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Sunday, 25 July 2010

It's Expensive - Can You Afford It?

My wife took an old friend out this week to afternoon tea to celebrate her special birthday in a large and very prestigious department store restaurant in Manchester.  As the first glass of champagne went fairly quickly, she called the waitress over to order another one.

"You do know that it costs £8.00 a glass, don't you?" said the waitress.

The answer to that is, of course, "Why, can't I afford it?" but we don't always think immediately of the perfect riposte.

It reminded me of the time that I took time off, dressed in casual clothes, to go to buy some black shoes , again in a large and well know shop in the city.  I spotted a pair in the window which looked right, went in and tried them on.  They weren't right for me and I saw some more on a nearby shelf.

"What about those?"  I said

"Ah" said the assistant:  "Those are more expensive"

Once again the timely answer came some time afterwards but I have been thinking about the number of times that this has happened to me and, somewhat to my surprise, it is legion.

What is it that makes people think that they know better than the customer what is "expensive"?   I make no apologies for reverting to the question of pricing because it is at the heart of good business.  The true revenue of a business is the gross profit, not the sales turnover, and the right pricing policy is the major contributor.

Prices can be decided in many ways but generally, there are three standard methods; cost plus an uplift, following the price structure in the market, and, crucially, what the customer will pay for it.

This last method is far and away the best but it demands the inevitable quid pro quo, that the purchase must demonstrate value to the customer such that the apparently higher initial price is mitigated by the totality of the offer   Service, quality and guarantees are essential "extras" to reduce the dependence on price alone.

In the end, it is the WIIFM or What's In It For Me? question that must be answered.   The customer is the ONLY person who can decide what is and what is not expensive.  Certainly the seller can't make that judgement and if we do, then the danger is always that we under price in order to ensure that we make the sale.

Gross profit is more important than sales turnover and good pricing policy is the key.

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