Black Friday, indeed.
Of the four Ps, pricing is usually the single most powerful marketing lever to make a company profitable. You could stop all innovation on product and distribution and cut your comms to barely a whisper…but increase pricing by 10-15% and there’s a substantial effect on margin and profit.
While this statement is 100% true, it also contains at least three different traps.
Price increases are very difficult for weak brands. If potential customers don’t create value for your brand in their heads, then they won’t see why they should pay a premium.
Stopping innovation on product and distribution and cutting comms kills the very thing that creates brand equity in the first place.
Many clever people confuse revenue with profit. Or customer numbers with customer value. Or instances of pricing complaints with price elasticity.
Increasing your pricing is a tall order for most businesses. It requires a strength of brand that most businesses don’t yet have. But there is another angle to help with margin. Instead of increasing pricing, stop decreasing your pricing.
The effort and skill you’ve gone through to take someone through your funnel; getting them aware, positively associating, and arriving at your door, only to drop your prices at the first sign of interest is a mistake. It creates easy volume and revenue but eats your bottom line from the bottom up. It trains your customers to make cost-based choices so the next time they evaluate you, you’ll likely lose (while creating a race to the bottom amongst everyone in the category). It makes people wait for sales and cannibalise from periods when they would have paid full price. In subscription businesses, it creates a stand-out cohort of low-value subscribers who drop off and don’t come back.
I’m certainly not the first to say such a numbingly repetitive piece of advice…but this week of all weeks it seems like it bears repeating. Black Friday sales are the mortal enemy of decent brand management. The astonishing amount of money left on the table in search of exceeding last year’s revenue figure (instead of an end of year profit figure) is tragic.
There are very simple ways to reveal the upper and lower bounds of people’s expectations on your pricing. Once you know what they are, stick with the upper bounds and occasionally and spontaneously test and measure the profitability of the lower bounds (which are usually much higher than the sale prices you’re currently offering). If you do this, you’ll make more money, have a stronger brand, have better customers and get yourself on track to actually raise prices with little complaint in the future.
To celebrate Black Friday, I’ll be making absolutely no changes to my day rate for consulting.
Now if you’ll excuse me, I’m off to buy things I would have purchased anyway for 80% off.
