues to explore.

Ouch!

Whether the decision was ultimately determined by technical aspects, financial restrictions, politics or personal preferences, there would have been many elements to the decision-making process, which all took time. This is understandable, as technology can be expensive, it changes on a frequent basis, and does make a statement about the individual and the organization. It does not matter what your conclusion was, or would be now, it is the process that is the key.

This is not just an issue with technology. Many business owners and managers spend insignificant amounts of time looking at their pricing strategy because they have become swamped by issues such as:

Products or services

This book is about pricing. As such, I often need to refer to what is being sold. This falls into two headings – products or services – and I have included examples of both to underline key ideas. There is still a danger that if you sell mainly products you could think that an idea only applies to services and vice versa. It is crucial to keep an open mind on how you adopt and adapt an idea irrespective of what is being sold.

If you sell products, these are much more tangible to the customer. They can touch the product and feel it, see the size of the box, the creativity of design on the packaging, and you get the chance sometimes to show the features and benefits of the product on the packaging itself. If relevant you can consider the significance of images, colours and the typeface of the words, all of which can have an impact on the customer’s decision to buy. The downside is that customers can see these as isolated purchases rather than part of an ongoing relationship, and be more willing to shop around for comparable items.

If you sell services, these are intangible. Depending on the services you sell, the customer may not even understand what it is you do for them. They know the garage will undertake the car service, but what actually happens in the process is a bit of a mystery. Extend this to services such as providing legal, accounting, tax, or health advice and the gap in understanding becomes even greater.

However, this book is about pricing and how customers’ buying decisions are affected by the prices you charge and the way in which that issue alone is addressed and presented to potential and existing buyers. In some areas it explores how the features and benefits of any product or service are expressed, and that can be different depending on whether you are selling a box or an idea.

It is important, though, to just touch on one idea you should consider. If you sell products, these are more often than not regarded as a single purchase decision; eg ‘Should we buy that car today?’ That places more pressure on a business to make money out of that single transaction, and risks that the customer may never return and present future revenue opportunities.

Conversely, when a business sells services, they have a level of uncertainty that is inherent in the provision of something many customers don’t really understand, and that lacks the touch and feel of a nice, simple product. When customers don’t fully understand what they will get for their money, or are forced to accept that they cannot change their mind and take something back – the decorator cannot remove and re-roll the wallpaper – the default position is usually to avoid the purchase altogether. Uncertainty causes paralysis and in effect a ‘no sale’.

Metro Software Limited (MSL) were at their heart software developers. Their income was from designing bespoke software for individual customers, who didn’t really know what they were getting for their money. They also sold products such as computer terminals, printers, data storage, etc and provided installation and training. One major change was to get them to productize the services that they offered, and to build in additional services to some of their products.

Training and support was charged at hourly rates varying between £20 and £50, which caused uncertainty as clients never knew how many hours they would need, or whether the problem was down to them or to a glitch in the software. MSL developed a product called the First Year Training and Support Package, presented as a box containing a manual on how to use the software, training programmes for users, cards with what to do when you have a problem with support-line numbers and self-help guidance. The package was priced at £5,000, based on user numbers, etc. This reduced the potential conflict areas with the client, but also helped to get a much higher price for a clear and simple product.

Whenever they sold hardware, they offered a follow-up support programme described as the Hardware Management Package. Each follow-up visit helped pick up residual hardware sales and by building in a programme of visits, they added a valuable service to the core product sales and increased the price they could charge as a result.

The message is quite simple. If you sell services, try to turn these into tangible products; and if you sell products, try to add on services that lock you into an ongoing relationship with the customer. Both will help secure the customer, and increase their perception of value, and hence the price that you can charge.

Summary

If you want your business to be more profitable, look hard at how you price what you do. The impact of even just a few small changes in this critical area on the bottom line is staggering. It is an area that requires much more time and attention than it gets in most businesses.

Every single business that I have worked with on a project to address their pricing has seen dramatic improvements. What you need to do is to invest the time to understand the key issues in this book, consider how you adopt and adapt them to your business, and plan a controlled and sustained approach to implementing change.

This stuff works, you just need to do it!

Action points

1  Look back at your approach to pricing in the last three years and consider the following:

    –  How often have prices been reviewed?

    –  How often were prices changed?

    –  What was the typical change to prices (percentage increases or decreases)?

    –  What was the cause of each price change? For example, passing on supply cost increases, price-matching competitors, a plan to grow sales volume or profit, etc.

    –  On the occasions when prices were not increased – but with the benefit of hindsight – to what extent would price increases have had a substantial impact on the profits of your business?

2  Draw up a list of the key people in your team who are currently involved in pricing decisions. Now add to that the names of others who should be involved. Consider also whether your whole approach to pricing might benefit by the appointment of a devil’s advocate to stir things up a bit.

3  Create a file of intelligence (fact, not anecdotal evidence) on your direct competitors. Assign someone to gather brochures, prices, advertising and any online information about them that includes the value they provide to their customers and the prices they charge. Ensure the pricing team has this data and that it is updated continually.

4  Schedule a workshop with your sales/marketing people and explore where you can productize some services and where you can add some services to your products.

5  Allocate time in your (others’) diaries to ensure regular attention to pricing; ie if you have a monthly or quarterly meeting to work on your business, make sure pricing is on the agenda.

6  Familiarize yourself with the downloadable worksheets and start to gather the financial and other information needed for them. (If you are in a larger organization, you might want to delegate this task.) Visit the website (via the address www.markholt.co.uk or the QR code below) and browse the bonus material. This will be really helpful for later chapters and in getting you to see how the issues directly affect your business.

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