A writer friend of mind told me that when she is considering her next novel, she starts with one question: “What if?” What if a Southern Belle played flirty with a handsome Southern gentleman during the Civil War? Or, what if a widower found a letter in a bottle from his long lost love? And, from that, classics are born.
Asking simple questions can lead to big things. [Read more…]
I was searching for a marketing professional recently to do some work on my company’s website. The promises made on some of these professional sites seem to promise the moon, or at least “number 1 on Google in record time.” Things like that.
But can these marketing pros really do what they say?
I am not one to just take someone’s word for it; I like to do the homework (after all, that’s what I counsel my clients to do!). [Read more…]
Rethinking PricingPricing products or services used to be a relatively straightforward process.
You would:
You would then tweak your pricing model a little bit with promotions, clearance sales, supply and demand considerations, seasonality, and product life cycles.
You then tested your model a little and, Voila! — prices were set forever — well, at least until you had a cost increase or a price war broke out with your competitor.
So much for the simple “Good Ol’ Days…”
Our traditional notion about how to price our products and services has undergone a complete transformation in recent years.
Consider the following:
Despite the increased complexity and ever-changing nature of today’s pricing environment, there are still some basic rules and simple tips you can follow to build your market share, make money in the process, and establish long term success.
Here are some considerations to review to maximize your pricing results.
The two most touted but diverse strategies to develop effective pricing are:
$1000 designer purses and Amazon represent successful examples of these extremes.
If you can build a differentiated brand, it is generally the most effective strategy. However, the “if” in this equation requires that you develop an integrated and frequently expensive marketing program to support your brand. This often includes not only a great product, but a program to communicate its quality, its image, its service and many other attributes that require sound marketing, advertising, and promotion. It is well to remember that many of the best brands have taken years to develop compared to the short time spans and limited resources that startups generally have.
Product definitions keep changing. Airlines add new fees, restaurants keep bundling their meal offerings, and warrantees keep changing in both price and characteristics. One of the most critical aspects of pricing which is frequently considered from more of a cost perspective is the product or service itself.
What are the components, quality, service, presentation, and add on characteristics?
What is your competition doing and what do your customers expect? For example warehouse clubs thrive by selling multiple units at lower prices per unit while other industries like candy bars and coach airline seats raise prices by creating the ever-shrinking product. Ingredients and contents can also change. When cotton prices soared for the apparel industry many suppliers switched to polyester at lower costs. In the tech sector, chip prices keep declining and technology companies seem to add more memory rather than lowering prices on existing models.
Product pricing is also affected by bundling and unbundling or to coin a phrase, “Do you sell it your way or our way?” Bundling — if done correctly — can both improve a product offering and satisfy the customer, such as selling complete meals or LEGO sets. Bundling can also be a way to increase profits by adding elements such as high margin warranties to low margin items like electronics. Bundling can also enhance sales and value such as offering extra services in places like fitness centers or nail salons. While shipping used to be considered an element of Bundling, free shipping with minimum purchases has now become almost an essential part of the pricing and shopping experience, both on the internet and with brick-and-mortar stores.
In the final analysis, it is individual consumers who will determine the effectiveness of your pricing strategy.
In contrast, unbundling can provide both value and customized products, so that customers don’t buy products they don’t want or need. Computer companies let you build your own model to your own needs. Many automobile companies feature the same “custom design option” — now often over the internet. As an aside, every time I try to “unbundle” and buy a customized product, I end up with more than I need at a higher price. Unbundling has become so popular, however, I have to assume there are many people who know how to do it right. Spirit Airlines offers no frills fares and charges for every service to maintain perceived low prices. Generic brands represent another form of unbundling by charging lower prices in exchange for brand marketing and reputation.
Pricing psychology can also dramatically affect your success. After you have worked long and hard to develop a rational pricing strategy, remember consumers can react strongly to psychological presentations that we all understand conceptually but frequently ignore in the moment. These can include practices such as pricing at “$9.95”(instead of $10.00), eliminating the actual dollar sign, unmonitored purchase limits, offering some items for free, selling two for $9.95, changing colors, and font sizes, etc. The list of factors that can influence consumer pricing psychology is long and complex, and it is essential to factor it into you’re rethinking of pricing.
One of the most successful efforts by sports teams and airlines is variable pricing. The simplest thing is they have ranges in seat prices by location and quality. First Class versus coach or company box versus general admission for the same ticket can vary from up to a thousand dollars and more. The biggest change however is in varying prices by time, seasonality, holiday etc to develop revenue in off peak periods etc.
While these examples utilize sophisticated and expensive computer models, the most noted model is very simple. Specifically the early bird special in Florida has been around as long as I can remember. Similarly, vendors seem to suddenly appear in major urban markets when it starts to rain with overpriced umbrellas.
Understanding and communicating prices is another way to differentiate your products. Few people actually understand the basis for pricing of products such as cars, credit cards, phones, airlines, happy meals, etc.
The concept of “Freemium” is more than a business model. It’s also a pricing strategy. Offer a free product or service, then offer ‘pay-to-upgrade’ features, and you have a Freemium strategy. Remember that companies like Google and Facebook were built on free offerings for entry, followed by a host of upgrades and “for pay” services. Ancillary aspects of the Freemium strategy include samples, blogs, demonstrations, contributions to charities, etc. — these can all create awareness and build long term volume at little or no initial price. An older variation is to basically “give away razors and printers” to sell the “blades and ink.”
Contrary to some popular opinion, “Promotion” is not a dirty word and the use of promotions is not synonymous with diluting the value of your brand. New outlets (like flash sites or Amazon), bundling, seasonal programs, etc., are several of many valid ways to offer promotions and discounts in order to increase volume without diluting your brand. There are a near-limitless number of ways to offer promotions without downgrading your brand or its image. And, let’s face it — today’s consumer expects promotions. Here are a couple of promotion concepts:
No document about rethinking pricing would be complete without a discussion of the effective use and understanding of the ever-changing environment of the internet. Selling direct, selling through Amazon or eBay, linking with flash sites, affiliating with industry sites, etc., are all valid distribution vehicles that employ ecommerce and the internet. Most importantly, customers are checking the internet with increasing frequency, so you must be extremely vigilant about your competition and how your product’s pricing compares.
Many customers will opt to stay with a company in large part because of the quality their service after the sale.
Another aspect of pricing strategy that can provide major competitive advantages has to do with logistics, sourcing and distribution efficiencies. These may be used to reduce costs for you and prices for your customers. For example, Amazon is able to employ such efficiencies to operate on a 15-20 percent margin while traditional retailers have to work on 40-50 percent margins. Similarly, shipping times, delivery methods, using direct shipping, etc., can affect inventory management costs, all of which translate into pricing at the point-of-sale.
While pricing has become more complex it also provides more opportunities for success.
Entrepreneurs who recognize that traditional pricing models no longer apply in today’s world of business, will be better able to price their goods and services appropriately in this “Brave New World.”
Don’t lose sight of the very real fact that at the end of the day your pricing strategy absolutely MUST generate sufficient profit for you to support and grow your business.
While pricing strategies can vary widely depending upon the factors we have discussed above, ultimately the survival and growth of your enterprise depends upon your ability to price your products or services at a profit that enables you to re-invest into your company, be it in research, expansion, employee retention or investor dividends.
In order to be sure that your pricing allows for such profit, a thorough and accurate model of your direct and indirect cost structure needs to be in place, and you need to know what the sustainable level of gross margin and pre-tax profit is for your industry sector. If your margins are too high for your industry, you either need to be able to substantiate your added value or be prepared for competitors to emerge on the scene and start eroding your market share.
Pricing of products and services for startups is much more complicated today than it was even ten years ago. However, a good pricing strategy is really is an essential element of your overall plan to maximize your company’s marketing efforts. A well-thought-through pricing strategy can accelerate segmentation, enhance the value of your branding, maximize opportunities to remain competitive and generate sustainable profits. The important aspect when rethinking your pricing strategy is to aggressively manage and innovate your entire pricing package rather than simply reacting to short-term changes in the market or competitive pressures.
You only have one chance to make a first impression.
An investor received a knock on his office door and in walked a woman dressed from head to toe as an avocado.
She reached in her bag and handed him a thick business plan about guess what?
Avocados!
The investor shook his head in a “No Way!” gesture, and as he let the woman out, said to her, “Regardless of whether I was interested in what you had to say, I’m not about to do a deal with anyone dressed like an avocado and a plan as thick as a phone book.”
Outrageous as this anecdote may seem, such stories abound in the world of investment and business. Many entrepreneurs fail to realize that a critical factor in startup success is your image and presentation.
And fewer still understand the need for SIMPLICITY.
The Good News?
Creating a professional business presentation and image need not be expensive or complex.
The (potentially) Bad News?
Creating a simple, clear business presentation and image can be very challenging.
Consider the following facts:
The challenges of presenting the right image and making impactful business presentations are crucial to resolve if you want your business to rise above the “chatter.”
If you think I am on to something, read on.
In early business presentations, we frequently become preoccupied with the format and content and we neglect the most important consideration — our Goal and Purpose.
Are we selling something, developing a relationship, impressing the audience, or something else? What is the “take-away,” the “call-to-action” that is actually desired from the audience?
For many entrepreneurs, it seems that the “Goal” is:
Let’s say you are presenting to a group and there is someone in the audience who is creating a distraction, or getting you off track with irrelevant questions. You need to remember that it’s YOUR job to manage the business presentation and not allow such distractions to derail you.
A few weeks ago, a client and I were discussing how to improve a business presentation because he thought the material was over some of the participants’ head. He insisted on including as much content as possible. He failed to realize that too much information can lead to failure.
The simple rule: “KISS” applies to almost every business presentation.
One expert uses this rule:
“Create your presentation, then cut it in half… then cut it in half again!”
A sure way to avoid the mistake of over-complicating your business presentation is to make sure you understand your audience and their key interests.
Before you develop your business presentation, ask the following questions:
If you don’t know the answers to these and related questions, don’t be afraid to ask. Use their answers to help decide which benefits to play up in your message, and make it as informative as possible.
Another key element of presenting has to do with the image you project to your audience. No matter what the “Avocado Woman” had in her business plan, she failed to create a positive and credible image to her audience.
Here’s where researching your audience and their culture comes in. If you are presenting to a “formal” business culture you may want to wear a suit and tie. A less formal company culture might mean “business casual”. The key is for your audience to feel comfortable.
Another factor influencing effective presentations has to do with the type, level and timing of follow up. Emails, calls, reminders, etc. are often necessary to improve the chances that the desired call-to-action actually happens. Make sure that you understand your audience’s needs for such follow up, and tailor the type, level, and frequency accordingly.
These days we can tend to focus too much on the communication content and not the process of the communication.
Quite simply, we are not always aware of the need for more one-on-one communication, and at times for even informal exchange with our audience as the process evolves.
Such a personal touch will often distinguish you and your company from others. It can also help build understanding and trust, which are often missing from the mass of impersonal emails, auto-responders, spam, pop-up presentations, reports and other “canned” forms of content that dominate much of our lives these days.
There is no substitute for making your business presentation a “WIN-WIN” with an emphasis upon solutions, problem-solving, and the benefits of doing business with your company.
A win-win environment helps develop support, consensus and shared goals.
Keep your presentation positive, up-beat, and don’t speak poorly of either your competition or your audience’s competitors.
Be sure to respect your audience’s expertise, experience and opinions — this will help insure that you are taken seriously and that you are perceived as being open to new ideas.
In today’s business environment, we are inundated with unprecedented levels of input in a myriad of formats. LESS IS MORE.
Your audience will first focus on how to filter OUT information—not how to take it in.
Your challenge is to engage your audience so they will want to take your information IN.
I was going to write another 16 paragraphs about this subject, but instead… I decided to “KISS IT”!
Market Research OverviewOne of the first questions a would-be investor or lender wants answered by the authors of a business plan is:
And no wonder they ask. If you — as an entrepreneur seeking funding to launch your enterprise — don’t know your market very well:
As enamored as we may be of our own discoveries, products and/or services, it is ultimately the market that will decide their value. And investors know this all too well.
Fortunately, this is where market research — and your abilities as a market researcher — can play a valuable role to help insure that your business plan reflects solid thought about the market you propose to enter, the customers or clients you hope to attract, and the strategy you have developed to be and remain competitive.
To many entrepreneurs, market research is perceived as a mystery that we assume relies upon sophisticated surveys, monitoring of our media, and forecasting outcomes ranging from purchasing habits to political races. Many times, decisions made on the basis of poor market research fail, due in large part to poor design and poor quality execution of the research itself.
Such failures of market research don’t have to be the norm — in fact are very avoidable. For example, one of the most important market research resources you have involves direct feedback from your current customers or (in the case of a pure startup) your prospective customers. Notice I said your “potential and current customers,” and not your mother, friends, or enemies who are usually prejudiced one way or the other. Simple surveys of current or prospective customers and clients — well-designed and conducted — can yield a great deal of relevant information about your products and services, your target customers, and your competition. In the pages ahead, I will share with you some of the important aspects and resources you may use to insure that your business plan is grounded in solid market research.
Good market research answers many important questions about your business, your target market, your customers and clients, and your strategy for effective market penetration. Among the key questions regarding your market research are:
The results of market research become the basis of your plan to move forward with your business in a manner that best assures your success (and the success of your funding partners). You need adequate market research to provide you direction about where you should be going with your business in the marketplace.
One day, Alice came to a fork in the road and saw a Cheshire cat in a tree. “Which road do I take?” she asked. “Where do you want to go?” was his response. “I don’t know,” Alice answered. “Then,” said the cat, “it doesn’t matter.”
One of the frustrating aspects of market research is estimating the market and narrowing it down. For example:
The transportation industry has many sectors and niches.
Beyond identifying your target consumer market, a second important aspects you need to research are the market and competition for your product or service. It is not sufficient to identify the general industry for your products or services, but also your sector of that industry, and (if appropriate) your niche within that particular sector. For example, your business plan might indicate that you are in the “communications” industry, but fail to focus on the “telecommunications” sector, and the “smart phone” niche.
While many entrepreneurs insist there is no competition for their product or service, this attitude is almost always naïve. The likely reality is that companies are either already meeting the needs of your product or service, or they soon will be. It is essential that you take a long and honest look at your competitors, and not underestimate them. For starters search Google for the industry, product or service you are proposing to bring to market and you will see pages of links, often representing millions of websites. Don’t be discouraged by this, but use it to extract information and develop a comparison of competitors with respect to critical variables such as:
Analyzing competition is a key to good market positioning. Don’t underestimate your competitors.
A third aspect you need to research concerns the characteristics of the market in terms of its trending. If your market is growing, provide such information in your plan and cite good sources. How much is it growing in terms of units, dollars, regions, and profit? If your marketing is either stagnant or shrinking, source that information, and explain why you believe your product or service can succeed in such an environment.
Other questions that logically arise during the course of market research deal with a wide range of factors that influence both the market and the value your prospective customers and clients might place in your product or service. A good starting list of these questions include:
With these estimates in hand it usually possible to develop a preliminary market estimate and market share goals. Remember that when you focus on your market this is a process both to establish potential forecasts and identify the variables that might influence them.
Analyzing competition is a key to good market positioning. Don’t underestimate your competitors.
The good news about data acquisition for your market research is that there are many resources available and most of them are free. While many researchers advocate developing a specific formal plan for their market research, I frequently find a more ad hoc process can be extremely productive, especially in the early stages. The easiest way to execute this is simply to spend a few hours in a good local business library or on the internet. You can frequently find free market data, competitive analyses and even marketing or product trends. These efforts can provide a great deal of valuable information rapidly as well as provide guidance and parameter for further research. Remember, the more credible your market research, the more credible your plan, and the more likely you will be funded for eventual growth and success.
Other potentially valuable sources of market research information include government databases, industry associations, and reputable media. Some key suggestions for research resources include:
Indirect resources from others:
Free market research surveys:
Product Assessment
In compiling, analyzing and summarizing information there are some key guidelines to consider:
In spite of the challenges to conducting good market research, there are many key benefits that will strengthen your business plan, improve your chances of funding, and ultimately enhance your prospects for long-term success. These benefits include:
The bottom line is that you have to “do your homework” in order to have any chance of success. What you can expect from market research includes an assessment of the potential market for your idea, identification of potential competition and competing products or businesses, perhaps some insight into barriers regarding introduction of your idea into the marketplace, and you may even find additional markets you never considered before. You must also be prepared that the market research results may “NOT PROVIDE THE ANSWER YOU WERE LOOKING FOR”.
Are You Really an Entrepreneur?Many of us like to think of ourselves as entrepreneurs. Entrepreneurs are glorified in the press and loved for their independence. The reality about most entrepreneurs and their ventures is far more circumspect. What really is an entrepreneur? What does it take to create a start-up and, more importantly, what is needed for it to be successful? These and many other questions must be answered before you can be considered an entrepreneur who should consider going out and trying to start a business.
The definition of an entrepreneur:
One who organizes, manages, and assumes the risks of a business enterprise.
While this sounds like an ideal lifestyle for many of us, one must realize the realities in terms of personality, skills, and determinants necessary for success.
The reality is far different. Starting a business requires hard work, endless hours, and interminable patience. When you start a business, you have no choice but to be a jack of all trades; you cannot just focus on what you know, what you are good at, and/or what you enjoy to do. As an entrepreneur, you need to learn to make mistakes, learn from them and, what many people find so difficult to do, swallow your pride.
Here are just some of the trials and errors a number of famous entrepreneurs had to endure:
Passion, commitment and energy can overcome a lot of obstacles.
When considering an entrepreneurial idea or opportunity you need to answer numerous questions about yourself, your skills, and the intangibles necessary for success. Make sure to answer all of the following questions. Even if you do not answer in the affirmative, make a mental note on how you might be able to change or improve your answer.
Entrepreneurial Predictors