EVERY Thursday at 1pm Made in Britain hosts #madeinbritainhour on Twitter. During that hour Made in Britain asks questions of its 19,500 followers and the results are fascinating. Previously this information was enjoyed by the audience at the time and then left to drift away in the Twittersphere, rarely read again. So, we have decided to capture some of the best comments and re-present them for a new audience and easy reference. Some of the responses have been edited.
This week we look at pricing.
Question one: How should a business determine the price for their product & what are the common mistakes?
Response: Underpricing is a common mistake, especially with regards to pricing how much it costs to manufacture a product.
Response: Underpricing is a very common mistake! Many think it will make them look more attractive against competitors, but this strategy can backfire with customers assuming your products are of poor quality compared to competitors!
Response from made in Britain member European Springs and Pressings: Couldn’t agree more. Price is representative of quality, quality buys repeat custom & longevity & most customers value the reassurance & the capabilities & engineering that’s delivered more than price.
Made in Britain: Is price representative of quality or is price representative of "perceived quality"?
European Springs and Pressings: Good question. Perceived value is an essential element too for implicating prices. As with most manufacturers the BOM indicates the true price and then market values & business targets influence from there
Made in Britain: Effectively doing the BOM calculations is key to this?
Response: Underpricing is a common mistake. What does price say about your product.
Response: Very well put. This is the other side of pricing. Once you have worked out the "right" financial answer, you need to consider it as a signal. If your brand and strategy is quality then the pricing needs to reflect that too.
Response: There should always be a USP other than price. Our response to cold-callers who claim to be able to save us money on our purchases, is that we don't buy based purely on price.
Made in Britain: Does underpricing display a lack of "confidence in the market"?
Response: Possibly a lack of confidence in oneself?
Made in Britain: Do you think that is quite common? Businesses just lacking confidence to price higher? And isn't it true that it is easier to bring the price down than to put it up?
Response: Very common in new starts. Get the business in and don't think about the hidden cost. Work smart
Response: Yes I suppose once you have set a benchmark price it would be harder to increase the value.
Response: Yes that is a good point and perhaps it does. In the terms of new product development underpricing is also the result of not doing enough research or not assessing costings efficiently enough.
Response from Made in Britain member Design Automation Solutions: Competitive review, macroeconomic assessment, customer relationship building & production values & costs merge to give some of the answers. Years of being in the industry helps shape pricing knowledge too
Response: Common mistake ... factoring in competitor price levels. They have nothing to do with your business. Your product maybe more/less expensive; if your price satisfies all of your 'being in business needs', then your price is right
Response: Conduct market research on your target audience, understand what they are willing to pay, have a look at what competitors are charging and also refer back to the costs of making product/services
Response: Price=TOTAL cost of product upon arrival with customer, plus %margin covering all costs of running the business (F/cast yrly vols), plus %profit reflecting YOUR product ValfMon. Production Vol savings should be reflected for qty ords not lower unit prices.
Response: For determining price market research, understanding your market and see what the competition is up to. As for price blunders the sell price should at least cover costs and ideally make a profit!
Response: Price to strike the right balance between entrepreneurial opportunism and sustainability.
Response from Made in Britain member Alltrade Printers: Underpricing against competitors is fine as long as there is profit in the sale, otherwise it’s commercial suicide
Response: CIM Research into customers purchasing habits has shown: 10% will only pay the lowest price. 10% don't care what it costs they want it. The other 80% want Value for Money. This is a perception Your offering should match the added value you provide.
Made in Britain: Could you therefore successfully aim for either of the 10%s with the correct product?
Response: These are the Value products that we see in supermarkets. Ever wondered why the packaging is so bad? If you have a value product then yes. If you have a premium product then no.
Response: The first priority is to make sure the price covers the cost of the product and provides a suitable profit at the volumes you expect. A very common mistake is to not fully understand the unit cost of each product and therefore not know your minimum price.
Made in Britain: Is it just about the unit cost or the unit cost based on certain production levels as the unit cost will change with quantity?
Response: Absolutely - the volume is all important and should feature prominently in pricing. The unit cost will change, so it's a question of targeting a volume and establishing a target cost/price. Forecasting demand is tricky but it can be done and is crucial.
Response: In manufacturing as production cost reduces, profit increases. When establishment cost is met - reduce price increasing the barrier to entry for competitors
Alltrade Printers: In our business it is all about the higher the quantity ordered, then the unit price comes down. But the unit price can only come down so far
Response: The correct selling price is the maximum that the market will accept & still produce the level of demand required. The biggest mistake: 'cost plus' pricing irrespective
Made in Britain: How do you find the correct selling price? Market research? Competitors? Start high and come down?
Response: Of course do market research first & consider your costs of production but if it's a virgin market then start high & move lower until the bites start. Tesla a good example, early adopters will pay a premium to first
Made in Britain: Market skimming is a good option. It does raise additional questions as to how to set the price lowering strategy?
Response: Has to be sales volume-driven. Of course, ultimately the producer with the lowest costs wins out IF quality is maintained. Sometimes though a too low price can engender suspicion of poor quality & turn buyers off.
Response: Don't forget to research your customers and target those who will pay your price. Present the communications that will engage those customers.
Question two: How often should a business review the pricing of products and in reality how often do they actually do it?
Response from European Springs & Pressings: Our key suppliers have price reviews annually which impact on our pricing structures. An increase in cost & ltd supply of raw materials in recent months has impacted on multi areas within the business. Brilliantly our customers have understood our realities
Design Automation Solutions: Funnily enough we’re actually doing this now for one of our most popular machines. We’ve received a lot of international interest for a bespoke machine & are now thinking about mass production. We’ll be watching the answers here to gain additional insight
Response: Good luck with your international trade. we need more like you reaching out to the rest of the world.
Response: Wow, thank you. Early days but we’re confident of the product & they’re really keen to purchase - at the right price!
Response: Don't forget to allow for currency fluctuations. make sure there is a caveat in your Ts and Cs.
Response: Great advice, thank you team
Response: Every time that they're cost base changes. Never in reaction to the pricing activities of a competitor; this is factored into sales activity, not permanent pricing decisions.
Response: As the core component for our products is a commodity (copper mainly) we have to review pricing on a regular basis (unless its in stock). We also update our ERP system when the inevitable price increases come through from our supply chain.
Made in Britain: Does the price changes in copper for example get understood by the customers as the reason for price fluctuations?
Response: This is where comms come in. Informed customers will be aware of these fluctuations. What is the industry perception on price fluctuation? Do the customers expect an increase every year. Do manufacturers use it?
Response: In our industry pulp fluctuations have an impact on our pricing. We communicate this to our customers.
Made in Britain: Do you think some businesses (not you) are keener to put the price up when materials costs go up and less keen/slower to lower the price when material costs go down?
Response: A classic example is the price of fuel. Even based on 6 month futures. Quick to go up, slow to come down.
Response: Perhaps. We like to be fair if through a fall in the price of metal or we get a better deal through bulk buying we pass that on. However the general trend from our supply chain is in an upward direction
Response: It's important to be doing this regularly but as part of a wider review of your product marketplace and your competitor analysis.
Response: A common mistake is to set dates for the review rather than identifying what triggers might change your pricing and reacting to that. If you have the right measures in place then you should review when volumes or cost elements or competitor prices move.
Made in Britain: Setting up the proactive process of monitoring rather than the reactive process of panic?
Response: Absolutely correct.
Response: I couldn't have put it better myself - and it's not just for pricing. The other side of course is that setting an arbitrary price review date might mean you do it when it's not necessary and waste the effort, only to have to repeat it shortly after.
Response: Pricing strategies all depend on the frequency at which your market changes. For examples competitors could raise or reduce their pricing, inflation could be factor & maybe costs to make the product have increased or decreased!
Response from Alltrade Printers: After every quote given, customer feedback is very important to know how your pricing is in the market. At least you can then do something about it sooner rather than later!
Response: How many ask the recipient of a failed proposal why it failed? You can only improve if you know.
Response from European Springs & Pressings: Deals lost & reasons why is a core part of our sales strategy and KPIs
Made in Britain: Deals lost and reasons why is important and is it even more important to have the authority/ability to amend the offering to overcome these? Knowing something isn't working is one thing, doing something about it is another?
European Springs & Pressings: That’s where the whole team (sales, production, ops) come in to review, see where the adjustments need to be made & assess going back with a new price - if it’s of value to all.
Made in Britain: Does make you wonder how many businesses have the reviews and "file it" and put it down to being unlucky?
Response: I have come across many companies that do not follow up on proposals. They work on the principle that if the customer wants it they will contact them. When instructed to follow up big increase in sales.
Response: We’re getting better at it but it’s a big process.
Response: Keep working at it. The process gets easier as you become familiar with it.
Question three: When should a business compete on price alone? And when do they?
Response: Should only be done when the business has an absolute cost advantage over competitors and price is the major determining factor for buyers (it rarely is).
Response: As I said below, 80% of customers purchase on Value for Money. Price is only a factor for 10%.
Response: As said before no unless you have a cost advantage, which most SMEs won't so you just end up lowering margins and driving the market price down. Compete on what makes you unique, service, value adds etc
Response: Nothing more to add, these guys
Response: We second this!
Response: When should a business compete on price alone?" .. Never ... "and when do they?" .. just before they go out of business.
Response: It's rarely a good idea as it just results in a race to the bottom in the market and leaves no space for innovation or new product development.
Response: Absolutely right!
Question four: If price is the sticking point in a negotiation what can you do to avoid having to reduce the price?
Response from European Springs & Pressings: Advise them you’ll leave the RFQ open for a certain time frame, allow them to seek out other options, stay in touch & engaged with them & hopefully they’ll return knowing they need you to solve their solution - for the right price
Response: We find in looking to deliver a `solution', rather than a product, by working closely with our customers to understand their requirements means price is rarely an issue.
Response: Find a better customer.
Response: There's never been a genuine 'price' objection: there is always an underlying 'something' that the salesperson has yet to discover. Always being prepared to walk-away is key to a permanent price reduction of your product not being your fault.
Response from Made in Britain member Domino Clamps: We like to throw in one of these high-quality branded ball-ended Hex keys for doing up our Domino Clamps. By heck; if that doesn't seal the deal then nothing will!
Response from Made in Britain member The Hotun Solution: We have had a competitor enter our market, although they have had the advantage of seeing our product their offering still hasn’t got 1 key advantage that our product offers They introduced their product at a lower price than ours. The value of our product stands on its own merits.
Response from Made in Britain member Primary Windings: Listen to what the customer really wants. Point out your best-selling points and why they should consider you over others.
Response from Made in Britain member Design Automation Solutions: Add value: service, engagement, deliver measurables which enable them to see the added value behind their investment. Customer relationships are king & if they see the value then maybe they’ll see their way around the price
Made in Britain: Determine the lifetime cost of a product and compete on that rather than actual cost?
Response: Many chase single sales and do not think of the lifetime sales from one customer. Understand your customer's journey and engineer your comms and follow up to match their expectations. Make life easy for them.
Design Automation Solutions: Lifetime is key to us as they’re specialist projects where a new machine may only be designed & built every 5 years+ for a customer as they’re aimed at being long shelf life machine builds - it’s the new sector work thereafter we want to secure. Thanks.
Response: Do you regularly contact your clients? I always found that regular meetings informs you of new projects they are working on. often where we could get involved
Response: We’re OK at it but aiming to get better through various emarketing channels. So we engage at one level person to person & another, more subtly, through digital campaigns so they know they’re always front of mind - well, that’s the aim!
Response: Examine the proposal, work with the purchaser on a limited budget by reducing the inventory
Made in Britain: Is there also a confidence factor involved?
Response: It is a case of what have you got to lose? Ask them for a budget before proposing
Response: If you have to offer something at a lower price, always combine it with a lower product/service - ie take some elements out of scope so that it is clear it's not a discount, it's a different level.
Made in Britain: Do businesses do this or actually try the opposite? Try adding extra things in for the same price?
Response: Adding extras to win the customer can be a long term fail. The customer will know they can negotiate every time afterwards.
Response: offer spare parts as part of a "deal"
Made in Britain: The term "deal" - doesn't just have to be about the now, it could be about support? maintaining? spares?
Response: I was looking at the question regarding negotiations. But yes, there are many ways at looking at it.
Join Made in Britain on Twitter at 1pm every Thursday for #madeinbritainhour. We engage with everybody, members and non-members alike (some of whom become members as a result). Hopefully, see you there.