Color Me Green

In last week’s posting, I put a question before you.  If you can get a 24 ct box of crayons for about 50 cents or less, why would the crayon maker in our example price the 6 ct double ended crayons at $2?  I mean, it’s fewer crayons so how do they get away with that? Well, it’s simple really.  They know how much they need to make to cover the cost of making those crayons then they factor in what people are willing to pay. 

Today, let’s spend a little time talking about the second P in the marketing mix – price.

1. product
2. price
3. promotion
4. placement

By definition, price is the quantity of one thing that is exchanged or demanded in barter or sale for another. In archaic, it translates into value or worth.  So, if price represents value and worth, then why are we afraid, at times, to ask for the price we deserve? As small business owners, especially those new in business, we sabotage ourselves early in the game by going into business offering discounts or underpricing the competition before we’ve even tested whether or not our customers are willing to pay what we ask. You can’t charge less for products or services than they cost if you want to stay in business.

I once read of a jewelry store owner having an extremely difficult time selling a particular line of jewelry in her store.  So, she felt as if her only alternative was to deeply discount it.  So, she offered half off.  Through some strange twist of fate, she mistakenly marked the jewelry up by 50%.  Oddly, the same pieces of jewelry she couldn’t sell just the day before, were now flying off the shelves at an alarming rate at a 50% premium over yesterday’s price. People were paying for perceived value.  The psyche of the consumer is fascinating.  In their mind, the inflated price equated to better value and higher worth.  Of course there are exceptions to every rule, and predatory pricing is so uncool. But in this case, this was good jewelry and worth the money.  But the jewelry store owner’s  failure to realize what she had and what customers were willing to pay for it cost her time and money.  Fortunately for her, the mislabeling mishap was just the nudge she needed.

Four Secrets to Selling More, a recent HBR blog post, had it right.  Stop giving your products and/or services away for free.  Be careful of offering deep discounts and other incentives, even in a down economy.  Compete with service, quality and uniqueness for they may provide a hedge resistant to economic swings.  Let’s think back to those double ended crayons and do a value check, shall we?

• Service - the crayons are easy to find, offered in store and online
• Quality – the crayons color beautifully
• Uniqueness –  double-sided crayon  (enough said)

Let’s end today’s chat with a few action items for you. When creating your business plan that I KNOW all of you have, keep in mind things like operating costs and how much profit you expect to make. If you are creating products, know how much it costs, from beginning to end, to make that product.  If you offer services, do research to help determine how to value your time.  Drill down to just how many products you’ll have to sell or how many clients you’ll have to see to breakeven. Now, add on your value proposition, keeping in mind how much you’re worth and the unique things you bring to the table. Lastly, mix in a little of what customers are willing to pay and bam, there’s your price.

So, how did I find out about those double ended crayons anyway? Ok, in my case, I bumped into them.  But even to that, there was a strategy.  Next week, we’ll wrap up with the last two Ps on the list,  promotion and placement, and chat about how all the Ps support one another.

Keep it colorful!

**Support Local businesses:  Proforma Printelligence. Kimble Bosworth, President/COO.  http://printelligence.espwebsite.com