From the category archives:

Strategic planning

Will lowering your prices increase profits?

in Pricing, Strategic planning

Revenue is down and you need to take action. In a slow economy, it’s reasonable to assume that if you were to lower your prices, you’d sell more and increase revenue and profits. But is this always true?

Maybe, or maybe not.

The untrained business person might feel that this was the best pricing strategy, but Economics 101 tells us that the answer to this question is a definite maybe.

It depends on your demand curve.

If you had the chance to study basic micro economic theory in college (who didn’t?), then you know that the slope of your demand curve tells you how sensitive your market is to price changes.

If your demand curve is perfectly inelastic, customers will purchase the same volume from you at a higher price (and at a lower price). If, on the other hand, it’s perfectly elastic, they’ll buy nothing from you if you raise your price. The reality is that 99.99% of companies fall somewhere in between.

Examples courtesy of Sparknotes.

How can you determine your demand curve without hiring an economist?

Estimate How Your Market Responds to Price Changes

The answer is estimate. If you’re considering a pricing strategy change and you don’t know how your market will respond, survey your market to predict the results.

Select a group of current customers and lost prospects with whom you established a relationship during the sales cycle.

You’re trying to determine how many new units existing customers would purchase, and how many new units current customers would purchase, if you increased and decreased your prices by x% (let’s say 5%, 10% and 20%). Finesse the language of your questions based on your relationships and how you decide to position the survey. Shoot for a statistically significant number, and summarize your results.

You don’t need to plot your results on a supply and demand graph to project your optimal price – the one that delivers the greatest profit – but you can still get a feel for how elastic your demand curve is, which is fancy language for saying how responsive the market is to price changes. If you have an elastic demand curve:

  • When you raise prices slightly, volume goes down substantially.
  • When you lower prices a slightly, volume goes up substantially.

Conversely, if your volume stays roughly the same when you increase your prices, you have an inelastic demand curve. This can be very powerful, and it typically results from having a premium brand, solid distribution, few competitors or simply being under-priced.

Multiply price by quantity at each new price to determine your revenue and profit projections. Be sure your projections show greater profit before you decide to lower your prices.

We have a tool that can help, so drop me a note if you’d like a copy.

Related articles by Zemanta
Reblog this post [with Zemanta]

{ 2 comments }

How to stay on course

in Strategic planning

June has flown by and Q2 ends tomorrow.  Did you meet your quarterly goals?  And are you on track to meet your annual goals?

If you’re falling short, why not spend next week (minus the holiday, of course) planning the rest of your year?  Even if you’re ahead of schedule, it’s still the perfect time to assess your progress and make sure you’ll meet and beat your annual numbers.

If you’re looking for new strategies and tactics, this free guidebook offers 96 pages of sales & marketing tips, examples and instructions.

Here are the key issues to address when you plot your course.

1.  Set or revise your high-level goals: Revenue, profit, # of new customers, units sold, revenue to existing customers, etc.

2.  Drill down. Break out your goals by product, channel, customer segment, etc.

3.  Calculate the value of your pipeline. Review the accounts in your current pipeline, then estimate how many will close by end of year.  Then identify any campaigns or resources you’ll need to help move those prospects through your sales process.  Also, evaluate how much time your sales reps will need to spend to close these prospects — you need to make sure your company has the resources to get the job done.

4.  Figure out how many new leads you need. If it typically takes four months to close a new qualified lead, you need to generate the rest of this year’s leads in the next two months.  How many new qualified leads will you need in that time?  Build your marketing campaigns around these numbers.

5.  Plan your campaigns: Media, goals, offers, materials, resources needed & budgets.

6.  Think about partnerships. Other companies have relationships with your potential customers.  Who are those companies?  Could you run a joint promotion or establish a more substantial partnership to generate more leads & customers for both organizations?

7.  Make sure you’re delivering on your value proposition & brand promise. If you don’t have a defined value proposition and brand strategy, look at these critical issues.  (You can learn more about B to B branding in these previous posts.)

8.  Mobilize. It’s important for your team to know the goals, share your vision and work together toward that common end.

Have a terrific 4th of July and best of luck in the second half of the year!

{ 0 comments }

How to do a SWOT analysis

in Strategic planning

I’m not a fan of corporate jargon, but SWOT is an important one that’s useful for businesses of all sizes.

What is it?  When you’re doing a SWOT analysis, you’re brainstorming about Strengths, Weaknesses, Opportunities & Threats in a particular business scenario. You can use SWOT to analyze

  • Your competition
  • Your distribution strategy
  • Your marketing strategy
  • An individual deal with a customer, partner or distributor
  • Capital-raising strategies
  • Other growth strategies

So how do you do it?  Here are instructions and downloadable forms — courtesy of Lyndsay Swinton from Management for the Rest of Us.

{ 0 comments }