Italiano
EnglishNine out of ten Italian shopkeepers, when it comes to pricing and marketing strategies for their business, are truly in the dark.
They have no idea what they should charge or how they should price their products. They rely on their intuition or follow the supposed rules of their sector, such as “sell for 4 what you pay 1”, typical of some food businesses, or they underestimate the initial market research phase and do it superficially.
Some people simply take a walk around the neighbourhood, look at what the competition is doing and set slightly lower prices.
If things do not immediately go as they hope, or if for some reason business is slower than expected, what do they do? They lower their prices. This brilliant move cuts margins and puts the business itself in danger. Then, having lowered prices, in an endless spiral they turn to suppliers who offer products and raw materials of lower quality at a lower cost. This leaves existing customers dissatisfied and makes it hard to win new ones, until the business inevitably ends up closing. Picture a dog chasing its tail, except that the dog gets tired after a while, whereas you close your business.
That is why I decided to write this guide for business owners, to explain as fully as possible what pricing strategies they can use in marketing their business.
Here, in order, are the things you should make sure you know.
1. Lowering the price is a losing battle for your shop
If you do not have the financial resources to be, always and everywhere, the one with the cheapest product, then it is rather foolish to try to be “one of the cheaper ones”. All you will do is have low prices and very thin margins with the customers you manage to attract, while anyone who buys looking for a low price will end up looking for those with the very lowest prices, lower than yours. You are walking yourself into a dead end. A situation with no way out.
If you are in a business based on undifferentiated goods, also called commodities, then you have to think of something particular, something different, that lets you compete on more than price.
2. Find the distinctive feature that makes you unique and valuable
Take salt, for example. You can trade ordinary table salt at a few cents a kilo, or you can specialise in selling different, finer salts to a more demanding clientele.
The most prized salt in the world is Fiore di Sale from Sardinia, which sells for €81 a kilo against 30 cents for ordinary table salt.
We are talking about a mark-up of more than 20,000%, and I am not so sure that Sardinian Fiore di Sale seasons food so extraordinarily differently as to justify such a huge price gap. It is still sodium chloride (sold as dear as gold). Yet this shows that you can differentiate yourself even when trading “simple” table salt, if you want to.
Without going as far as Fiore di Sale from Sardinia, there are many fine varieties of salt, such as red salt from Cyprus, pink Himalayan salt or Alderwood smoked salt and many others, that are still considered premium and sold at far higher prices than ordinary table salt. Another lever you can work on is the packaging and the name of your product. In fact, you can sell even ordinary table salt at a much higher price than the competition, without having to source and market special products. You can reinvent the bag, give it a bold name like “Real Salt” and declare: “Exactly as nature made it. Unlike many salt producers, we add nothing to and take nothing away from our salt.” In practice, they are selling you plain salt. But they convince you that it is particular and special with:
- good packaging
- an effective name
- and persuasive copy (have you noticed the yellow banner at the top right of the Real Salt website that asks: “Are you using real salt?”)
3. Spot trends to get ahead of new fashions. I want to use the food sector as an example because, compared with others, it is very subject to fashions and you can learn something for your own business. The food sector has been revolutionised and has grown a lot in recent years in Italy, whether we are talking about bars, restaurants, sandwich bars, pubs, burger places or street food… in general, when a trend starts, venues spring up like mushrooms.
Unfortunately many open a venue easily and just as quickly close it. And not because of the crisis or a low propensity to spend, but because of the lack of business skill of people who, not knowing what else to do, simply reinvent themselves as restaurateurs, thinking they can do it all alone.
That said, some do seize the opportunity and understand that there is a wave they can ride to do well, charge higher prices than others and make money. This is the case of the various vegan or vegetarian restaurants that decided to stand out with a “gourmet” angle, offering something new to the market and charging prices far higher than average meat restaurants or the classic pizzeria.
Whoever manages to establish themselves in customers’ minds as the leader of that category will probably stay in business for good, with a healthy turnover, because they used a competitive advantage: time. All the others who join the gourmet bandwagon will spend their time chasing the leader.
In any case, the real secret is to wait for a trend to become saturated and be the outsider before everyone else, so as to be, or at least seem, the first to create a new category.
4. Do not worry about the prices charged in your sector. Many business owners, when it comes to pricing strategies in marketing their business, look first of all at competitors’ prices. They note the most expensive competitor, then look at the one who charges least and usually decide to charge an “honest middle way”, counting heavily on their own skill and on the “quality” of what they offer. However silly this sounds when analysed coldly, it is still the most popular way of deciding pricing strategy in a business.
5. Learn to sell the unicorn
The first thing you have to do is learn to sell your unicorn: make sure that what you sell, whether a product or a service, is perceived as one of a kind and cannot be compared with anything else by potential customers. There has to be a specific reason, ideally not something intangible like quality, courtesy, service or family tradition, that makes what you sell unique, special, particular and irreplaceable, at least for a specific group of people large enough to sustain your business.
Put as simply as possible, if you have a brand and a distinctive positioning you can practically choose the price you want. Otherwise you are forced to price your products “at the average” for your sector.
Even having a simple USP (Unique Selling Proposition) is no longer enough. A USP is a differentiation tied to the product or service, not to the customer’s mind, as brand positioning is. As a result, while it may give you a brief initial advantage, it can be copied very quickly by those with more resources than you, and you can lose every competitive advantage just as quickly.
6. Presentation makes the price
A very important idea to understand is that there is a huge difference between simply “pricing” something and actually building the ceremony of presenting the price to customers.
Any shop assistant can stick a price tag on a product. Any owner of a bar, restaurant, salon or centre can write a price list or a menu and leave it on display. Any salesperson can simply present the product and end with: “…and it costs this much, but since it’s you I can do you a deal…” If there is a method for creating a product or a service, if there is a procedure for installing or running a given piece of software, if there is a way of conducting a negotiation with a customer that is not simply listing the features of our products one after another, then I imagine we can agree that there must be, and indeed there is, a method for “presenting the price” to customers. The five points below are important, and together they let you price your product differently from your competitors, because you have built in customers’ minds something completely different that cannot be compared with anything else on the market:
- the features of what you sell
- the packaging of your product and how it is presented
- the way you do marketing and where you position yourself
- the specific target you present it to
- how the product or service is delivered or installed
These six points are only a first introduction to the strategies you can adopt to set the most suitable price for your products. The choice of strategy depends on countless factors: the sector you are in, the level of quality of the products you offer, the location of your shop.