It was a cold morning and there was no single message on the phone. I checked the fax and email, nothing there either. Such economy, mining downturn, order was drying up. We had fought a good fight, but how long could we last? There must be something we could do to improve our bottom line.
The phone suddenly rang.
“Hello, is this Envignco Supplies?”, the voice from the other side asked.
“Yes, how can I help you today sir?”, I replied.
“I am looking for a certain chemical, it’s called HDX”
“Yes, we stock that, do you want to know our price?”
“Please, and if you have stock as well. I need it urgently”
You see, HDX is one of those chemical that is widely available. I wasn’t sure how on earth this guy came upon our company and decided to ring. I thought to myself, should I add extra 20% to improve our bottom line a little bit? Or should I give him our normal price? I mean he needed it urgently so there’s a good chance that whatever price I said would lead to a good sale. Should I take the window of opportunity and rip him off?
For many people in business, pricing is often the deciding factor in closing a sale. It is however also the deciding factor in determining whether a business is profitable or not. Price it too high and you loose the sale, price it too low and there is not enough money to pay the rent, staffs, and so on.
Every now and then we got the opportunity to charge much higher than we should. We believe it’s ok, because we can, but the big question is off course – should we?
It is no doubt certain companies are able to charge enviable margins on their products. Some because they are the only companies with those products with no immediate substitutes in the market, some other because they dominate and corner certain market. So what is the problem then? Isn’t it good to make fantastic profits? What’s the deal here?
Unless your company has enough resources to dominate the market there is no chance you could even come close to charging extraordinary margin. There is a certain price point that you need to be. Any upward movement from this pricing point will mean you have priced yourselves out of the market. In other words, you have no business. Price it too low and you invite price war which will lead to annihilation of you and your competitors, at least in the particular products that you are competing in.
More importantly – it is your brand. Rip off enough customers and you will be known as that – a company that rips off its customers. Is that how you want to position yourselves in the market?
What about those little instances where you know you could get away with it?
This is rationalisation. The question you should ask yourselves is could you really get away with it?
Maybe you couldn’t get away with it. Maybe no one could. You might get the sale and make handsome profit, but with what repercussions? On the other hand, what are the benefits of disciplined competitive pricing?
Which one would you prefer:
“Long term gain, short term discipline” or “Short term gain, long term destruction” ?