Shelter Chieza Change Management
Some learned colleagues of mine and I recently met up to try and determine where our economy is heading. While Zimstats and some economists believe that we are in deflation, some business gurus are saying that we are going through a price adjustment period which has been caused by global competition.
Whatever the case may be I believe price correction was long overdue because we have not been getting value for our US dollar in terms of purchases.
For instance is it realistic to be inflating prices beyond the 100 percent margin as has been the case with some of our shops?
In the United States the highest mark up that most business would put on their products is between 15 percent and 25 percent.
What does a bag of cement cost in South Africa compared to Zimbabwe? Is it that we are still driven by a Zimdollar mentality?
Determining prices for your goods is no easy task. It is one of the toughest things to do in business. In fact one of the secrets to business success is pricing your products properly.
If you price your products correctly, there is a big chance of pushing up your volumes, getting your pricing strategy wrong may result in you selling less products.
It would be wrong for me to give you a formula on how to price your products because there is no formula-based approach that suits all types of products, businesses, or markets.
There are however key considerations to be made. Most successful companies use a combination of tools but the key factor to consider is the customer first.
When setting the price, some companies take into account the number of units that can be made within a certain period of time, so the more products are made, the lower the cost.
There are a number of factors, which are not controlled by most companies that will influence pricing decisions.
Customers are very sensitive and reactive beings. Take into account the processes that consumers make in a decision-making process.
If a customer has a specific need, they will embark on an information search of what exactly it is about. They start deliberations and finally get to an identification and evaluation of alternatives.
If they are satisfied, they will make a purchase. A post purchase appears when they start reminiscing and mulling if buying the product was worth it. There are a few issues that a company might consider before arriving at a price for its product.
Costs-Business is not about breaking even, it’s about making profits. A fundamental tenet of pricing is that you need to cover your costs and then factor in a profit.
That means you have to know how much it costs to produce your product. You also have to understand how much mark up to factor in and how many units you need to sell to turn a profit.
Remember that the cost of a product also includes overhead costs. Overhead costs may include fixed costs like rent and variable costs like transportation fees. You must include these costs in your estimate of the real cost of your product.
Market demand — If what you are offering is in high demand, then you must charge according to the expertise you are putting into the product, the higher the demand the higher the price that you can charge and the lower the demand, the lower the price that you can charge.
Given the highly competitive pricing in our economy especially from imports we must be lowering the price of our products.
Industry standards — Know what your competition is charging so that you are in a better position to fit into the market.
Experience level — The same type of job requested for can be charged way different prices because of your level of skill
Business Strategy — Your strategy as a company differs from your competition. Some may be in business to subsidise another company, and some are there to give a reputation of stability for a certain entity. It’s not everyone who is in business that looks at things in the same way as you.
Delivery of a service or product always differs. In transportation, one may opt to use a bicycle to deliver mail, while one may opt to use a scooter while one may drive a four wheel drive.
Some differ in the after-hours service. Whatever the case, adjusting your pricing to the type and level of service you provide is a must.
Who is the customer —Your price will often vary with different clients. Some clients require more effort, some are riskier, some are repeat clients, some have jobs you are dying to do.
You may try to raise the price and offer a new and unique bonus or special service for the customer. Measure the increase or decrease in the volume of the product you sell and the total gross profit you generate.
You have to constantly monitor your price and your cost so that you are competitive in the market. If you realise that you have missed your target audience by pricing your products too high, discount your products or give customers something for free in order to get them to try your product or generate traffic to your shop.
People like getting something for free or some kind of discount. An alternative to lowering price is to offer less for the same price which will effectively reduce your costs without appearing to reduce the value to the customer.
Get your pricing right, it might be your way to recovery. Small incremental profits are the way to go.
Till next week, may God richly bless you.
- Shelter Chieza is an Advisor in management issues. She can be contacted at shelter.chieza@gmail.com <mailto:shelter.chieza@gmail.com>