Can You Answer These 10 Planning Questions?
Jul 21, 2010 -
How well are you managing your business? Is your planning helping you steer the business well? Are you controlling your own destiny? Are you satisfied with the business as is, or do you think you can do better?
Starting, growing and even surviving in business is a matter of navigating through the tough times and steering in the right direction. And that's planning.
It may not be a formal business or marketing plan document, but it better be planning and tracking and reviewing; or else you're not really managing.
With that in mind, test yourself on your planning and planning process by answering these 10 questions for your business. And unless you're a one-person business, ask yourself whether all the key players will answer these questions:
1. How do you define success?
Seems simple but it's critically important and often forgotten. Success might be growth or sales or profits or being able to take off at 3:30 p.m. to coach the kids' soccer team. Fame, fortune, independence, proving yourself right, controlling your time... they're all images of success. Some conflict with others. Do you know what success is for you?
2. What's your strategic focus?
Business strategy is like sculpture: it's about what you take away and what you leave behind. It’s as much about who isn’t your target market as who is. And as much about what you’re not doing as what you are. How are you different? What would your customers say? Do you know your strategic focus, and do your team members know it?
3. What are the main tasks?
You could call it tactics, business activities, programs, priorities or something else; what’s important is that you know what’s coming up and why. Strategy means nothing without concrete specific business actions to implement it. Do you know what’s next? If you’re part of a team, does the whole team know?
4. Do you have task dates and deadlines?
Sorry, but it’s simply human nature; things are more likely to happen right when somebody assigns dates and deadlines. People need to have concrete goals and they need to know results will be tracked.
5. Does every task have an owner?
You need to assign responsibilities to specific people, not groups or committees. Do you really know who’s doing what? Does everybody on the team know? Is peer pressure in operation, with metrics that measure performance, and that, preferably at least, all the key players can see? We’re looking at accountability here, and that’s vital to management. Business needs owners, owners need metrics, and metrics need tracking.
6. Do you know how to measure task results?
This is about metrics. Metrics and tracking generate accountability and management. People like metrics to work on. A good check on tasks is whether or not results can be measured. At the very least, a yes or no on completion. But the ideal is a performance metric like dollars, presentations, trips, proposals, closes, page views, subscriptions, calls, minutes per call, Klout score, etc.
7. Are you forecasting the critical numbers?
Don’t kid yourself. You need to estimate future sales, costs and expenses, and then track cash flow to manage a business. If you’re just watching balances, you aren’t managing that well. You’re risking surprises and losing opportunities. Business life blood is cash, and that’s about forecasts and following up.
8. What are your main assumptions?
We have to make assumptions because we can’t manage without them. But assumptions change. Keeping track of your assumptions and how they change is crucial.
9. When is your monthly review?
You can’t really manage and steer your company without a planning process that includes a regular monthly review. You have to schedule reviews in advance, stick to the schedule, review your assumptions, and make changes to reflect changing assumptions, results and needs. Without regular reviews, your planning is just a plan, use once and throw away.
The key is plan vs. actual review. Not just the numbers, but the trends, performance, and lessons in the numbers.
10. What needs to change?
Planning is about managing change. The business environment is about constant change, and you need the planning process to manage that change. With planning process, tracking, plan review, plan vs. actual analysis, you end up steering a company towards its goals. It’s navigation. And the planning process isn’t just a map; it’s a map beneath a GPS locator with real-time traffic and weather updating.
Cash flow is critical. Everybody knows it, sure, but how can you manage cash flow without planning? It’s not intuitive. People think in terms of profit and loss, but cash flow can be radically different from profits. Profitable companies run out of money. The profits don’t include timing of getting the money from sales, spending the money on goods to sell, buying other assets repaying loans. Planning needs to manage cash flow.
Tim Berry is Founder and President of Palo Alto Software, Founder of bplans.com, and co-Founder of Borland International. He is a Stanford MBA, and principal author of Business Plan Pro. He blogs at Planning Startups Stories.We could call that strategy, and then add the reminder: strategy is focus.
Tags: success, management, cash flow, duct tape marketing, tim berry, time management
domingo, 25 de julho de 2010
Reenergizar a vida
10 Tips for Re-energizing Your Day, Every Day
Jul 23, 2010 -
When he wrote his 2004 bestselling book The Power of Full Engagement, Tony Schwartz, CEO of The Energy Project, wrote for 10 to 12 hours at a time, as he had done in writing his previous books.
He never finished a book in less than a year. For his new book, he wrote using a “pulse” method, working without interruptions for three 90 minute periods, and taking a break between each one. He had breakfast after the first session, went for a run after the second, and had lunch after the third. He wrote no more than 4 1/2 hours a day, and finished the book in less than six months.
The question, of course, is why change something that works? The short answer is in the book’s title: because his way of working wasn’t working... at least not nearly as well as it could. The longer answer is a bit more scientific.
By limiting each writing cycle to 90 minutes and building in periods of renewal, Tony was able to focus far more intensely and get more done in far less time. Again, why? Because numerous research studies show that our bodies operate by 90 minute rhythms during the day. When we’re awake, we move from higher to lower alertness every 90 minutes.
And here’s the thing: our bodies clearly signal that rhythm, in the form of restlessness, hunger, drowsiness and loss of focus. Generally we either ignore or override those signals, because we have a lot to do and many ways to artificially pump up our energy with various supplements. The problem is that after working at high intensity for more than 90 minutes, our brains begin to shut down. We become more reactive and less capable of thinking clearly and reflectively, or seeing the big picture.
According to Tony, the working world is facing a new kind of energy crisis—and this one’s personal. We aren’t designed to operate like computers—at high speeds, continuously, running multiple programs at the same time—but we do. The consequence is that we’re increasingly distracted, exhausted and demoralized, especially in a recession-driven world that forces us to get more done with fewer resources.
In fact, human beings are designed to pulse, to move between spending and renewing energy to meet our four key needs: physical, emotional, mental, and spiritual. This flies in the face of prevailing work practices, which are in reality built on a few myths, which Schwartz easily busts with research:
Myth: Great performers get by on less sleep.
Reality: Research suggests just the opposite. Across disparate fields, elite performers sleep an average of 8 1/2 hours a night, compared to the 6 1/2 hours that the average American sleeps.
Myth: A little anxiety and fear help motivate us when we’re facing tough deadlines.
Reality: In fact, negative emotions of any kind consistently undermine high performance. The better we feel, the better we perform.
Myth: Multitasking is a key to getting more done in a world of relentless demand.
Reality: Numerous studies have shown that when we juggle multiple activities, the time it takes to finish any given one activity increases by an average of 25 percent.
Tony argues that we “should try to get things done in bursts of intensely focused activity, interspersed with periods of rest and recovery.” Here are 10 tips for doing just that:
1. Make sufficient sleep your highest priority. After breathing, sleeping is our most fundamental need. It’s also the first thing we’re willing to give up in an effort to get more done. Begin quieting down at least 30 minutes before you go to sleep. Avoid anything stimulating, such as the Internet, mysteries, and intense conversations. Wind down with mellow music, a bath, or herbal tea.
2. Exercise begins with the First Step. If you’re struggling to find the time or motivation to start an exercise routine, buy a pedometer and record the number of steps you take every day. Shoot for 10,000—the recommended daily number of steps to ensure you are getting enough movement in your day to be fit.
3. Prioritize your tasks the night before. The number of potential distractions, interruptions, and fatigue tends to increase throughout the day. Do the most important work of your day first, before checking email, if possible.
4. Become a Type A Eater. Decide in advance what you’re going to eat, in what portions, and at what intervals. That’s the best way to avoid endless temptations, unconscious cues, and “that-looks-good!” surprises that override our self-discipline and cause us to veer off track.
5. Breathe deep. If you feel negative emotions coming on, or when you feel frustrated, annoyed, or anxious, simply take a few deep breaths. Extend the exhale to decrease your physiological arousal and quickly restore a sense of calm.
6. Give Thanks. Write a note of appreciation to someone in your life once a week. We’re far quicker to notice what’s wrong than to celebrate what’s right in others. You might be surprised to discover how energized and inspired people are when they feel recognized and appreciated.
7. Log Off Your Email. Try turning off your email completely for at least one hour a day. Use that time to devote your full attention to a significant task or larger challenge you’re facing.
8. Daydream for Breakthroughs. Schedule at least one half-hour a week to brainstorm around some issue at work. You can help access your right hemisphere by doodling, listening to instrumental music, going for a long walk—anything that lets your mind wander.
9. Take a break. Taking time to renew every 90 minutes keeps your body in alignment with its natural rhythms. Much as we cycle through stages of sleep at night, so we go through a similar cycle every 90 minutes throughout the day, moving from a state of higher energy slowly down into fatigue.
10. Accentuate the Positive. Make a list of activities that you enjoy most and that make you feel best. Intentionally schedule at least one of these activities into your life each week.
Tony argues that, “To build a competitive advantage, organizations must help employees to cultivate qualities that have never before been critical—among them authenticity, empathy, self-awareness, constant creativity, an internal sense of purpose, and, perhaps above all, resilience in the face of relentless change. And whatever our employers do, we serve ourselves well to cultivate these same qualities in order to be more effective and more satisfied, both on the job and off.”
You can find The Energy Project team on Facebook and follow them on Twitter @energy_project.
Matthew E. May is a design and innovation strategist. You can follow him on Twitter @matthewemay.
Tags: matthew e. may, the energy project, the power of full engagement, time management, in pursuit of elegance, tony schwartz
Jul 23, 2010 -
When he wrote his 2004 bestselling book The Power of Full Engagement, Tony Schwartz, CEO of The Energy Project, wrote for 10 to 12 hours at a time, as he had done in writing his previous books.
He never finished a book in less than a year. For his new book, he wrote using a “pulse” method, working without interruptions for three 90 minute periods, and taking a break between each one. He had breakfast after the first session, went for a run after the second, and had lunch after the third. He wrote no more than 4 1/2 hours a day, and finished the book in less than six months.
The question, of course, is why change something that works? The short answer is in the book’s title: because his way of working wasn’t working... at least not nearly as well as it could. The longer answer is a bit more scientific.
By limiting each writing cycle to 90 minutes and building in periods of renewal, Tony was able to focus far more intensely and get more done in far less time. Again, why? Because numerous research studies show that our bodies operate by 90 minute rhythms during the day. When we’re awake, we move from higher to lower alertness every 90 minutes.
And here’s the thing: our bodies clearly signal that rhythm, in the form of restlessness, hunger, drowsiness and loss of focus. Generally we either ignore or override those signals, because we have a lot to do and many ways to artificially pump up our energy with various supplements. The problem is that after working at high intensity for more than 90 minutes, our brains begin to shut down. We become more reactive and less capable of thinking clearly and reflectively, or seeing the big picture.
According to Tony, the working world is facing a new kind of energy crisis—and this one’s personal. We aren’t designed to operate like computers—at high speeds, continuously, running multiple programs at the same time—but we do. The consequence is that we’re increasingly distracted, exhausted and demoralized, especially in a recession-driven world that forces us to get more done with fewer resources.
In fact, human beings are designed to pulse, to move between spending and renewing energy to meet our four key needs: physical, emotional, mental, and spiritual. This flies in the face of prevailing work practices, which are in reality built on a few myths, which Schwartz easily busts with research:
Myth: Great performers get by on less sleep.
Reality: Research suggests just the opposite. Across disparate fields, elite performers sleep an average of 8 1/2 hours a night, compared to the 6 1/2 hours that the average American sleeps.
Myth: A little anxiety and fear help motivate us when we’re facing tough deadlines.
Reality: In fact, negative emotions of any kind consistently undermine high performance. The better we feel, the better we perform.
Myth: Multitasking is a key to getting more done in a world of relentless demand.
Reality: Numerous studies have shown that when we juggle multiple activities, the time it takes to finish any given one activity increases by an average of 25 percent.
Tony argues that we “should try to get things done in bursts of intensely focused activity, interspersed with periods of rest and recovery.” Here are 10 tips for doing just that:
1. Make sufficient sleep your highest priority. After breathing, sleeping is our most fundamental need. It’s also the first thing we’re willing to give up in an effort to get more done. Begin quieting down at least 30 minutes before you go to sleep. Avoid anything stimulating, such as the Internet, mysteries, and intense conversations. Wind down with mellow music, a bath, or herbal tea.
2. Exercise begins with the First Step. If you’re struggling to find the time or motivation to start an exercise routine, buy a pedometer and record the number of steps you take every day. Shoot for 10,000—the recommended daily number of steps to ensure you are getting enough movement in your day to be fit.
3. Prioritize your tasks the night before. The number of potential distractions, interruptions, and fatigue tends to increase throughout the day. Do the most important work of your day first, before checking email, if possible.
4. Become a Type A Eater. Decide in advance what you’re going to eat, in what portions, and at what intervals. That’s the best way to avoid endless temptations, unconscious cues, and “that-looks-good!” surprises that override our self-discipline and cause us to veer off track.
5. Breathe deep. If you feel negative emotions coming on, or when you feel frustrated, annoyed, or anxious, simply take a few deep breaths. Extend the exhale to decrease your physiological arousal and quickly restore a sense of calm.
6. Give Thanks. Write a note of appreciation to someone in your life once a week. We’re far quicker to notice what’s wrong than to celebrate what’s right in others. You might be surprised to discover how energized and inspired people are when they feel recognized and appreciated.
7. Log Off Your Email. Try turning off your email completely for at least one hour a day. Use that time to devote your full attention to a significant task or larger challenge you’re facing.
8. Daydream for Breakthroughs. Schedule at least one half-hour a week to brainstorm around some issue at work. You can help access your right hemisphere by doodling, listening to instrumental music, going for a long walk—anything that lets your mind wander.
9. Take a break. Taking time to renew every 90 minutes keeps your body in alignment with its natural rhythms. Much as we cycle through stages of sleep at night, so we go through a similar cycle every 90 minutes throughout the day, moving from a state of higher energy slowly down into fatigue.
10. Accentuate the Positive. Make a list of activities that you enjoy most and that make you feel best. Intentionally schedule at least one of these activities into your life each week.
Tony argues that, “To build a competitive advantage, organizations must help employees to cultivate qualities that have never before been critical—among them authenticity, empathy, self-awareness, constant creativity, an internal sense of purpose, and, perhaps above all, resilience in the face of relentless change. And whatever our employers do, we serve ourselves well to cultivate these same qualities in order to be more effective and more satisfied, both on the job and off.”
You can find The Energy Project team on Facebook and follow them on Twitter @energy_project.
Matthew E. May is a design and innovation strategist. You can follow him on Twitter @matthewemay.
Tags: matthew e. may, the energy project, the power of full engagement, time management, in pursuit of elegance, tony schwartz
sábado, 3 de julho de 2010
Preço e valor
Melhorar a gestão e não reduzir o preço
Publicado em 5 de 30 de junho de 2010 às 04h44 por Fernanda Peregrino
Como um armarinho pode enfrentar a concorrência sem baixar os preços dos produtos? É o que o empresário Rodrigo quer saber. “Meu concorrente vive botando o preço das mercadorias mais baixo que o meu. O que eu faço? Vou baixando o preço também ou mantenho os meus preços?”, escreve o empreendedor para o blog Faça Diferente.
Há 2,5 anos, Rodrigo tem uma loja no Rio de Janeiro e vende aviamentos, linhas, barbantes, agulhas etc. Seis pessoas trabalham no comércio.
Confira as dicas do Consultor Sebrae:
Inovar na gestão
O marketing do preço menor é um sistema predatório, e que no final em nada lhe será bom. Antes de pensar em baixar o preço, é preciso inovar e melhorar a gestão do negócio. A empresa pode se tornar competitiva investindo em planejamento, posicionamento de mercado e gestão de custos e de capital de giro.
Para conquistar a clientela, a empresa pode adotar diversas estratégias de posicionamento, destacando: atributos específicos do produto, ocasiões de uso do produto, classes de uso do produto e em contraste aos concorrentes.
Neste caso, o posicionamento por atributos específicos do produto e em contraste aos dos concorrentes são as melhores estratégias para conquistar mercado. Enfatize os atributos específicos do produto, como a qualidade, o custo-benefício e o desempenho. Também mostre que o seu produto tem, em contraste ao da concorrência, mais qualidade e vantagens. Valorize o diferencial dos seus produtos,
O mais importante para escolher e implantar uma estratégia de posicionamento é identificar as vantagens competitivas do seu empreendimento e produto. Ponha-se no lugar do consumidor! Como os compradores escolhem produtos que lhes ofereçam maior valor, você deve compreender as necessidades dos clientes e os processos de compra melhor do que seus concorrentes. Só assim poderá oferecer mais valor/vantagens para sua clientela.
As suas vantagens competitivas podem ser preços baixos, oferta de mais benefícios que seus concorrentes, qualidade nos produtos e serviços, bom atendimento, funcionários eficientes e ambiente organizado e atrativo.
Depois de definir o diferencial do seu negócio, é hora de investir em divulgação. Comunique a sua clientela e potenciais clientes quais a vantagens de comprar no seu armarinho. Lembre-se que o preço dos seus produtos é justificado pelos diferenciais da sua empresa. Se você oferece mais produtos e serviços e mais qualidade no atendimento, poderá precificar de maneira diferente da concorrência.
Planejamento
O Plano de Negócio (PN) é uma importante ferramenta para o empresário. É por meio dele que o empreendedor demonstra a viabilidade da empresa e como as metas estabelecidas serão atingidas. O PN é o guia do empresário! Sua aplicabilidade é tanto para o lançamento de novos empreendimentos quanto para o planejamento de empresas já estabelecidas.
O sucesso é alcançado mais fácil e rapidamente com o planejamento. Se sua empresa ainda não tem um PN, então procure o Sebrae mais próximo de você e peça ajuda para um consultor. Isso será importante para que metas e estratégias sejam estabelecidas para o seu negócio.
Você ainda pode elaborar o seu PN por meio de um software desenvolvido pelo Sebrae. Acesse.
Capital de giro
A gestão de capital de giro (CG) também contribuirá com o sucesso do seu armarinho. Segundo o Instituto de Estudos Financeiros (IEF), “o capital de giro representa, em média, 30 a 40% do total dos ativos de uma empresa”. O CG precisa de acompanhamento permanente.
Preventivamente deve ser formada uma reserva financeira para enfrentar as mudanças inesperadas no quadro financeiro da empresa. Para isso, leve em conta o grau de proteção que se deseja. O IEF sugere uma análise do tipo “o que aconteceria ao capital de giro se…” para se formular a estimativa do volume da reserva financeira.
Outra forma seria encurtar seu ciclo econômico que se resume no tempo necessário à transformação dos insumos adquiridos em produtos ou serviços, que no seu caso representaria aumentar o giro dos estoques ou diminuir o ciclo de compras.
Você poderia ainda melhorar seu capital de giro com a redução da inadimplência dos clientes (se for o caso melhorando sua concessão de crédito) e com o não endividamento a qualquer custo (comprando o estritamente necessário). Outra opção seria alongar o perfil do seu endividamento, implantando um programa de redução de custos e substituindo passivos com a troca de uma dívida por outra de menor custo financeiro.
Gestão de custos
Por último, estabeleça uma boa e eficiente gestão de custos. Lembre-se que, em tese, não é possível repassar, aos preços finais de produtos e serviços, eventuais ineficiências, desperdícios e excessos que se verificam na organização bem como uma eficaz gestão de preços. Então, o lucro depende de adequado e rigoroso acompanhamento dos dispêndios e o estabelecimento de um preço de venda que atenda ao consumidor e as necessidades empresariais sem perder de vista a concorrência.
A melhor opção para sobrevivência no mercado é a obtenção de um adequado controle de custos dos produtos, mercadorias e serviços vendidos pelas empresas, de forma a permitir a formação de preços de vendas.
Confira modelos de monitoramento dos custos nos sites Portal da Contabilidade e Via6.
Publicado em 5 de 30 de junho de 2010 às 04h44 por Fernanda Peregrino
Como um armarinho pode enfrentar a concorrência sem baixar os preços dos produtos? É o que o empresário Rodrigo quer saber. “Meu concorrente vive botando o preço das mercadorias mais baixo que o meu. O que eu faço? Vou baixando o preço também ou mantenho os meus preços?”, escreve o empreendedor para o blog Faça Diferente.
Há 2,5 anos, Rodrigo tem uma loja no Rio de Janeiro e vende aviamentos, linhas, barbantes, agulhas etc. Seis pessoas trabalham no comércio.
Confira as dicas do Consultor Sebrae:
Inovar na gestão
O marketing do preço menor é um sistema predatório, e que no final em nada lhe será bom. Antes de pensar em baixar o preço, é preciso inovar e melhorar a gestão do negócio. A empresa pode se tornar competitiva investindo em planejamento, posicionamento de mercado e gestão de custos e de capital de giro.
Para conquistar a clientela, a empresa pode adotar diversas estratégias de posicionamento, destacando: atributos específicos do produto, ocasiões de uso do produto, classes de uso do produto e em contraste aos concorrentes.
Neste caso, o posicionamento por atributos específicos do produto e em contraste aos dos concorrentes são as melhores estratégias para conquistar mercado. Enfatize os atributos específicos do produto, como a qualidade, o custo-benefício e o desempenho. Também mostre que o seu produto tem, em contraste ao da concorrência, mais qualidade e vantagens. Valorize o diferencial dos seus produtos,
O mais importante para escolher e implantar uma estratégia de posicionamento é identificar as vantagens competitivas do seu empreendimento e produto. Ponha-se no lugar do consumidor! Como os compradores escolhem produtos que lhes ofereçam maior valor, você deve compreender as necessidades dos clientes e os processos de compra melhor do que seus concorrentes. Só assim poderá oferecer mais valor/vantagens para sua clientela.
As suas vantagens competitivas podem ser preços baixos, oferta de mais benefícios que seus concorrentes, qualidade nos produtos e serviços, bom atendimento, funcionários eficientes e ambiente organizado e atrativo.
Depois de definir o diferencial do seu negócio, é hora de investir em divulgação. Comunique a sua clientela e potenciais clientes quais a vantagens de comprar no seu armarinho. Lembre-se que o preço dos seus produtos é justificado pelos diferenciais da sua empresa. Se você oferece mais produtos e serviços e mais qualidade no atendimento, poderá precificar de maneira diferente da concorrência.
Planejamento
O Plano de Negócio (PN) é uma importante ferramenta para o empresário. É por meio dele que o empreendedor demonstra a viabilidade da empresa e como as metas estabelecidas serão atingidas. O PN é o guia do empresário! Sua aplicabilidade é tanto para o lançamento de novos empreendimentos quanto para o planejamento de empresas já estabelecidas.
O sucesso é alcançado mais fácil e rapidamente com o planejamento. Se sua empresa ainda não tem um PN, então procure o Sebrae mais próximo de você e peça ajuda para um consultor. Isso será importante para que metas e estratégias sejam estabelecidas para o seu negócio.
Você ainda pode elaborar o seu PN por meio de um software desenvolvido pelo Sebrae. Acesse.
Capital de giro
A gestão de capital de giro (CG) também contribuirá com o sucesso do seu armarinho. Segundo o Instituto de Estudos Financeiros (IEF), “o capital de giro representa, em média, 30 a 40% do total dos ativos de uma empresa”. O CG precisa de acompanhamento permanente.
Preventivamente deve ser formada uma reserva financeira para enfrentar as mudanças inesperadas no quadro financeiro da empresa. Para isso, leve em conta o grau de proteção que se deseja. O IEF sugere uma análise do tipo “o que aconteceria ao capital de giro se…” para se formular a estimativa do volume da reserva financeira.
Outra forma seria encurtar seu ciclo econômico que se resume no tempo necessário à transformação dos insumos adquiridos em produtos ou serviços, que no seu caso representaria aumentar o giro dos estoques ou diminuir o ciclo de compras.
Você poderia ainda melhorar seu capital de giro com a redução da inadimplência dos clientes (se for o caso melhorando sua concessão de crédito) e com o não endividamento a qualquer custo (comprando o estritamente necessário). Outra opção seria alongar o perfil do seu endividamento, implantando um programa de redução de custos e substituindo passivos com a troca de uma dívida por outra de menor custo financeiro.
Gestão de custos
Por último, estabeleça uma boa e eficiente gestão de custos. Lembre-se que, em tese, não é possível repassar, aos preços finais de produtos e serviços, eventuais ineficiências, desperdícios e excessos que se verificam na organização bem como uma eficaz gestão de preços. Então, o lucro depende de adequado e rigoroso acompanhamento dos dispêndios e o estabelecimento de um preço de venda que atenda ao consumidor e as necessidades empresariais sem perder de vista a concorrência.
A melhor opção para sobrevivência no mercado é a obtenção de um adequado controle de custos dos produtos, mercadorias e serviços vendidos pelas empresas, de forma a permitir a formação de preços de vendas.
Confira modelos de monitoramento dos custos nos sites Portal da Contabilidade e Via6.
Fuja do preço
4 Pricing Strategies to Promote Value
Jul 01, 2010 -
You know the value of your product—the benefits and innovations that set your products or services apart from the rest.
You want your customers to think about these factors when they weigh your product against competing selections, but odds are that they won't. Of the many options on the shelf, customers are likely focusing on the price tag.
Don't think lowering your prices is the best route to take, though. Consistently undercutting your competitors will get you more customers at first, but if that is all you do, you can kiss your brand equity and profit margins goodbye.
Don't get sucked into a price war. Instead, change the way your customers view your products. Convince them that your product isn't just a commodity that can easily be substituted by the next, cheaper item on the shelf. Marco Bertini and Luc Wathieu describe four strategies to stop customers from fixating on price. Your main weapon? The price.
1. Specify Pricing by Value
Paradoxically, the best way to draw customer attention away from price is to revise your pricing strategy.
One option involves changing the way you present the prices of your various offerings. Divert their focus from the price itself, and specify the value you're offering.
Goodyear did this with great success. The tire company had a hard time convincing their customers that their tires were worth the premium price. So they began to base the pricing on how many miles they're expected to last. Instead of using a lot of engineer speak and going into the complexities of their innovations, they figured out a simple way to communicate their premium value (thus the reason for their premium pricing).
That's the kind of value customers are willing to pay for.
2. Raise Your Price
In a price-conscious market, consumers usually pick the product with the lowest price, if they think the products are of equal value. Throw in a price that's unusually high, and you'll grab a second look. Take advantage of the curiousity and convey benefits that they hadn't considered before.
For example, Burt's Bees priced their personal care products at 80 percent to 100 percent over competing, nonnatural brands. Customers were shocked by the unusually high prices, but they also wondered what made Burt's Bees' products so special.
They discovered that Burt's Bees' offerings were made with natural ingredients by a socially responsible organization. And to many customers, this mattered.
3. Offer Menu Pricing
Allow customers to select parts or services for their individual needs. Breaking down the prices can help customers focus on value rather than the lump sum total. It also allows price conscious customers to opt for basic services while those who are willing to pay for value will upgrade.
Bertini and Wathieu conducted several experiments to test this strategy.
In one experiment, the participants were asked to choose between a $165 non-direct, no-frills flight and a $215 direct flight with meal service and in-flight entertainment. They created two levels of amenities for the $215 flight on the assumption that better quality would convince more participants to choose the higher fare, but it turned out that quality didn't matter when the fares were presented as a lump sum. Rather, it was when the fares were itemized and the quality of the amenities made explicit that more participants opted for the higher fare.
While price partitioning is a great way to highlight your competitive advantages, this strategy often backfires when companies itemize fees for standard, unavoidable, or mandatory features—like check-in and baggage handling.
4. Offer Personal Relevance
This strategy is effective when customers are presented with several options designed to appeal to different tastes. With price differences out of the picture, customers will need to discover which option suits their needs best. It compels them to base their purchasing decisions on the differentiating features of your products and not solely on the price.
One example of this strategy is Apple's initial decision to sell every track available on iTunes at the uniform rate of 99 cents per track. Steve Jobs was criticized for not taking advantage of the fact that high-demand products can carry a higher price and for disregarding the conventional practice that lower-demand products must be priced lower. As it turns out, this was a profitable move for Apple. When customers shop on iTunes, they're less fixated on price, more sensitive to the selection and their own musical tastes, and more willing to buy more tracks.
Wise Bread is a leading personal finance community dedicated to helping people get the most out of their money. Get daily money tips by following Wise Bread on Facebook or Twitter.
Jul 01, 2010 -
You know the value of your product—the benefits and innovations that set your products or services apart from the rest.
You want your customers to think about these factors when they weigh your product against competing selections, but odds are that they won't. Of the many options on the shelf, customers are likely focusing on the price tag.
Don't think lowering your prices is the best route to take, though. Consistently undercutting your competitors will get you more customers at first, but if that is all you do, you can kiss your brand equity and profit margins goodbye.
Don't get sucked into a price war. Instead, change the way your customers view your products. Convince them that your product isn't just a commodity that can easily be substituted by the next, cheaper item on the shelf. Marco Bertini and Luc Wathieu describe four strategies to stop customers from fixating on price. Your main weapon? The price.
1. Specify Pricing by Value
Paradoxically, the best way to draw customer attention away from price is to revise your pricing strategy.
One option involves changing the way you present the prices of your various offerings. Divert their focus from the price itself, and specify the value you're offering.
Goodyear did this with great success. The tire company had a hard time convincing their customers that their tires were worth the premium price. So they began to base the pricing on how many miles they're expected to last. Instead of using a lot of engineer speak and going into the complexities of their innovations, they figured out a simple way to communicate their premium value (thus the reason for their premium pricing).
That's the kind of value customers are willing to pay for.
2. Raise Your Price
In a price-conscious market, consumers usually pick the product with the lowest price, if they think the products are of equal value. Throw in a price that's unusually high, and you'll grab a second look. Take advantage of the curiousity and convey benefits that they hadn't considered before.
For example, Burt's Bees priced their personal care products at 80 percent to 100 percent over competing, nonnatural brands. Customers were shocked by the unusually high prices, but they also wondered what made Burt's Bees' products so special.
They discovered that Burt's Bees' offerings were made with natural ingredients by a socially responsible organization. And to many customers, this mattered.
3. Offer Menu Pricing
Allow customers to select parts or services for their individual needs. Breaking down the prices can help customers focus on value rather than the lump sum total. It also allows price conscious customers to opt for basic services while those who are willing to pay for value will upgrade.
Bertini and Wathieu conducted several experiments to test this strategy.
In one experiment, the participants were asked to choose between a $165 non-direct, no-frills flight and a $215 direct flight with meal service and in-flight entertainment. They created two levels of amenities for the $215 flight on the assumption that better quality would convince more participants to choose the higher fare, but it turned out that quality didn't matter when the fares were presented as a lump sum. Rather, it was when the fares were itemized and the quality of the amenities made explicit that more participants opted for the higher fare.
While price partitioning is a great way to highlight your competitive advantages, this strategy often backfires when companies itemize fees for standard, unavoidable, or mandatory features—like check-in and baggage handling.
4. Offer Personal Relevance
This strategy is effective when customers are presented with several options designed to appeal to different tastes. With price differences out of the picture, customers will need to discover which option suits their needs best. It compels them to base their purchasing decisions on the differentiating features of your products and not solely on the price.
One example of this strategy is Apple's initial decision to sell every track available on iTunes at the uniform rate of 99 cents per track. Steve Jobs was criticized for not taking advantage of the fact that high-demand products can carry a higher price and for disregarding the conventional practice that lower-demand products must be priced lower. As it turns out, this was a profitable move for Apple. When customers shop on iTunes, they're less fixated on price, more sensitive to the selection and their own musical tastes, and more willing to buy more tracks.
Wise Bread is a leading personal finance community dedicated to helping people get the most out of their money. Get daily money tips by following Wise Bread on Facebook or Twitter.
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