The Academy

Pricing Secrets You Must Know

Price may not be the basis of your corporate strategy, but you must have a pricing strategy to implement your corporate strategy. Remember that pricing strategies are big-picture decisions that provide guidance to the people within your organization who actually set prices. 
They are your pricing processes and policies. When you ask a marketer "What are some pricing strategies?" You will likely get the answer that there are three pricing strategies:

- Neutral, Penetration and Skimming

A better way to look at this is that these are pricing strategies to define the general level of prices.

Neutral Pricing

Neutral pricing, the most common pricing strategy, means that you price so that your customers are relatively indifferent between your product and your competitor's product after all features and benefits, including price, are taken into account. Of course not all customers will be indifferent. Some will like your offering better, others will like your competitor's better. From this perspective, think of neutral pricing as maintaining the status quo. You aren't trying to gain or lose market share.
Most pricing in relatively stable markets would be considered neutral. As you walk through a grocery store, the prices you see are neutral. Although you may use a combination of neutral, penetration, and skimming prices, you will most often use neutral.

Penetration Pricing

Penetration pricing means pricing more aggressively than neutral. It can be used to gain market share relative to your competition -- but be careful. For instance, Bimbo – the neighbourhood supermarket may price her noodles for N80 while Musa at the kiosk up the road sells his for N70 just to capture market share. 
This can and does start price wars. No company wants to lose market share, and if you lower your price in an effort to gain market share, your competitors are likely to lower their prices just to keep their share. A more appropriate and common use of penetration pricing is to speed up the growth of a newly forming market. 
Low pricing is often justified to quickly grow a new market and to gain the largest share as the market grows. This strategy works best when you are the first entrant, or one of the first entrants, into a market. Penetration pricing in this situation may also deter other companies from competing when they recognize there are not huge profits to be gained.

Forward Pricing

Forward pricing is another term similar to penetration pricing, but with a focus on future costs. If you're building a product and it costs N100 to make, you probably don't want to sell it for less than N100.
However, if you know that once you sell a million units, your costs will go down to N30, you may be willing to sell at a price lower than your current costs knowing that your costs will be lower in the future. The forward part of the name indicates you're looking forward in time to estimate what your costs will be and using that cost as your basis for pricing.

Skimming

Skimming is the opposite of penetration pricing. Companies skim in an effort to segment the market, to get the customers who are willing to pay more to do so. The two common implementations of skimming are at new product launch and at the end of a product's life. When companies skim during new product launch, they are selling to customers with a high willingness to pay. Once this market is depleted (or at least slows down), the company lowers the price to sell to the next tier of customers. Skimming, as a market entry strategy only works when you have a monopolistic position. The other common use of skimming is at a product's end of life. Sometimes firms would like to discontinue a product but have too many customers who have a continuing need for it. In this situation, the company may gradually increase prices over market value to gain more revenue from these customers. The firm is trading off being able to compete for new business for additional revenue on existing business. One big caution is that customers, especially loyal customers like these, don't like to have their prices raised. You must have a good explanation and possibly an alternative offering. It should be apparent that these three strategies follow specific corporate objectives. If a corporate objective is to raise ASP (average selling price), then skimming may be appropriate. If a corporate objective is to win market share, then penetration pricing is needed. If the corporate strategy is to generate and capture value, then neutral pricing would be appropriate.

Value-Based Pricing

Value-based pricing, another pricing strategy, is the most important. The idea seems simple. How much is your customer willing to pay? Set the price at or just below that point. However, the implementation and usage of value-based pricing is much more complex. Throughout business history, firms traditionally used the cost-plus method of determining prices. They determined how much their product cost to make and then added whatever margin they thought they deserved. Hence, the term ‘cost-plus’. Cost-plus pricing has some advantages: It's simple, you do have to understand your customers, and it's easy for you and your competitors to get in sync. However, cost-plus is not optimal pricing. You have to make a strategic pricing decision. Are you going to use cost-plus pricing or value-based pricing (or some other method)? If you want to increase profits, you will commit to using value-based pricing. As you learn more about value-based pricing, you'll learn that it's impossible to implement perfectly. After all, our customers never tell us exactly how much they're willing to pay. However, value-based pricing is accepted by pricing professionals and consultants as the optimal pricing strategy.

Sourced from entrepreneurs.com, slightly modified



Understanding Customer Relationship Management

Customer relationship management (CRM) is the process of carefully managing detailed information about individual customers and all customer “touch points” to maximize loyalty. A customer touch point is any occasion on which a customer encounters the brand and product from actual experience to personal or mass communication to casual observation. For a hotel, the touch points include reservations, check-in and checkout, frequent-stay programs, room service, business services, exercise facilities, laundry service, restaurants, and bars. Several five star hotels rely on personal touches such as a staff that always addresses guests by name, high powered employees who understand the needs of sophisticated business travellers, and at least one best-in-region facility, such as a premier restaurant or spa. CRM enables companies to provide excellent real-time customer service through the effective use of individual account information. Based on what they know about each valued customer, companies can customize market offerings, services, programs, messages, and media. CRM is important because a major driver of company profitability is the aggregate value of the company’s customer base.

Customer Relationship Management (CRM) in the modern day business world requires   a business computer system for managing its interactions with its customers. A CRM system is an essential tool for business today that helps you manage your customers, sales and marketing. Instead of juggling spreadsheets and notes, a Customer Relationship Management system lets you keep accurate records of phone calls, emails, meetings, conversations and quotations. You can share this information within teams, with branches, plan ahead effectively and offer clients the right level of contact and support.

The CRM empowers you to manage your new leads from the initial contact through the sales pipeline to closure. You can set follow up tasks for yourself and colleagues, and report on all your activities and sales forecasts. The objective is to have a “360 degree view” of the customer, all information about the customer in one place. Setting up an efficient CRM involves investing time in your current customer base with the aim of retaining their custom and increasing their spend. The CRM system helps automate this by keeping a record of every communication you have with the customer. You can record what they’ve purchased and when, and set tasks to contact them every few weeks or months. This allows you to anticipate when they might want to buy again or if they need anything extra.

Essential Tips on Customer Relationship Management: 
  • It is essential for the sales representatives to understand the needs, interest as well as budget of the customers. Don’t suggest anything which would burn a hole in their pockets.
  • Never tell lies to the customers. Convey them only what your product offers. Don’t cook fake stories or ever try to fool them.
  • Do not keep customers waiting. Sales professionals should reach meetings on or before time. Make sure you are there at the venue before the customer reaches.
  • A sales professional should think from the customer’s perspective. Don’t only think about your own targets and incentives. Suggest only what is right for the customer. Don’t sell an expensive mobile to a customer who earns rupees five thousand per month. He would never come back to you and your organization would lose one of its esteemed customers.
  • Don’t oversell. Being pushy does not work in sales. If a customer needs something; he would definitely purchase the same. Never irritate the customer or make his life hell. Don’t call him more than twice in a single day.
  • An individual needs time to develop trust in you and your product. Give him time to think and decide.
  • Never be rude to customers. Handle the customers with patience and care. One should never ever get agitated with the customers.
  • Attend sales meeting with a cool mind. Greet the customers with a smile and try to solve their queries at the earliest.
  • Keep in touch with the customers even after the deal. Devise customer loyalty programs for them to return to your organization. Give them bonus points or gifts on every second purchase.
  • The sales manager must provide necessary training to the sales team to teach them how to interact with the customers. Remember customers are the assets of every business and it is important to keep them happy and satisfied for successful functioning of organization



The Best Way to Run a Startup Might Be the Opposite of What You're Planning

Starting a new business means having to deal with a list of endless decisions such as where you're going to work, your company name, who you will work with, your logo and all the minute details around the product or service that you intend to provide. It can be exhilarating, scary, or both, depending on the founder, and as I always say it's not for everyone. Amid these many decisions come some of the most essential, yet overlooked aspects of running a startup, like just how organized you want the structure of your company to be.

Startup culture sometimes gets a bad rap for being all about fun and too little about work. The media also grasps onto the idea that all startups are fast moving and youth-led, which of course isn't always true. From time to time however, some of these startups collapse because too much time is spent on creating a cool space or culture, instead of the hard work around creating, building and selling a product.

This is where small companies can benefit from a more structured environment. As inspiring as open concept, work from anywhere, Google-inspired models might be, it's helpful to learn about the benefits of a more structured framework to foster growth in a startup. What follows are some examples of this more formal work environment and how it helps.

The Realities You'll Encounter

As an entrepreneur, you might tend to resist too much structure and conventionality. After all, you've built or are building a team that can move in different directions at once. This is one of the reasons why many startups tend to have less formal organizational structure. The idea is that too much structure can render you less agile, less responsive to market changes or customer needs.

I'm advocating that balance is also important here. I've written time and time again about the importance of staying lean, but you shouldn't stay in a position where you must reinvent your model too often just to accommodate customer whims. This can lead to a lack of focus in what you're providing, confusion among those trying to sell your product, and other stumbling blocks to growth. Consider that if you're having to literally change everything about your product or service over and over again, you may not be in the right field.

To this point, a study published in California Management Review discovered that more organizational structure meant a healthier company. The study found that having an organizational structure was the key to a company's success and that the rate of growth was three times faster among companies that adopted this approach in their early years.

Formal Organizational Work Structure Benefits

The benefits of having a formal organizational work structure are plenty. They include:

  1. A Better A Sense of Purpose - Having a structured work environment provides guidance to employees by establishing the official reporting channels that dictate the workflow of the company. What's more, a startup can easily add new positions, as well as provide a flexible means for growth. Conversely, having no structure and taking a more "wild west" approach often means there's less accountability or mechanism to track responsibilities.

  2. Greater Order - If you are running your startup from multiple locations, employees may find it difficult to know whom they ought to report to in various scenarios. With a well defined organizational structure, you're able to provide clarity to employees at all levels of a company. This means that more time and energy is used on productive tasks. Furthermore, you're able to better track and promote entry-level employees.

  3. Better Defined Roles - During the early stages, most startup founders find themselves filling as many roles as possible to save money and time. When the company grows, it's essential to revisit your role and ensure that you outsource much-needed skillsets to others. But, if the parameters of each role aren't set, it leads to confusion at best, duplicity and unattained goals at worst.

  4. Communication Is Easier And More Focused - Being in an organized structural setup doesn't mean that you have to wait for board meetings to convey new information or ask for advice. A corporate structure enforces accountability and communication through the chain of each task. You can accomplish this in a startup by making sure that your communication is frequent and casual. Listen to your advisors and team, but, in the end, you'll have to ensure that the decisions made are in line with your principles and in what you believe.
Founding a startup takes a lot of hard work and sacrifice. You have a lot of things to keep an eye on, from documentation development to company roles. While it's common for most startups to embrace fun, unstructured business models, over time, this can cripple a business if you overdo it. Having a solid organizational structure not only helps to define certain roles, it creates room to foster growth. Whatever you do, remember to reevaluate your organizational structure regularly. Ensure the relationships and roles function as effectively as possible and redefine the functions as necessary.

Written by John Boitnott and sourced from inc.com



Breaking Up Is Hard…Even In Business – Part 2

...continued from last week

  1. What limitations are there on an owner’s ability to pledge their equity interest as collateral for a loan
  2. Can New Co. employ an equity owner, and if so, what happens if New Co. fires them as an employee
  3. What events would cause an owner to have to involuntarily sell her interest to New Co. or the other members
  4. How an equity interest being sold would be valued and what the terms for payment of the purchase price will be
  5. What percentage of the equity must vote to approve certain significant actions by New Co., such as selling all of the assets, taking out a significant loan, amending the owners’ agreement, or dissolving New Co., and
  6. What percentage of the equity must vote to approve either a distribution of profits to the owners or require the owners to pay additional capital into the company.

For an owner, the owners’ agreement can be a dual-edged sword. In one place, the owners’ agreement supports your position, but elsewhere it allows most owners (which might not include you) to amend the owners’ agreement without your consent. 

An owners’ agreement might provide for New Co. to employ you and other owners, but it might also provide that you may be fired (by majority vote) and your ownership interest bought out, again without your consent. 

By majority vote, the owners could be required to pay additional money into New Co. (a capital call), and if you do not or cannot pay your share, the owners’ agreement says that your ownership interest will be re-allocated to any owner(s) who do(es) make that capital call, effectively forcing the sale of some, or all, of your equity interest, also without your consent. 
These things could be authorized by the owners’ agreement, which you agreed to at a time that you did not think any of it was possible or likely.

Regardless of the nature or source, when equity owners have conflict, if New Co.’s owners’ agreement does not provide good procedures for addressing the situation, then the owners are left with the singular avenue of commencing litigation. Business litigation is expensive, emotionally taxing and can result in the complete dissolution of the company. 

Accordingly, it is important that the owners ask the hard questions when going into the relationship, contemplate what a break-up would look like, understand their rights and duties, and get an owners’ agreement that is tailored to their specific needs, and provides the best structure possible to facilitate the operation of the company and a framework for the resolution of conflict.

Article written by Michael Long and sourced from Forbes



Breaking Up Is Hard To Do...Even In Business

In any relationship where people are mutually dependent on one another for their continued survival, the potential for conflict is high. Going into business is certainly no exception. It should be no surprise, therefore, that opportunities for friction and discord among joint business owners abound. Accordingly, parties should go into business with good controls in place to dictate how matters will be handled when the inevitable conflicts arise. With a thoughtful approach by the parties at the outset of the new venture, a well-crafted owners’ agreement can establish an agreed upon and binding process for addressing and resolving key decisions and conflict.

Of course, conflict among business owners can be avoided entirely by not sharing ownership. However, sole ownership of a business is not desirable or feasible for most new business owners. A successful new business requires three ingredients—Talent, Money, and Operations—often in the form of three (or more) joint owners. Talent and Operations lack sufficient cash to launch the venture on their own, so they inevitably bring Money in as an owner. Money has neither talent nor operational skills in the business, so she needs Talent and Operations to make the business work. Talent may be skillful or artistic in the business, but he needs Operations to take care of all the business activities that he cannot (or will not) do himself. At this point, the interests of all the parties--Talent, Operations, and Money--are aligned, and they each recognize the need for and value of what the other owners bring to the table.

Joint business owners typically don’t start off predicting disaster. They go into business with great excitement, enthusiasm, and the expectation that their business plan is going to produce great results and be successful. They have joined forces with people who share their vision and passion and show the same enthusiasm and commitment to the business. Over dinner, drinks, and 1000 text messages and emails, Talent, Operations and Money develop the business plan, come up with the perfect name for the Company, assign roles, and make many other decisions necessary to the start-up. As with many relationships, each member is assuming the best about each of the other owners, and for a host of reasons, they avoid having any difficult discussion which might cast a cloud over this very exciting time or derail the business. As a result, the parties typically decide that they will all be equal owners, they call an accountant, form the company with the requisite state authority by the filing of the minimal organizational documents, set up a bank account, put in their cash, sign a lease, and—voila!--they are in business.

The owners next decide to engage an attorney because “they want to do things right”. That attorney—who represents New Co., and not any one of the parties--is engaged to prepare an owners’ agreement. As such, the attorney chooses a neutral form owners’ agreement—one that treats each of the owners the same--and circulates it to each of the owners for review and comment. The attorney explains to the owners how the provisions of the owners’ agreement generally function, answers the owners’ questions (if any), and, with minimal discussion and almost no revisions, the owners execute New Co.’s owners’ agreement.

As time goes on, conflict among joint owners can arise from many different sources: personality conflicts, differences in the vision for the business, greed accompanied by a power grab, and perceived inequities in the owners’ respective roles and contributions. When conflict arises, the owners start to think about things in a very different way than they did in the sunny days when the company was formed. That change in perspective causes the owners to look at the owners’ agreement in a very different context. For perhaps the first time, individual owners may ask “What can I do if I disagree with my partners?”, “What can she do if she wants to pull out?”, “What can they do if they all vote against me?”, “Will the business survive?”, “Will I lose everything?”

In their review and discussions about the owners’ agreement, joint business owners typically focus on certain provisions: the percentage interest of each owner, the means by which New Co. will be managed (by the members, by a manager, or by a board of managers), each owner's role in the operations of New Co., and whether the cash that each owner contributed will be treated as either as a capital contribution or a loan. Armed with that understanding, the parties get to work and New Co. is in business.

As time goes on, conflict among joint owners can arise from many different sources: personality conflicts, differences in the vision for the business, greed accompanied by a power grab, and perceived inequities in the owners’ respective roles and contributions. When conflict arises, the owners start to think about things in a very different way than they did in the sunny days when the company was formed. That change in perspective causes the owners to look at the owners’ agreement in a very different context. For perhaps the first time, individual owners may ask “What can I do if I disagree with my partners?”, “What can she do if she wants to pull out?”, “What can they do if they all vote against me?”, “Will the business survive?”, “Will I lose everything?”

An owners’ agreement is the place where the owners’ can head off avoidable disputes before they happen and create the framework for resolving unavoidable disputes. Common provisions in owners’ agreements dictate:

  1. What activities of New Co. require a vote by the owners to approve,
  2. What happens if an owner wants to sell their interest in New Co. to a third party,
  3. What happens if an owner dies or becomes disabled.
  4. What happens if an owner’s equity interest in New Co. becomes subject to creditor claims (i.e. filing for personal bankruptcy by an owner),
  5. What limitations are there on an owner’s ability to pledge their equity interest as collateral for a loan,
  6. Can New Co. employ an equity owner, and if so, what happens if New Co. fires them as an employee,
  7. What events would cause an owner to have to involuntarily sell her interest to New Co. or the other members,
  8. How an equity interest being sold be valued and what the terms for payment of the purchase price will be,
  9. What percentage of the equity must vote to approve certain significant actions by New Co., such as selling all of the assets, taking out a significant loan, amending the owners’ agreement, or dissolving New Co., and
  10. What percentage of the equity must vote to approve either a distribution of profits to the owners or require the owners to pay additional capital into the Company.
As an owner, the owners’ agreement can be a dual edged sword. In one place, the owners’ agreement supports your position, but elsewhere it allows most owners (which might not include you) to amend the owners’ agreement without your consent. An owners’ agreement might provide for New Co. to employ you and other owners, but it might also provide that you may be fired (by majority vote) and your ownership interest bought out, again without your consent. By majority vote, the owners could be required to pay additional money into New Co. (a capital call), and if you do not or cannot pay your share, the owners’ agreement says that your ownership interest will be re-allocated to any owner(s) who do make that capital call; effectively forcing the sale of some, or all, of your equity interest, also without your consent. These things could be authorized by the owners’ agreement, which you agreed to at a time that you did not think any of it was possible or likely.

Regardless of the nature or source, when equity owners have conflict, if New Co.’s owners’ agreement does not provide good procedures for addressing the situation, then the owners are left with the singular avenue of commencing litigation. Business litigation is expensive, emotionally taxing and can result in the complete dissolution of the company. Accordingly, it is important that the owners ask the hard questions when going into the relationship, contemplate what a break-up would look like, understand their rights and duties, and get an owners’ agreement that is tailored to their specific needs, and provides the best structure possible to facilitate the operation of the company and a framework for the resolution of conflict.

Article written by Michael Long and sourced from Forbes




Viewing records 1 - 5 of 27 articles

Articles