Profits Straight to the Bottom Line

Pricing can be one of the most difficult challenges businesses face. Assuming that cost is the deciding factor in whether someone does business with them, many people simply choose to undercut the competition and price their products and services lower. This is a big mistake, as outlined in Wilson Ng's post Profits Straight to the Bottom Line.

Perceived Value: If price was always the deciding factor, we'd all drive a Kia.

If you look at the world’s most successful companies, whether it be BMW, Coke, Microsoft, Toyota, Apple, IBM, HP, Nestle, Starbucks, and others, you will find with utmost consistency that they are not the cheapest - and the definition of success is indeed that people pay a premium to do business with them.

Success is when you can charge higher than competitor, and customers still want to do business with you. If you work for a company, would you define yourself as successful if you feel that you only got the job because you were willing to accept a lower salary than everybody else?

Maximize Profits: If price was always the deciding factor, we'd all eat at Taco Bell and shop at Walmart.

The success of Walmart is not about lowering prices. It is about their ability to lower their cost thus increasing their ability to lower prices. In short, don’t offer lower prices, unless through volume or efficiency, you are able to have a roadmap in which you are able to lower your cost.

Ultimately, when determining your long-term pricing strategy, Wilson Ng encourages you to focus on 2 strategies: a.) increase the price that your customer is willing to pay you. b.) Look for ways to see how you can lower your expenses as a factor of per unit production, and if you can do that, then yes, it is a viable strategy to offer a lower price.