Joined: 15 May 2007 Posts: 774 Location: Baton Rouge, LA
Posted: Fri Feb 01, 2008 2:48 pm Post subject: Coming Full Circle
When I think of the past, I like to think it was a simpler time. In my memory, those that provided goods and services to my parents were straight forward and honest people. They priced items at a level that covered their cost and the profit they needed to stay in business. I think there was an unspoken trust the merchant would not betray. A trust that the items sold were fairly priced.
I feel many types of pricing used today are more geared to giving the perception of a good deal, rather than actually providing one. For instance “commonly-compared” items priced at low or loss leader level, while other items are overpriced to make up the needed profits.
This seems like the long way around the tree to me. A use of deception that may spell problems for those using the methods. Clients catch on very fast and have long memories. With the internet, it is no problem to find the price of almost anything.
Lowering prices on commonly shopped items may have the short-term effect of deceiving the client. I may cause them to think the business is a low cost provider. Soon, people realize they have been charged as much or more than they would have been by who they see as a “quality provider.” Their thought that the business was a low price provider is now shattered. As a result they may well turn against the business forever.
People also learn to shop around and buy only the items that are loss leaders. This practice may wrongly anger the business making the offer. In turn the ill feelings may result in additional loss of clients. Today offering a fair price across the board seems to be gaining acceptance with more progressive businesses. Perhaps we have come full circle or maybe realized straight forward and honest is sometimes also most effective.
Joined: 04 Sep 2007 Posts: 47 Location: Grand Rapids, MI, USA
Posted: Sun Feb 03, 2008 10:05 am Post subject: Re: Coming Full Circle
louis wrote:
When I think of the past, I like to think it was a simpler time. In my memory, those that provided goods and services to my parents were straight forward and honest people. They priced items at a level that covered their cost and the profit they needed to stay in business. I think there was an unspoken trust the merchant would not betray. A trust that the items sold were fairly priced.
I feel many types of pricing used today are more geared to giving the perception of a good deal, rather than actually providing one. For instance “commonly-compared” items priced at low or loss leader level, while other items are overpriced to make up the needed profits.
This seems like the long way around the tree to me. A use of deception that may spell problems for those using the methods. Clients catch on very fast and have long memories. With the internet, it is no problem to find the price of almost anything.
Lowering prices on commonly shopped items may have the short-term effect of deceiving the client. I may cause them to think the business is a low cost provider. Soon, people realize they have been charged as much or more than they would have been by who they see as a “quality provider.” Their thought that the business was a low price provider is now shattered. As a result they may well turn against the business forever.
People also learn to shop around and buy only the items that are loss leaders. This practice may wrongly anger the business making the offer. In turn the ill feelings may result in additional loss of clients. Today offering a fair price across the board seems to be gaining acceptance with more progressive businesses. Perhaps we have come full circle or maybe realized straight forward and honest is sometimes also most effective.
While pricing was not as agressive in the past as it is today, price marketing has always existed to some degree.
Many shops today use price marketing in what I believe is an honest manner. This is highly tied to the location of the shop (trying to get a shop owner in a great location to comprehend the thinking of one in a poor location is normally futile). Certain common prices are set at very competitive levels, but not so low that the service has to be misleading or completely void of profit. Correct total GP for the week or month or year becomes the target.
While there are a few folks who are focused on the absolute lowest price every time, there is often a huge group who is simply looking for a price that appears to be reasonable...or in the ball park as they say.
In his book "Selling The Invisible", Harry Beckwith (roughly quoted) says that if you cannot offer quality service and deliver it quickly at a competitive price, then you need to go back and fix your service.
_________________ Tom Ham
AutomotiveManagementNetwork.com - Hams Management Systems
Posted: Sun Feb 03, 2008 10:22 am Post subject: Re: Coming Full Circle
Tom Ham wrote:
In his book "Selling The Invisible", Harry Beckwith (roughly quoted) says that if you cannot offer quality service and deliver it quickly at a competitive price, then you need to go back and fix your service.
Tom, You do realize that book has been misused to an extreme degree? He was writing as a professional with years in the advertising business to others with years in the same business.
As such, he assumes the reader has advanced degrees in that narrow field and also assumes you understand the basics of advertising. That explains the huge gaps of logic in his book...you are supposed to know he is only illustrating minor differences in advertising methods between hard goods and services. That is all he was trying to do, not to preach a management theory.
Joined: 15 May 2007 Posts: 774 Location: Baton Rouge, LA
Posted: Tue Feb 05, 2008 1:49 pm Post subject: Re: Coming Full Circle
Hi Tom,
Tom Ham wrote:
While pricing was not as agressive in the past as it is today, price marketing has always existed to some degree.
No question price has always been a concern and will always be. The thing I hoped to point out is, more progressive businesses actually provide fair prices, much like businesses of the past.
This contrast with the practice attempting to have people believe they are getting a better price, by manipulating the price of items on which people tend to compare most often.
Tom Ham wrote:
[Many shops today use price marketing in what I believe is an honest manner. This is highly tied to the location of the shop (trying to get a shop owner in a great location to comprehend the thinking of one in a poor location is normally futile).
I see this as more an issue of management thinking, rather than geographic area. In ever area there are shops which rely heavily on having people think they are lower priced than others. There are also shops that rely on having people think they provide greater value at the prices they charge. In the end, people are pretty smart and will quickly figure out which is in their own best interest.
Tom Ham wrote:
Certain common prices are set at very competitive levels, but not so low that the service has to be misleading or completely void of profit. Correct total GP for the week or month or year becomes the target.
Perhaps I may be reading this wrong. It seems to imply the gross profit on other items would have to be higher than average, in order for the total GP to be on target. This is if common prices are set very competitively. It seems the additional margin must be made up.
If the target were to provide the best overall value for the client, shouldn't all prices be set at a level that covers cost and provides the needed profit and no more? The only reason I can see for setting select prices low and making it up with others, would be to mislead people into thinking all prices are low. If this is right, it would seem a very short-term strategy.
Tom Ham wrote:
While there are a few folks who are focused on the absolute lowest price every time, there is often a huge group who is simply looking for a price that appears to be reasonable...or in the ball park as they say.
I think rather than wanting prices that appear to be reasonable, everyone wants prices that actually are reasonable. Prices that reflect value, much like was often the case, in the past.
I think the appearance of a reasonable price with out actually providing it has largely caused a huge erosion of client confidence. In effect this has caused the market to shrink, as clients scramble for other alternatives that actually provide value.
People are very smart and see through such tactics quickly. Competitors are also smart and need only point out what is going on to clients. They may then provide actual lower overall cost in order to decimate those using such methods.
Tom Ham wrote:
In his book "Selling The Invisible", Harry Beckwith (roughly quoted) says that if you cannot offer quality service and deliver it quickly at a competitive price, then you need to go back and fix your service.
I would certainly agree. Every business must offer quality service, deliver it quickly and at a competitive price.
I see this as very different from trying to have people think they are getting a competitive price, by lowering selected prices and making it up with others.
Basically if a business "Fixes it right the first time [quality]," "Delivers it on time [quick service]," and "At the price quoted [competitively priced]," they will be noticed. Continually providing the over-all lowest cost and demonstrating such through adequate marketing will create sustained growth and profit.
Much like the “old saying,” “Honesty is the best policy,” and the point I hoped to make in the post. If fair and honest pricing had not been around for so long, someone would invent it as the surest fire method to riches. Thanks Tom, I appreciate your reply.
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