Overcome Pricing Disadvantages to Small Business

Last week we saw two ways that give small businesses advantages over large companies: setting and executing new pricing strategies.  This is because large companies can’t move quickly. 

However, this week we look at some ways big companies have the advantage, and what you as a small business can do to mitigate your disadvantage.

First and most obvious, large companies usually have lower costs simply due to economies of scale.  You should NOT be competing on price anyway.  You should be competing with differentiation, charging a price that captures your additional value. You have read that message here many times so let’s move on to something you may not realize.

Second, large companies have data.  Their large IT organizations capture information about each quote, each order and each customer.  By organizing this data, big companies create key performance indicators (KPIs) to know when markets are changing.  They analyze the data, looking for market segments and areas where price changes might have a positive increase on profit.  Their pricing organizations are filled with data analysts who can make data sing.  (Yes, I love this.)

As a small business you don’t have all of this data.  You don’t have the analysts.  But you still need to find ways to gather similar insights and information without all of the infrastructure.  Here are two things you should be doing:

1.  Talk to your customers.  Ask them a lot of questions.  Be curious and listen to what they say.  Over time you will detect trends.  You will gain knowledge you wouldn’t normally have gotten.  Try to determine how much they really would have paid (without asking of course).  See if you can segment customer types into willingness to pay.  This is all qualitative, but it’s all you have.

2.  Gather data.  As you quote customers do you log the quote information so it’s easy to analyze later?  Do you have the purchases tied back to the quotes?  Do you know which quotes you won or lost?  At these early stages, make a point of collecting and organizing your data, most likely in Excel.  Before you know it you’ll be referring back to this data to help you make informed pricing decisions.

You do have disadvantages as a small business.  You don’t have the scale or the infrastructure larger companies have.  But you don’t have to simply accept these disadvantages.  Recognize them and do what you can to overcome them.  Talk to your customers and begin to structure your own data.

 

Mark Stiving, Ph.D. – Small Business Pricing Expert

Photo by Dunechaser