Combat the rising cost of doing business with a better pricing strategy

RSM_Bird_Cameron_Logo@2xMay 28, 2013 – Many Australian businesses are struggling with the rising costs of inputs such as fuel and electricity. These challenges are making it harder for businesses to compete. RSM Bird Cameron, one of the largest mid-tier accounting firms in Australia, offers advice on how a better pricing strategy can help organisations stay ahead of rising business costs.

Andrew Graham, national head of business solutions, RSM Bird Cameron, said, “Having an effective pricing strategy can be the difference between stable profits and a business in decline.

“Cost increases can only be recovered if a pricing strategy is flexible, regularly reviewed and can be adjusted quickly. Reviewing prices regularly reduces the need to make excessive price increases, which can damage customer relationships. It’s all about communication and managing expectations.”

A pricing review doesn’t just mean increasing prices. Additional costs can sometimes be absorbed by bundling the offering differently or introducing new charges for certain transactions.

Graham said, “No matter what pricing strategy a business adopts, remaining transparent and communicating with customers about the need for price changes is critical.”

Four pricing strategies to improve profitability.

1. Know your costs but associate your price with added value.  A “cost plus margin” pricing model gives you less room to adjust prices in a competitive market.  However, a stronger perception of value in a customer’s mind gives you more potential for increasing prices. Understand the value of what you are offering and the dynamics of your market as well as your key differentiators such as service levels and competitive advantage. Additional costs can sometimes be absorbed by bundling your offering differently or introducing separate charges for some transactions.

2. Revise price regularly to reflect market changes. Businesses that are not flexible or responsive to changing industry conditions and market forces feel the impact first. Identify the key indicators that influence your profit margin including direct costs such as fuel, wages, maintenance and subcontractors. Regularly monitor these to ensure that the prices you charge maintain your margin. When costs change, communicate these openly and build support for price increases. The more customers understand your cost pressures the less shocked they will be by price changes particularly when you want to maintain current service quality levels.

3. Keep other marketing elements current and up to date. Your reputation, image and branding should send a strong signal that reinforces your price. If your image reflects high quality, customers will expect to pay more.

4. Vary price for different market segments. Some segments will place a higher value on your service than others. Their perception of value will be determined by the need for convenience, what the service actually means to them and how important it is to meeting their needs. Where the perception of value is high you can look at charging higher prices. Also be aware of “over servicing” particularly where customers are not prepared to pay for additional things they don’t want.

-ENDS-

About RSM Bird Cameron
RSM Bird Cameron is the largest mid-tier accounting firm in Australia with national ownership and profit sharing and offers a full range of specialist advisory services, including business consulting and advisory, assurance and advisory, taxation consulting, corporate consulting and turnaround and insolvency. RSM Bird Cameron is a core member firm of RSM International, the seventh largest network of independent accounting and consulting firms in the world.

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