And What It Means For Small and Medium Size Businesses
Few decisions impact the bottom line of a product or service more than those involving price. Price too low and a company could be leaving significant sums on the table and risk forever scarring their brand reputation according to the popular axiom that “Price Connotes Quality.” Price too high and be prepared to revise your forecasts downward daily.
For decades many large companies spent small fortunes with staid pricing consulting groups to get a better grip on their customers’ willingness to pay. These often year-long research projects consumed the time of more than a few internal staff members and typically cost several hundred thousand dollars or more.
Technology has turned on its head many industries including now the billion dollars plus pricing research world. What used to cost $250k or more, now cost $25k or less and what used to take at least six months, can be accomplished in six weeks; and what used to require thousands in a research cell in a fuzzy target audience, now counts hundreds in a very tight demographic circle.
The underlying technology behind this sea change involves the continual evolution of real-time survey panels along with artificial intelligence that can generate precise advice in only a matter of minutes. The panels can be drawn from the literally millions of prospective online respondents who are paid a few dollars for each completed survey. So many quality respondents in fact that regardless of the targeted audience from likely buyers of beachfront property in the Baja, to prospective students for private colleges, the tight survey panel gathered ensures relevant and highly reliable findings in the hands of knowledgeable pricing experts.
The primary beneficiaries of this new day in pricing research are the millions of small and medium-sized businesses for whom optimized price points can literally mean success or failure. These companies are almost always lean with little or no additional staff for research and analysis. And any business that does a half million or more in revenue can reasonably justify a $20k investment in a project especially when research (i.e., McKinsey Consulting) shows that even a 3% increase in price can impact the bottom line by 33% or more.
Consider the experience of a small Voice over IP (VoIP) start-up that was seeing growth rates slow and customer support charges rise. In a matter of weeks, the online research findings convinced them that they needed to raise their prices to attract a more sophisticated customer that appreciated the robustness of their feature-rich product package and needed far less hand-holding. The results within three months were a rise in sales of over 25% and a tripling of profits as gross margins expanded and customer support expenses dropped.
Pricing has for too long in the US been the forgotten P of the four Ps of marketing. Too many small and medium-size businesses cut corners here and relied on a hunch, or a simple competitive review or a basic straight line markup of the cost of goods. In most instances, these companies took a conservative approach and erred on too low a price. Up to now they simply lacked the affordable tools to take a more enlightened approach. Those days are over, and any business with meaningful revenue is nothing less than negligent if it doesn’t pursue a more rigorous pricing process that ensures getting an optimal return for each and every product or service it sells.
The Price Whisperer™
Sjöfors & Partners Inc
Pricing has always been an interest area for Per. As a serial entrepreneur, running companies in Europe and the US, he did pricing experiences. Some of these worked spectacularly well, some did not work at all. As a result, Per founded Atenga (now Sjöfors & Partners) out of his frustration that what business schools teach about pricing is too abstract, too academic for a business executive to act on. Likewise with books about pricing. Consequently, he set out to make pricing practical and actionable. Pricing for business people. Since then, he has been at the forefront as thought leader in everything pricing and he is a sought-after speaker for a variety of conferences and business circuits.
Per appear regularly on business radio shows and gets quoted regularly in the financial press, including Forbes, Fortune Magazine, Inc., IndustryWeek, Business Insider and the Financial Times.
About Us: Sjöfors & Partners has developed a unique method for data-driven pricing based on price-specific market research, that generate precise measurements of customers’ willingness to pay or buy for a product or service. Armed with this knowledge, companies can focus their sales, marketing and product development efforts towards the market segment with the highest willingness to buy at the highest prices. The measurement also allows Sjöfors & Partners’ clients to accurately predict the results of different prices, taking the uncertainty out of pricing decisions.