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.

Day 96: Money Money Money

Days from 92 to 95 are in my Slovenian blog

I was thinking lately about my mind patterns in regards to money. I asked myself why I was not able to generate wealth with the same ease as some others did. So I decided now to write these points out and see what I discover and realize within that.

As every child I became used for parents to provide for everything I needed. My father was firstly employed in the factory but then started our family business. Even though I was formally employed in our company I have not been receiving salary but had to ask parents to buy me stuff or give me some allowance. Only at age of 25 when I moved to my own apartment and won to work only 8 hours per day, I started to receive salary.

And also then my parents pressured me to continue to work at our or their company and supported me in buying my own apartment. At age of 27 I registered my own business and started earning money on my own. Since I had no expenses with the rent, I generated enough income very easy. I worked just for couple of hours a day and earned enough for the food and invested the rest in the research and development of the projects that I liked.

Three years ago I decided to sell my apartment and move to Ljubljana capital city. I decided for a big apartment where I would live and also work in my studio. The rent was very high and also additional monthly costs. However due to large sum of money from the apartment sale I did not worry about running out of money soon. However now after three years of investing in projects and spending money on travel and networking, I got myself unprepared for the fact that all the money is gone.

I kinda lost track of how much money I have and how much money I need to generate in order to stay in the big expensive apartment. Also the economic situation did its toll and from the business services that I offered there were not enough clients to cover all the expenses. Thus I recently decided to move to smaller and cheaper apartment. Now I am thinking what I have to do in order to improve my financial situation and raise myself high up from the ashes. 

During my regular walks in the nearby hills with the woods I find myself surrounded by plants and think about how Mother Nature is giving us all what we need for free. And we the humans then put price tags on things and sell them to each other. All the land is owned by someone and if you want to have stuff, you have to have money. This fact about money and putting price tags to things that are free seems to me very bizarre and unnatural.

Thus I also find very difficult putting the price tags on my services and deciding what the values of my products should be. I would rather do things for free but this is unrealistic in the system that we currently have. So even though I would rather change the system into something like Equal Money System where a dignified life is unconditionally guaranteed for all, I have to consider current state of reality and then create changes within and as the current system.

I forgive myself that I have accepted and allowed to give up due to believe that current world system is all fucked up, that humans are parasites and that it is best for the world for all humans to die out instead of realizing that self-pity and blame is unproductive and I just waste my life and potentials.

I forgive myself that I have accepted and allowed not to track my incomes and outcomes and thus not being aware of my current financial status instead of realizing that tracking money flow is the foundation of successful human life in the current system.

I forgive myself that I have accepted and allowed to believe that if I charge money for my services I within this take money from other people and thus they will have less money instead of realizing that the function of money is to exchange products and services and that money is a recyclable medium.

I forgive myself that I have accepted and allowed to perceive that people do not have money due to financial crisis and thus bearing to charge money for my services to others instead of realizing that currently there is only about 13% rate of unemployment in our country which means that 87% people have jobs and thus also money and that I can also sell my services to basically anywhere in the world.

I forgive myself that I have accepted and allowed to associate business success and wealth with stressful life instead of realizing that rich people manage up to 50 different companies however they use methods of time and priority management where they delegate their employees and thus have even more time freedom that working alone.

I forgive myself that I have accepted and allowed to indulge in watching movies for many hours per days, thinking that that would relax me and free from the anxiety of my life challenges instead of realizing that watching pictures is dumbing my brain down and turning me into even more lazy person.

I forgive myself that I have accepted and allowed myself to believe that rich people are corrupt and have gathered their money only by criminal activities instead of realizing that everyone's life story is different and that some could be involved in some dirty business, however there are also a lot of hones and supportive ways of making money where a great value is added to society and this world.

I commit myself to read books every morning every evening as suggested my successful people since leaders are readers and reading is very important to develop focus and become more effective in this world.

I commit myself to keep detailed record of all my incomes and outcomes to the last cent and do weekly and monthly stats of my income, outcomes and profit since this is a must for every person who wants to live successful life in the current money system.

I commit myself to associate with wealthy people and get advise about what they do in order to I also become equally successful since if you want to become someone, you have to mimic these people.

Day 14: My believes in regards money analysis

Day 13 is in my Slovenian blog

Yesterday when I woke up and was still in bed I had a few hours of talk with my girlfriend to become more aware about my accepted believes that limit my life and that I inherited mostly from my parents. I talked for hours and became more aware of many of this thinking patterns.

The most limiting believes are in regards money, values and wealth. These believes sabotage my life in a way where I do not allow the larger money flow into my life. But I do not accept this anymore and push myself in order to overcome this limitations.

One of the related points is also the ability to work and collaborate in a group. One alone is able to generate only a limited income and in order to earn more money, there is basically no other option but to learn how to work as a team in a network or company of several or more people.

And besides limited believes in regard money, the important point is also to know how to handle the money. This includes discipline to track all the money incomes and outcomes, generated profit or money currently available and fixed monthly costs. Some believes that I got from observing my father:

1. You have to physically work hard in order to earn money
2. Rich people got their money only by dirty business
3. If you have a lot of money, you will get corrupt
4. Don't count your money, just do your work best
5. Surprise others by producing before they even order
6. What others think about you is very important
7. Do not stick your nose in other people's business
8. If you care mostly for yourself, you always be just fine
9. Do what you like, follow your excitement
10. Best to work alone since other people are terrible
11. Don't ask what others want, do what you think is best
12. Eat well, enjoy, have fun, since life is short
13. Respect the law, since your public image is very important
14. You are just a small man, so you have to care for yourself
15. Do not load to much work, have a quiet simple life

Now I am pushing myself to transcending those limiting believes. I have started to work in several international and local groups to learn how to collaborate. I care to ask for other people's perspective before I do projects. I have engaged in business that will generate more money.

But there are still believes in me that needs to be removed. These believes make me bed when trying to sell a product with high value or price. I try to innovate and change things that work well and make them work not so well anymore. I still have resistance in regards keeping up to date records of all my money transitions. And when I get enough money I loose my motivation to work in till I am again short of money.