Increasing Prices and Crossing the Line of Rationality…


Steam From Ears

Nobody likes a price increase and nobody likes a nasty surprise. So why is it that most companies insist on delivering their price increases as a nasty surprise.

The trouble with increasing prices to regular existing customers is that they have the strongest of benchmarks upon which to base their judgement of your new price…. namely the price you used to charge them. The issue then becomes, not whether the product constitutes value at the new price (in reality a few percent difference in the price is unlikely to fundamentally make the value unappealing), rather that you have had the temerity to move the price.

So logically what you want the customer to do is make a rational evaluation of your product at the new price and say to him or herself  ‘It is not worth risking moving my business for a couple of percent’. The closer you can get to ambivalence the better. We call this Staying the right side of the line of rationality.

What many companies manage to do is drive their customers across to the wrong side of the line of rationality by making a price increase a nasty surprise and bouncing it on the customer at the last minute. Remember those emails or letters that start ‘Dear Customer…. due to cost pressures beyond our control…. with effect from the first of next month…’ You can almost imagine the supplier sending them out then taking the phone off the hook and hiding under the desk.

On the wrong side of the line of rationality lies anger, a desire for revenge, retribution and rash decision making. We have seen customers cut their noses off to spite their faces by shifting their business hastily to an unsuitable alternative supplier.

The trick to implementing an increase is to do it slowly and gently. Drop hints well in advance that the price in on the move without saying when and by how much. Use the passive voice to depersonalise the action “Price changes are likely to happen in the new year”. Use all communication channels open to you to lodge the notion of an increase in the customer’s head without giving them a chance to argue the detail.

If you place a sufficient time between announcement of the intention and final confirmation, then even those customers who were furious at the outset will have had time to let the steam out of their ears.

People worry about competitors hearing about the increase and taking advantage. In most markets your increase will go unnoticed. In any case any sensible competitor would take the hint and raise their prices too. (PS Don’t call them and suggest this. Collusion is illegal)

 

 

Pricing like you don’t care…


The price someone is prepared to pay resides in their mind, not in your desk calculator and not in your head. This little story shows how when your mind is free from the angst of winning the business you can often get a better price.

Yesterday I was with some customer-facing staff from one of our clients talking about real-life situations where they had managed to get a customer to pay a little bit more.

One of the women described an enquiry that had come in from a customer she had dealt with in the past. She didn’t like him. He was always brusque with her and whenever he had a technical question he demanded to talk to a man as he assumed that her gender precluded her from understanding the technical products she had been selling for years. You can imagine how annoyed this would make a strong and capable woman like our friend.

His second mistake (the first; being rude to her previously) was the barrage he let fly at her to make her understand how just how urgently he needed the product. Having made his point he put the phone down without so much as a please or thank you.

The enquiry was for a product she knew well and could acquire for him quickly and cheaply. All she had to do was to decide how much he should pay.

She added her usual mark-up and looked at the figure. She remembered how rude he was to her… and she added a bit more… then she remembered how desperate he was… and she added a bit more… then with a smile, she pictured him with steam coming out of his ears when he realised that he had no choice but to buy from her…. and she added a bit more.

After letting him stew for ten minutes or so, she called him back. Putting on her best telephone voice and a knowing smile, she told him that she had managed to track down a supply of the product he needed so desperately and she would pull out all the stops to get it to him the same afternoon… then she told him the price (now about four times as much as she would have normally charged). It was still a relatively small amount in his scheme of things and the value of getting the parts to him the same afternoon was that he could get on and finish the job. He didn’t flinch. He placed the order and for once actually thanked her.

There are several morals to this story:

Firstly, don’t be rude to suppliers’ staff if they have discretion to set prices.

Secondly, for people in a hurry time is money and they will pay to save it.

Thirdly, and most importantly, becuase she really didn’t care whether he bought from her or not, her desire to make the sale was taken out of the equation…. all that was left was his desire to buy. It turned out that his desire to buy could be measured in a price that was four times what she would have charged to a customer whose business she really wanted. This means that you should concentrate on what is in the customer’s head not yours… how is he or she benchmarking your price, what are the circumstances of the purchase, what value will he or she derive from the product (including the service you can give), does he or she know where else to go?

I am not saying that you should price customers based on their attitude, although I have a sneaking admiration for her approach. However what this does show is that a polite customer asking for the same product in the same circumstances would have also probably paid four times more than the normal mark-up. It is only when you are genuinely ambivalent about winning the business do you actually push the envelope on price.

Have you ever priced a customer to go away only to find they didn’t?

 

 

 

 

 

 

 

 

A Definition of Small Print… and how it wrecks customer relationships.


Whilst font size could be used as a measure, a more workable definition of what constitutes ‘small print’ is the stuff you hope the customer doesn’t read until you point it out to them.

“It is there…in writing… you cannot say I didn’t tell you”

This kind of discussion nearly always happens when the customer is looking at a copy of your invoice and has steam coming out of his or her ears. Pointing out the reason for the misunderstanding hidden in the small print may force the customer to settle the bill, but is almost guaranteed to send them looking for another supplier. All you are actually saying to your customer is “See.. you are too lazy or stupid to read everything I send you”. Insulting customers is never a good strategy.

We work on the principle that an invoice should not contain any nasty surprises for the customer… if it does, this is a failure in your communication. The golden rule of communication is: If someone hasn’t understood something it is not that they are thick, it is that you have not communicated properly.

Sales and marketing people like to live in ‘large print’ world… i.e. the stuff you hope the customer does read. Stuff about how wonderful your product is, how nice and clever your firm is and what fantastic value they will recoup by spending money with you.

In between the worlds of ‘large print’ and ‘small print’ we believe there is a much underused form of communication. For want of a better term, we call it Nuanced Large Print.

Whether in proposals, emails, website copy or literature, this is where you manage the customers expectations. This is where you subtly point out under what circumstances the invoice might be more than the headline figure in the large print. This is where you sow a few gentle seeds telling them what is included in the price and what will be extra. It contains phrases like:

“The cost for the standard product is £X. We can of course provide many kinds of bespoke packaging and will be happy to work out a cost for you.”

or

Assuming that we are looking at a single division of the group, phase 1 of the project will cost £X”

or

Based on the current specification we can complete the work for £X. We can usually accommodate minor changes in the layout. If you want to alter anything, please let us know as soon as possible so we can see if there is a cost implication before proceeding”.

These are not hidden away in the small print, they are there right next to the large print price. They are couched in open and honest terms and crafted to sound professional and positive.

There may be people in your organisation who get on their high horse when a customer complains about something they should have spotted in the small print….’It’s their own fault… they should have read the terms and conditions!!”. These are usually people who are not responsible for next years sales to the customer in question.

I am not saying you don’t need terms and conditions…. but you should work on the assumption that their only practical use is as something to give to your lawyer to argue over with their lawyer.

 

 

The Difference Between a Brand and a Label…. a pricing guy’s persepctive.


There is a difference between a brand and a label.

Dog in a bag

A brand comes with a reassurance of quality. Put simply; the consumer subconsciously realises that it is too dangerous for a company with a long standing reputation to produce anything that might trash that reputation.

A label is a way for simpletons to show other simpletons that they have more money than sense.

It is easy to tell the difference: Whilst a brand may be visible at the point of sale, it is not necessary for it to be visible after the purchase is made. In other words if it is emblazoned on the outside of the goods in letters four inches high, it is a good indicator that the item is intended for simpletons (and may be fake anyway).

PS …Just been out and measured the size of the letters on my Mercedes and thankfully they are not four inches high!

How to overcome the tyranny of tenders


The tender is a devilish device designed to cynically negate all the carefully crafted embellishments of the salesperson and all the wonderfully concocted unique propositions of the marketing department. However they are about as much use in choosing a supplier who will give you long term value, as a beauty pageant is as a means of choosing a life partner.

In the eyes of a procurement professional, a tender makes all other things equal so that the suppliers can be focused on sharpening their pricing pencil until it is little more than a well-chewed stub… so short it can barely be clenched twixt finger and thumb.

So how do you win business is in the face of such a soulless adversary?….

The first thing to say about tenders is, that if the first time you hear about one is when the request arrives on your desk, then you should assume that you have already lost (Sorry if this sounds rather like the old joke about the lost tourists who stop to ask a farmer for directions and get the reply ‘If I were you I wouldn’t start from here’)

You need to consider how a tender comes about to understand how to tackle it. In instances where there is already an incumbent supplier, the technical part of the tender document will be written based on the product or service they are already getting. Unless they have a burning desire for change, what in effect they are asking for is more of the same please… but cheaper’.

Because the document assumes there is only one way to provide the product or service, you have no way of registering that yours has an advantage and that they will need to accept some risk or cost of change….Also I have never seen a box in tender documents asking you to put in why they should pay more.

So, turning hindsight into foresight this is how you go about it:

  1. Identify all the potential customers that you think could especially benefit from your product or service….regardless of where they are in the tender cycle.
  2. Research them like hell and set about building contacts at as many levels as possible. If there is not a tender in the offing they should be more inclined to talk to you.
  3. If you are successful in making contact, use your very best discovery skills to understand the world from their point of view…How they make their money, what’s important to them, what makes the individual decision-makers tick, what gets them worked up.
  4. Gently and subtly, without being rude, point out what they are missing by using the incumbent supplier and make sure that you are on the next tender list. If they can see that you have invested time in them it would be mean to exclude you.
  5. Turn up the volume a tad just before they start to draft the technical section of the next tender. The aim is to have it written it in such a way that only you can fulfill its requirements.
  6. Make sure that they see value in doing things differently and expect to pay more for this approach.

A tender is not the time to do your selling, it is a time to remind them of the (very subtle) selling you did months if not, years ago.

If you are going to have to undergo the somewhat degrading spectacle of appearing in a beauty pageant, it probably helps if the judges already know you and you have been out on a few dates together.

I know this doesn’t help you win the tender sat on your desk today, but it should help you win some a couple of years hence.

The Moral of the Story is simple…. be proactive not reactive. Put the first step in place today. If you want a rich seam of business to mine in the future, make it someone’s job to find and engage targets now.

Believe me, you will thank yourself (and possibly me) in 2-3 years time!

…of course we can help, if you need to build this capability.

 

 

 

 

The best two words with which to start proposals…


When we are working with a client who is expecting to make some large sales, we often end up looking at the way they write or present proposals. The manner in which you present your price is at least as important as the number itself. For those that don’t know the difference; a quote tells the customer how much they have to pay, a proposal tells them why they should pay it.

We see some that are little more than a quote fired out of their computer system listing parts and prices, some that are elaborately bound documents filled with words and some that are creatively designed PowerPoint slide sets. However it is presented, there is one thing we are always on the look out for. This is our version of it:

We always start our proposals with the heading UNDERSTANDING CHECK

The heading is followed by a sentence or two something like this:

‘This is what we have learned about your business. Please correct us if we have misunderstood anything:’

We then go on to include 8-12 short paragraphs (or long bullet points) along these lines:

  • Your business provides [product/service] to the [definition] and [definition] market sectors…
  • Your overall corporate objective is to…. and this means that you…. and you hope to…
  • The way you go about servicing your customers is to…
  • The problem you sometimes encounter is…. when this happens it can cost you…
  • You are looking for a way to….
  • To this end you are seeking a supplier who can….
  • You told us that an ideal supplier would be able to….
  • Any potential supplier must meet the approval of….

These should be written using their language or jargon… or no jargon at all. The aim is to let them hear an echo of their own voice. It should contain no specifics about you or your product. That comes later.

If it is well written, when the customer reads this section a warm little sigh occurs deep in their breast and their inner voice says with a smile…. ‘At last!… someone has listened!’

The next Heading is Our Recommendations… or Our Approach.

Writing this bit is a piece of cake. You simply look at each piece of the Understanding Check and say how your company, product or service meets that particular need.

  • We have many clients in the [definition] sector and…
  • Our approach is designed to allow you to continue to….
  • Our product solves the XYZ problem by….
  • As per your requirement we are able to…

The process of writing the Understanding Check has a built in safeguard. If you find you are struggling after writing two or three bullet points then it means you haven’t done enough discovery and you need to ask some more questions. If you don’t, your product will probably not meet their needs (because you simply don’t know what they are).

Warning: Don’t copy and paste. Don’t prepare a generic template with the bullet points in place…. always write it from scratch. It is the discipline of thinking about meeting the customers needs that will win you the business, not the quality of the paper and binding.

Our recommendation is that a proposal of this nature should be delivered with a person attached to talk through it (and help the customer nod in agreement at every step). If we know that the primary contact is not the final decision maker then we sometimes say ‘I have brought a draft of our proposal to show you to make sure it is OK before we finalise it’ … it is still beautifully bound and usually doesn’t get amended.

PS If you need us to train your people on how to combine the discovery process with proposal writing, drop us a line at enquires@burginassociates.com

 

 

 

 

 

How to stop your staff giving stuff away…


Do you recognise this…

An important customer phones up and asks someone at your firm to do something for them…

“Can you just do this for us…. “ or “Rather than do it that way, it would suit us if you did it this way instead…” (i.e. the non-standard way).

Your people are well trained. They do everything they can to delight the customer… go the extra mile. So with a big smile they agree.

But somewhere in the process the customer doesn’t end up paying for this extra service. You sort of hoped he would, but nobody mentioned anything about it so the job gets done and no invoice is sent… or if it is, the customer is furious because the charge comes as a surprise.

I will let you into a secret. The customer wasn’t sure whether you would charge or not. But they weren’t going to mention it if you didn’t.

Here is a little phrase we train our clients to use that solves the problem. Anytime someone asks you to do something that is outside the normal contractual arrangement, the very first thing your people should say is:

“I am sure we can help with that, let me work out a cost for you”… all one sentence without taking breath.

Get them chanting it out loud at your next team meeting until they say it without thinking.

This little phrase solves the problem in three ways:

Firstly: it puts the principle of charging for the service squarely on the table so no one is in any doubt at the outset.

Secondly: by using the word cost rather than price, it reminds the customer that there is a cost to you associated with providing the service.

Thirdly: it gives them a chance to argue if they want to, before anyone is committed to doing anything…. and that is much fairer to both parties.

A colleague of mine many years ago, having overheard one of his team giving away something, waited until he had put the phone down and asked him to join him outside the front of the building. Looking up at the company sign, he asked the somewhat confused lad “Can you tell me where it says ‘Registered Charity’?”

The moral of the story is it is always best to let people know what they have to pay for (and what they do not) as soon as possible. No one likes nasty surprises.

 

 

 

How to get your customers to deliberately raise their own blood pressure…


“Payment Problems: Authorisation Declined Call us Immediately” … the title on a letter that dropped through my letterbox yesterday.

Now I know that my bank account balance could cover this house insurance renewal twenty times over, so I am looking at an administrative cock up. If you are like me when you see a letter like this your heart sinks. You know that you need to set aside at least 45 minutes of your busy day to deal with this… it may take less, but the last thing you want is to have to drop out of a call to a call centre when the end is in sight, to go to a meeting.

Your heart sinks again when you see “We will also charge you a failed payment fee of £25, as described under ‘Other Charges’ in the ‘Policy Payment Arrangements’ section….” … Now you are going to have to work yourself up into a truly Daily Mail tone of indignation in order to get them to waive the charge… adopting the full “Are you doubting my integrity young man?” approach to frighten the call-centre operative into speaking to their supervisor.

Turns out they tried to use a debit card that had expired and sure enough on page two of my renewal letter in small print  … (page one of which reads NO NEED TO CALL we will automatically renew.” in big blue letters!) …it showed the card details they planned to use including the expiry date as a month before the letter was printed.

A simple piece of computer programming could have been put in place that said – if the renewal date is later than the expiry date, then insert “Please call to give us some new card details as this one has expired” on page one of the letter.

But no… some clever-dick decided to send me a heart-stopping letter that forced me to take time out of my day, pretend to be a Daily Mail reader (stretching my acting skills to the limit)  and make myself angry in order to avoid something deep in their terms & conditions.

There are two morals to this story:

Firstly: If you have to refer to your T&Cs then the relationship with the customer is already broken. Some legally-minded folks fail to see this.

Secondly: Stop people in your organisation from jumping to the conclusion that all customers are setting out to defraud you and need teaching a lesson. If they do they will write this assumption into the company systems.

PS I am now expecting a customer survey asking me how the operative handled my problem. Of course there will be no box to tick that says… Operative was fine (if a little scared), but your systems stink.

 

Plucking a Price out of Thin Air…


Perhaps you have a product that is so unique that you cannot begin to imagine how much you can charge for it. Perhaps it is a software product that has no direct cost attached to it… so there are no clues to be had there… it is always going to be a 100% margin product whatever the price. Perhaps it is a service for which the customer will have no obvious benchmark. Here is a little technique to help you come up with a figure. We call it Relative Value Comparison and this is how you go about it:

Firstly figure out what benefits your product can deliver that could be expressed financial terms e.g. profit made, money saved, time saved, new customers won.

Next try to lay your hands on the kind of figures the client (or a typical client in the sector) would recognise e.g. if your product helps win new customers, then find out what revenue they would expect from an average customer.

Then craft a little sentence that starts with “If our product only….”

Something like:

If our product only wins you three more customers worth £20k a year, then isn’t it worth giving it a try for £x”

or

If our product only prevents one breakdown in its twenty year life, if that breakdown results in 24 hours of downtime at a cost of £3,000 an hour that is £72,000. Isn’t it worth avoiding that for £x”

Once you have done this, you need to read the statement quickly out loud and without really thinking about it, put in a value for x that seems to make sense. If you are democratic soul have a few colleagues do the same.

This little trick is a good way to find a price that ‘sounds right’ in the context of the selling process. If it sounds right in your head, then the chances are that it will sound right if made as part of similar justification to a prospective customer.

WARNING: The technique does not work if you then plonk the price on your website without the justification.

The moral of the story is that: The means by which you justify value is at least as important as the price figure itself.

PS The technique also works when justifying a higher price than a competitor. Craft a statement that values the risk of an inferior product. “If our product only saves you having to…. Isn’t it worth just another £20 to be sure you wont need to”

Which is the better promotional gift; a champagne lunch or a baseball cap?


A little while ago we were analysing the pricing strategy of a manufacturing business that sold to industry through a variety of large national distributors. They told us that they went to great lengths to stay sweet with the purchasing directors of the three or four large chains that serviced their market. They agreed to large double digit rebate discounts and lavished corporate entertainment on these important individuals including treating them to a champagne lunch at international rugby matches.

One of the things we do when we get digging into the commercial affairs of a client is to perform a little test we call Switch Point Analysis. We carefully consider everybody in the supply chain – end-users, influencers, specifiers and various people working in distribution – and ask ourselves could this person decide to switch our product for that of the competition or vice versa? … if so what is likely to make them do that? …and what role does price play (if any) in their decision?

The unfortunate thing we found (or fortunate depending on your viewpoint) when we looked into this for this particular client, was that the purchasing directors that they lavished all this attention upon were very unlikely to influence their market share. They were always going to dual source their type of product and from their lofty tower in head office they had no way of controlling the amount sold of each vendor’s goods.

We became increasingly convinced that the day-to-day decision about who would get the market share was in the hands of the fork lift truck drivers at the distributors’ branches around the country and that the most likely criteria for their choice would be something like: whose product was closest to the door.

Our advice was to ease back on the rebate agreements, make excuses and not go to the rugby, buy a box of baseball caps to distribute to the fork lift truck drivers and persuade them to put the product near the door for their convenience.

The Moral of the Story is: That purchasing people want you to think their power to decide the fate of your business is second only to that of the almighty. Stop and think about it for a moment and you will realise that there is nearly always someone else choosing whose product to buy and it is very… very seldom on price.