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Women: Are You Selling Yourself Short?
Pricing for a Healthy Business
by Anne Alexander
A few years ago, Vlasic Pickles teamed up with Walmart to sell a
gallon of pickles for the unheard of price of $2.97. They sold over
240,000 gallons of pickles a week. Vlasic loved the sales numbers,
only to discover that profits were shrinking by 25% or more, since
they only made a penny or two of profit on each jar. Vlasic filed
for bankruptcy in 2001.
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This story (fully described in Fast Company
December ’03 issue),
highlights a vital point. In general, we want to price with a goal
of maximizing profits, not sales volume. Too often, business owners
look at gross revenues (sales), when the net profit is what really
matters. We could have sales of $250,000 a year, or $1 million, and
be losing money. More sales do not necessarily mean more profit.
Having sound accounting and analyzing financial reports regularly
are essential.
It’s important to remember that profit is not a dirty word.
A business must earn a profit to stay in business. Whether a particular
business’ profit is fair or is excessive is another matter – that
could be the subject of another article!
Why Women Underprice in Their Businesses
Underpricing is a common problem for women
entrepreneurs, which happens for several reasons, one of which
may be that we don’t
know how to properly set a price that will yield a fair profit. Another
reason is we often undervalue ourselves and our product and/or service.
Furthermore, many of us have concerns about fair economic access
to our products and services.
Pricing Basics
The first problem of understanding the best
way to approach pricing one’s product or service is solved by getting sound business
advice, which is readily available in Western North Carolina’s
entrepreneurial environment (see sidebar).
There are many methods for pricing for service
businesses, retail operations and manufacturers. Going into many
of them would be too extensive for this article. However, the basic
parameters are easily set. Costs determine our lowest price and
must include overhead expenses, marketing costs, R & D, etc.
Demand and competition determine our highest price.
Self-Worth
Another reason for underpricing is that we
often undervalue ourselves. It’s only in the past decade
or two that women have been business owners in the large numbers
that currently exist. Most new business owners, whether male or
female, do not have extensive prior experience in running a business.
Women have the additional challenge of overcoming our internalized
devaluation of ourselves, especially in the business world. We
may feel unqualified or under-educated. Where men might have the
tendency to understand and properly value (or sometimes overvalue)
their product or service, this is usually not the case with women.
Related to this, we may also underprice so
customers will think we’re reasonable and nice. In charging full worth for our products
or service, we value not only ourselves but others, because we know
that they will receive full value from what they buy. Charging too
little for our product or service ultimately devalues both the customer
and us. Have you ever had someone charge you too little? You may
well have felt bad because you were getting away with something,
or you may have paid that person more because otherwise it wouldn’t
have felt right.
I’ve done both. We must get the help
we need to fully value ourselves.
To handle this, we need to get a more objective evaluation of the
worth of our
product or service. First, we must come to terms with our own worth,
through our own inner work with or without the help of friends, therapists,
etc. Then we need to do market research. We must know what competitors
are charging. This doesn’t mean we charge what they charge,
but we need to think through the reasons to charge less, the same
or more. Any of these may be effective and profitable, depending
on our business.
Equity & Social Justice
Another reason we might underprice is that we want to have our service
and
products available to a wide spectrum of people, not just those with
higher
incomes. This comes from valuable ideals of social justice. Instead
of lowering our prices across the board, perhaps to the point of
inadequate profits, we can offer unadvertised discounts or sliding
scale prices, when appropriate. Another approach is, in our marketing
materials, to invite prospective customers to inquire about opportunities
for low-income people. If we offer too much at low prices or pro
bono, we may end up out of business. Then we can’t help anyone!
Sell On Value, Not Price
The key benefit of our product or service should not be having a
low price or the lowest price. This turns our product or service
into a commodity (as in the Vlasic pickle story), which is something
to be avoided at all costs, no pun intended.
We will do best to sell on value. Lowering
our prices may result in competitors lowering theirs, so we gain
nothing and actually lose. As Bill Caskey wrote inSame Game, New
Rules, “The real question
is not "what's the price?" although that is what the prospect
asks. It's really, 'Is there value in changing from my current situation
without this product?' ”
Cash Flow
Sometimes we need cash quick, and lowering prices can accomplish
that.
However for long-term profitability, we may need a higher price.
Remember, our product or service helps people solve their problems.
The good news is that there are plenty of problems to be solved.
So if some potential customers find our prices too high and we have
fully explained the value they’ll receive, we can let them
go, knowing there are plenty who will see the value and buy from
us. Changing our pricing may not be the solution, but rather developing
our communication skills.
Raising Prices
It’s the same with raising prices. We may gain customers.
However competitors may raise theirs, too, and keep their existing
customers. If we raise prices and sales decline, it’s not automatically
a bad thing. We need to examine our net profits. If our profits are
the same or higher, we’re okay. Also, if sales decline, we
should see if there has been an overall market decline, rather than
a decline in our market share.
In summary, analyze the pros and cons that
affect various pricing options you have. If you have extensive
industry knowledge, trust your intuition on pricing. Review your
pricing frequently, but don’t
change it frequently. It’s good to experiment in the beginning,
but after the start-up phase, change your pricing only if there is
some fundamental change in your product, service or market. Do your
homework, experiment scientifically, and don’t get yourself
into a pickle!
About The Author
© 2003 Authentic Alternatives. all rights reserved in all media.
Anne Alexander combines 20 years of small business experience with
professional coach training to provide “Breakthroughs Coaching” to
people who want to do well by doing good. Anne’s clients are
socially responsible business owners and professionals who make a
positive difference in their communities. They work with her as their
strategic partner to have more time, more money and more fun.
See what her clients say at http://www.authentic-alternatives.com
You can contact at <anne@authentic-alternatives.com>
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