Monday, November 28, 2011

Don’t do business with this person….


Sometimes the people you ‘like’ doing business with are the worst possible people you should be doing business with. We all know what it is like when you are starting a business; sometimes initial volumes are so low, we panic and cave in to pressure and reduce prices. So early in the life of your business this is the last thing that you need.

This scenario is scary because poor pricing decisions impact profitability which in turn affects the long term viability of your business. In order to give your new business the best possible chance of survival it is absolutely essential that you “plan well to start well” Firstly take time to price your product and services properly. Explore the opportunities for price differentiation i.e. can you charge a different price for what is essentially the same product/service. However be careful not to have too many prices, anything more than 3 will get messy to control. Also, if you plan to offer introductory rates make sure the customers are aware that the special rates apply only for a fixed period of time. It helps to link special pricing to volumes as well, but this all depends on the nature of your product. Research has shown that it is easier & cheaper to retain old customers than it is to woo new ones, so focus on learning what you have to do to keep your customers coming back for more. Finding out things like why they bought from you, whether they would be buying again, whether they would recommend you to friends etc and doing something about it, could make the difference in the long run. There are several affordable online survey tools that you can use to collect this information from your clients.

Once you have done all this you are better placed to know a good customer when you come across one. Remember, if you’re pricing is correct, you will not need to give discounts to make a sale. However that is not to say that discounts as a rule are bad. One clever discounting strategy in competitive markets is to use discounts to encourage advance payments i.e. a business giving a discount in exchange for cash upfront is one example of a ‘win-win’ scenario. Whatever you do don’t forget that doing business below your cost isn’t doing business at all, so beware of the guy who hardly buys anything but complains loudly when they don’t get a discount.

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