ONE might have a good product or service, but if the pricing is wrong, it will tie capital as stock that will never sell.
We came from an entrepreneurial marketing myopia phase, which was only product oriented to a customer-centric approach in designing and coming up with the offering that are really needed by the customers (not a guesswork to say).
Now we go further to the most ignored matters of pricing that have made some entrepreneurial businesses extinct as they could not overcome competitors’ power together with meeting customers’ pricing expectations.
Sure, it is both an internal and external assessment in order to solidify the dots for competitive pricing.
Here we share some of the critical considerations as experienced by most of our start-ups and corporates.
We also learn from our experiences and those of others.
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To start with, there is a misconception by our entrepreneurs on who is responsible for pricing of products or services within the organisation.
Most of them have confirmed that it is a function solely for the owner or founder since he/she is the creator of the business idea and assumed to know customers better than anyone else in the organisation.
Sometimes we are tempted to agree with such sentiments but we will discover that there are not strategic aligned as the owner(s) might thumbsuck figures without an in-depth scrutiny of the average costs (AC).
Also without a 360 degree assessment of the operating environment. In other instances some also informed that they give full pricing role to the marketing function only.
Coming up with a competitive pricing strategy is collective engagement to say.
Everyone should be involved somewhere somehow through a real inside and outside stakeholder analysis/involvement.
Of course, the owner or entrepreneur should have a clear vision that links with the bottom-line of the in the present and into the future.
There is also need for him/her to have advisors as a team of experts who strategically give guidance on pricing matters which includes costing, market analysis and product/service engineering.
The marketing function can play an intermediary role in coming up with a price rather than being an absolute crafter.
It is the one that leads in the initial marketing research to come up with strategies for developing a segment(s) where target marketing will then be done.
Remember in marketing of products/services you can’t be anything/everything for everyone as it is a costly approach in doing business (imagine the cost of mass production and marketing).
Targeting will help coming up with a better understanding of the customers and the right price to charge as to their expectation.
A competitive pricing that not only talks quality but product/services features amongst other key components.
Even segmenting by income levels which cascades down to pricing as an outcome of initial/continuous research done by the marketing function.
As a comprehensive in-house approach the production department is a great contributor to a competitive pricing too since it the one cooking the pot.
That is by its leading involvement in product/service designing to a production that is ready for sale.
This is where the costs of production (both fixed and variable) are determined accurately working together with the procurement and finance department.
Failure to ascertain these costs might result in under/over pricing as it will be difficult to come up with a justified mark-up.
For sure that is where our most entrepreneurs are failing as their margins are baseless.
That it is the reason why it has been a continued conflict between the marketers and finance experts on the price to charge.
Where in some instances, the marketer will say the price is too high to chase the customers away and finance saying it is too low to contribute to the overall profitability.
Consequently, it is proving that the entrepreneur owner, marketing function, finance, production and procurement have a perfect dovetailed relationship in coming up with this competitive market pricing of the entrepreneurial business.
More can be discussed in this perspective but that’s the basis as we go further.
Lastly, most of our entrepreneurs do not consider the effect of marketing channels they use on pricing of their offerings.
Sure now we have a plethora of contemporary digitalised marketing channels fused with Artificial Intelligence at our disposal.
However, there is need to select these and other traditional based on pricing approach.
More money is usually wasted on these channels by some of our entrepreneurs as they do not consider the costs associated with these channels against pricing.
It is no longer about following a bandwagon but selecting one that is cost effective, suites your type of offerings and catches the hearts and minds of the customers by a multiplier.
Not all businesses should use social media or newspapers and so forth. Some need to do direct sales calls.
We should then strike a balance through being analytical. More in the coming editions.
*Dr Farai Chigora is a businessman and academic. He is the head of management and entrepreneurship at the Africa University’s College of Business, Peace, Leadership and Governance. His doctoral research focused on business administration (destination marketing and branding major, Ukzn, SA). He is into agribusiness and consults for many companies in Zimbabwe and Africa. He writes in his personal capacity and can be contacted for feedback and business at fariechigora@gmail.com, www.fachip.co.zw, WhatsApp mobile: +263772886871