27 September 2013

Day 117: Influence of the price

Yesterday I participated at free webinar of Slovenian marketing guru Aleš Lisac where he talked about the price setting of the products. It assisted me a lot in realizing some facts that I thought before were quite different. I will now be able to be more confident at sales activities of the product that I am marketing. The conclusion is that most of the time we do not think very much about the price of the products we buy. We buy it simply out of convenience, because it was there, on our path, near other things and places and times where we usually buy our stuff.




The biggest mistake that he pointed out was that when sales are not as expected, we lower the price. This act produces very bad psychological message to the potential buyer and it also diminishes the profit of the seller a lot. Price reduction is actually lack of imagination about other possibilities. The price is basically never the problem and the best practice is to enhance the quality of packaging or create a product with even larger price. This is because price is never in a vacuum, it is always relative to prices of other similar products. 

So if for example your main product costs 100 € it is best to produce just a bit larger or better variation and price it significantly higher, like 200 €. Immediately the primary product would not anymore be regarded as expensive but quite cheap, regardless of what it is. Improved looks, design or packaging also influence very much what the price range can be. For example average book costs 25 € however the special issue of the Bible produces by our famous print company sold it for the price of 2.000 € and was treated as collectors item. The other example is a dog shed which costs about 100 € however there is a producer of dog sheds with starting price of 20.000 € and they do sell very well.

There are also certain psychological price levels that influence very much how much each type of product will sell and they have to be tested. Also a very wide variant selection of one product can bring to confusion and consumers have hard time to decide. And the most challenging way of selling is one on one personal direct sale when the customer can find out very quickly if the salesperson believes that the price is too high. Also one must never judge the price based on own buying power since they are people who can afford your product even if it is too expensive for you to buy it for yourself. 

Other ways of improving sales is to improve the product line, to sell in batches, to add some kind of bait, to offer terms or installments, to make product more exclusive or to hire a celebrity. Salesperson must be skilled in noticing when the person has already decided to buy the product and then not get benevolent beyond what is necessary. The strange rule of thumb is that there will be always people who will claim that the price is too high, even if you drop it just to production costs. So the rule is to raise the price until the share of people who complain about the price gets to about 20%. Of course if the share of complainers is more than 50% then one might consider that the price is actually too much or that the value of the product has not been presented properly.

The best way to justify the price is to find out what is the cost of the problem that your product is solving. The value of the product is thus never the production price but the potential money savings if the product would be purchased and used. And also the price is relative to the budget or context of the product or service that you offer. For a client with low budget your product would be considered expensive, but for the well funded client, no price is no matter. Also one should ask the client what characteristics of the product or service they desire.

And the strangest point that Mr. Lisac exposed is that many companies, especially startups go bankrupt because the price of the product is too low. One must always consider many costs, like production, marketing, accounting, salaries etc. so the profit margin has to be high enough to cover all expenses. One must calculate how much is needed not only to produce the product, but also how much money would be necessary to sell the product. For example there were two producers of the fitness device that both enable the same functionality. However the first one was prices 600 € and the second one 14.000 € and they both sell. The difference is that the advertising budget for the first model of device is only 200 € but for the second one is 13.000 €. So the produces of more expensive device can invest 65 times more expensive advertisement and thus also succeed in sales.

25 September 2013

Day 116: Got sick

Days 113 to 116 are in my Slovenian blog

Five days ago on Saturday morning I had a business presentation for the product that I am selling. It all went relatively I was late 10 minutes for the meeting however their location was not in the GPS correctly anyway. Initially they expected to have a meeting outside in front of the house, however since it was still quite cold, I suggested that we move inside the house which we did. Interior was not very clean since they had a very big dog and you know how it is if you have and animal in the house. The presentation that takes usually up to two hours has stretched to three and a half hours however they did not immediately decide to buy the product so I left the contract there and gave them one month to decide and benefit from the discount.




I don't remember if it was the same or the next day when I started to experience sore throat. I considered it to be due to giving a very long presentation and extensive speech thus my vocal cords got overused. However this was strange since it was not the first time I have such a long talk and never have I experienced such pain.

The next day I focused on updating one of my web sites and I was quite focused, better to say obsessed with finishing all required details by the evening. And when I went to bed the throat condition got worse. I experienced irritation in the throat thus my mouth constantly produced saliva and I had to swallow very frequently. However whenever I would swallow I would experience great pain in my throat. So I struggled all the night very much and did not sleep a lot.

The next evening the pain in my throat diminished a bit however I felt extremely cold. I turned on the heater and covered myself with two blankets and I felt still like freezing. Well in couple of hours the condition went to other direction. I became hot, extremely hot. Thus I uncovered myself completely and then also sickness appeared. I also started to experience vertigo or spinning in my head. Then the sickness became so strong I had to vomit.

The third day the pain in my throat was gone and I got nasal congestion. It started to pour out of my nose extensively and I used all my napkins. From the first day I got sick I decided not to eat anything and to drink also a herbal tea with lots of lemon. However I expected to get better faster than I actually is my speed of recovery. Today is the fourth day and also the nose condition stabilized itself completely. Now I wonder what was actually the cause for me getting so sick. It could be the accumulation of several things.

Two days before I did a presentation I went to visit my grandmother who also became very ill and started to vomit. The next day she was accepted to the hospital and they removed some stones from her belly. Then I am a bit worried about how to get enough money until the end of the month to pay my rent. Then I am disappointed about my landlord since she still did not fixed the leaking roof of my apartment after several months of discovering the leak. Then I was worrying if the person who promised me to assist in my business will keep her word, bus she is not answering my phone calls and emails for three days now.

All this with a lot of minor point could accumulate to the cause of me getting sick. So I must be more careful about my thought management not to go out of balance so much again. It is strange how much our physical body depends on mental condition. And how thought in our heads are so fast and intangible that they are quite hard to direct. However I will have to keep it going and direct my thought more firmly since as has been proven many times, the thoughts then start to direct me eventually.