What is the right price?
By Dennis Huang
In this economy, many companies are rethinking about the pricing of their goods and services. Faced with fierce competition, smaller transaction dollars, and smaller operating budgets, businesses are wondering what pricing strategy to take to stay competitive. Many businesses are worried that if prices are lowered, it will be very difficult to raise the prices back up when the markets are doing better. We found that within our membership community, companies are pricing their goods and services in three ways. They offer a discount to maintain market share and thus maintain brand loyalty. They introduce a new product at a lower price segment. They keep prices where they are and add more value to the product or service.
Sherry Chen of Cosar International Corp., a sporting goods distributor, decided to lower her prices by 10%-15%. She said, “We made this decision in order to keep our loyal customers.” To make up for the reduced margin, she finds other areas in her operations to cut cost. Likewise, Target Corp., recently released their quarterly earnings. Retail sales fell 1.6% and their profit fell by 41%. Clearly, this retail giant took the discounting approach in their pricing. Limiting discounts can boost sales without hurting the brand.
Downtown LA restaurant owner, Aileen Watanabe of Pacific Grille, is impacted by the economy as well. “We typically fill the restaurant everyday at lunch,” commented Watanabe, “this year, we noticed a drop of about 25%.” Pacific Grille’s lunch entrees typically run from $20 - $34. Recently, she introduced few new entrées at a lower price point, below $20, to drive traffic back into the restaurant. In February, the Pacific Grille noticed a strong increase in the newly priced item. While they are working harder for less revenue, Watanabe believes in keeping all of her employees employed. Pricing the product, in this case, entrees at a lower price point is a smart way of keeping customers spending.
Reginald L. Dunham, CEO of DPI International took another approach that had an environmental impact and value added to their proposal. They were just awarded a multi-year contract to supply wide format printers. Instead of just selling the printers and consumables, they proposed a bid that added more value. DPI considered cost savings as well as meeting environmental goals and savings. They included a complete pricing package which included equipment, consumables, training, installation, software and firmware interface which priced the contract by “cost per square foot” instead of each individual item. By proposing this strategy it minimized competition, multiple contracts, purchase orders, invoices, payments and resources. By doing so, DPI saved their customers about 12% to 15% a year in production and over $1 million dollars in environmental savings.
Nick Wong of DT Graphics found it extremely difficult to cut cost. They run a three 8 hour shift operation and keep their printing presses in operation 24 hours a day. “As a printing company, our supplies and the cost of paper continue to rise.” said Nick. “Instead of raising prices on our customers, we do not charge for delivery. We like to believe that our quality of work and our service allows us to stay competitive.” DT Graphic takes effective measures to keep their pricing the same. They add more value to their service which keeps them competitive. Finding ways to add value or bundling more services for the same price can be an effective way to be more competitive without cutting deeply into profits.
No matter how companies are pricing their goods and services it is good to react in this recession. Discounting goods, creating a product extension for the lower markets and adding more value to goods or services are keys in sustaining businesses. Depending on the target market and the method of delivery, pricing is and always will be very important. |
