Forums: Discussions for entrepreneurs and small business.

Pricing is a very interesting topic and I think this discuss is very interesting, too.

I would like to point out the government only spends based on budgets.  If they go over budget they raise taxes and/or fees, like transportation costs.  Seems to be the only thing they know to do.  When was the last time you heard they were going to lay people off to bring costs in line with revenue?  I was once told at a national postal meeting (when I made the mistake of suggesting that something would help them sell more postage) that they didn`t care if they sold more postage.  They then explained that they only wanted to meet their budgets.  So what can I say?

When it comes to real world business, the study of human nature concerning pricing is very complex.  In fact, there are some situations where increasing the price will actually increase sales in both dollars and volume.  This is because there is a certain expected value people will pay for something.   If you under price your products and service, customers will be afraid that what you are offering is not good enough even if it is the best thing in the world.   Priceline.com is a good example of taking advantage of human nature.  They know that people are willing to bid too high for things.  It is all perceived value.

The real point is pricing for anything must be researched, tested and adjusted to get it right for each market where you sell product or services.  And sometimes having higher prices, if they are the right prices, will increase the number of customers you have.

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Bert at Harvey Software, Inc.
Multi-Carrier Shipping Software and Supply Chain Solutions for Internet Retailers

Also a provider of free shipping information and resources at Harvey Software`s Parcel Shipping Blog along with free tracking solutions at TrackingPage.com...

In my experience declining sales are usually the result of a failure of companies to adjust to market changes and mismanagement.  Take for example, a company I used to work for.  They opened for business 40 years earlier.  At the time, they were one of the few suppliers of parts and service for their product lines in the region.  Our company also pretty much charge whatever it wanted for goods and service.  The owners also were not diligent in sourcing parts or keeping customer accounts up to date.  They had no need to be.

 

Now fast forward to 1999.  The owners of the company are still following the same pricing and management strategies.  Two thirds of our accounts are substantially in the arrears.  And, now there are over 35 companies locally that provide the same type of parts and service.  There are three times that many companies within the region. These companies all adjusted their cost for parts and service rates to reflect this market change.   They also have been very aggressive at sourcing parts and maintaining customer accounts.  These aggressive policies have kept these companies viable entities in a rapidly changing market place.

 

Our company didn’t make any adjustments in their management philosophies.  As a result, they saw a steady decline in sales.  To offset the declining sales, they increased prices even though they could have actually decreased prices and still maintained a comfortable profit margin.  The result was a continual decline in sales and substantial drop in revenues.

 

Now we move ahead to 2005.   This business no longer exists.

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The older we get, the more excuses we make for not chasing after our dreams. But truth is, goals are attainable at any age.

I agree totally that management needs to be ready to change every day as the markets change.  I know that has kept the company I work for going for 23 years now.  If the only thing one does is to raise prices when they are losing customers, they will more than likely be doomed as you point out.  This is more likely the rule and not the exception.  But some times raising the prices is the right thing to do.  One needs carefully make that decision and do the necessary research first.  I have seen it happen successfully numerous times and there are several books on this subject.  Most businesses only panic and don`t take the time to research things carefully when things are going bad.  There are no easy answers to this issue but I know one thing, the government is definitely not who we should look to for examples...

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Bert at Harvey Software, Inc.
Multi-Carrier Shipping Software and Supply Chain Solutions for Internet Retailers

Also a provider of free shipping information and resources at Harvey Software`s Parcel Shipping Blog along with free tracking solutions at TrackingPage.com...

I don`t know about the S-curve, pricing, etc., but I do know about the CTA!!

 

The reason they can raise their prices is because they are not held accountable for their horrendous service, and Chicago commuters are indeed a captive audience with few alternatives.  Ridership is dropping due to their abysmal record, but they complain and raise prices rather than change their service for the better to attract new riders.  There is no competition, so why bother to imrprove?  A good argument for capitalism.

 

Suzanne

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Suzanne Elegant Writings Enterprises

Alright, so the main point I see emerging from this discussion is about the "link" between reality and intentions.

We could, artificially, define government as having no link between the intent and action of individuals within that organization.

We could similarly define business as necessarily being linked between intent and action.

In other words, I can say "Hey....would you move that garage over a few feet?" If I then entertain zero further thought about how it would happen, I would be unlinked from reality---like the government. I would have no concern for the consequences of the statement, or the effect of putting into real action the request.

However, if I immediately begin to analyze the effort, tools, people, logistics, and other aspects of what would happen if I REALLY were to move that garage, then I would be a business person.

The core question of this topic isn`t about pricing so much. I think I`m starting to see that much more clearly.

Instead, it`s about that link between *reality* and statements. "Statements" would refer to mandates, demands, and actions that seemingly have no rationale behind them.

Hmm....so let me rephrase the question: "Does running a business absolutely require having an articulate definition of the concept of reality?"

If it does, then how can an organization act contrary to reality?

My initial impression would be to say the ONLY reason the government can act separately from reality is because they can put a gun to their customer`s head, and demand that they act in accordance with the mandate---the law.

Thinking about it, I also see a developing argument that the reason businesses fail is due to a widening gulf between the owners` actions and reality. Given a culture where more and more people believe that "reality" is all a matter of opinion, then many business owners essentially go into business because it`s their opinion that they`ll succeed.

Maybe that`s why developing a business plan is hard for many new business owners. It`s an articulated opinion, rather than just a feeling that things will be fine.

Once again, all good points.  As for your question, I think the answer is buried somewhere in the business person`s definition of  "reality".  Most people say they do not create business plans because it is too much work and things change faster than they can get them done.  Or, they say they are a waste of time.  I think business plans are very important and must be reviewed and updated constantly.  Doing this can save you a ton of grief as you face the "reality" of your business and force one to find solutions.  For example, pricing that fits is part major part of the marketing section of any good business plan.  This indicates to me that the answer to the original question can be different for every business and market.

As for the government, it has become a depressing over weight beast that all businesses and citizens must deal with by being involved and trying to keep them from destroying our market places.  The trick is to unload the gun before they get it to your head.  As you say, there are two very different entities involved in the discussion of this forum topic.

 

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Bert at Harvey Software, Inc.
Multi-Carrier Shipping Software and Supply Chain Solutions for Internet Retailers

Also a provider of free shipping information and resources at Harvey Software`s Parcel Shipping Blog along with free tracking solutions at TrackingPage.com...

Bert ;-)
If you carry forward the logic of the previous analogy....or artificial defintions, then add into the mix your post, we get an interesting observation.

We could use "the government" to fill a variable for "reality." Then it follows that all business owners who subscribe to an objective reality, must also work with a controlling force of Subjective reality.

In other words, the government "feels" (operative word) that it isn`t part of reality. It can act in any way, regardless of consequences because there aren`t any consequences. It`s "outside of reality," so to speak.

Individual businesses, for the most part, divide into two categories. Those who hold that reality is objective, and those who hold that reality is a personal opinion.

The second category of businesses looks to the government to control reality for them, and "allow" their business to survive by dispensation. The first category increasingly sees the government as a destructive force that must be overcome. (See the "American with Disabilities" topic, elsewhere.)

It`s a case of the patients running the lunatic asylum. It`s also an age-old question: "How does the sane person live in an insane world?"

It`s also a major problem for most business owners.