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Leave Prices Alone
- By Business World
- Published February 22nd, 2010
- Smartmoney
- Unrated
I had a very interesting personal experience about not playing games of any type with prices. Now I know the best thing is not to try and win any points by playing around prices.
I was new in business then and I believed then that you must employ every lawful means to get customers. I had earlier realized the business thrived on turnover. Again, my sales team leader said to me, “Madam, if we can capture (he named a very thickly populated area) we are made, in short your problem will be how to spend your money”. That sounded wonderful; isn’t the pursuit of fabulous wealth one of my reasons for resigning to run my own business?
I gave my consent to crash prices. I also singled out some very big customers for even more discount. My more discerning rivals could not take it and fled. I was left with a customer base to die for. I couldn’t believe my luck. My only problem was meeting the huge demand. My vans were running by night and by day. My phones were ringing non-stop. I felt blessed.
How we toiled, I mean my staff and I! We worked at all hours throughout the season and then I sat down to count my money. That was when it dawned on me that something was wrong. There was no money to count. I was broke. I couldn’t fathom out what went wrong. It took days of pondering the matter for me to discover I had committed one of the deadly first-timer blunders. I had put turnover above all else and didn’t heed the injunction to always ‘count cost’.
I had also played into the hands of my smart sales team. They robbed me blind. I was losing money on all sides. Apart from the stupidity of having my highest price being below cost of production, I was also ‘selling’ the bulk of the product to the big customers at an even lower price.
It happened this way; my salesmen pretended to be selling almost everything to the big customers. Every trip was recorded for them. The difference went into the pockets of my staff. There was a particular day I called one of the youngsters and asked him where they sold for the day and he innocently named the market. Later, I called the head of that team and he said the goods were supplied to one of the big customers. It appeared the other man was not put in the picture that day. I believe the others met him and settled him later because he later came around to report he made a mistake about where the goods were sold.
I did joke in another write up that my boys made me develop some sharp detective abilities, that wasn’t altogether a joke. I developed a sharp ear that could say the exact location of my men by listening to the background noise while talking to the over the phone. There was this day I called them and they gave me their location. I knew they were lying, I was sure where they were; the background sounds were those of a place I knew too well. A few calls to customers in that area confirmed my suspicion. Life was one long nightmare trying to track my men and arguing endlessly about where they went for the day.
I had earlier pointed out that at the end of the season, I was broke. That was when I sat down to count the cost of production. I discovered I was selling far below that. I took a hard decision, I must increase prices and maintain a uniform price. Everyone will have to pay the same thing even if you are buying up the entire factory. My men rebelled. The customers were infuriated. They told me to keep away from the very big market I wanted by all means. I lost the very place for which I threw away all my money.
I was sad but then I knew I made the right decision. I kept off while another naïve company took over the entire market. I was sure the company was making a mistake, so I didn’t envy them as they took over all my numerous customers. That company was out of business in a matter of months. I went back to the market wiser.
Since then, I made up my mind not to play with prices anymore. These days, no amount of sweet talk or promise of driving volume will convince me to bulge on the issue of prices.
I have seen a lot of toying with prices by small businesses trying to snatch customers from each other. This accounts for many cases of closure as people keep fighting the price war until they chisel off all profits and sell at unreasonably low prices. The bad thing about lowering prices to get a customer is that he will run the day you attempt to effect a much-needed price increase.
Price war is harmful wherever and whenever it starts. It leaves a lot of casualties. Darrell Zahorsky, former About.com guide, described the problems a price war left in its wake. “A price war can wreak havoc in any industry and leave many businesses out of business. In the early ‘90s, I observed the competitive exercise market enter a price war in a large city market. Profits were plentiful but a price war took the gross margins from 42 per cent to 12 per cent. In less than 18 months, over 60 per cent of the retailers were out of business...”
Price wars may be one of the many reasons small businesses collapse fast around here and in other climes. Here the cost of production goes up daily while prices of small business products remain unchanged. This erodes the profit margin and then along comes someone and crashes prices of her products; that is suicidal.
Take my advice, especially if you are a new comer, don’t play around with prices. It is harmful. Now, I run far from any customer who would have me alter prices significantly. I rarely shift grounds on prices. I read an article where a man was writing about customers to avoid and he was talking about those who would insist on a ridiculous price. Getting and keeping them may be too expensive.
I was new in business then and I believed then that you must employ every lawful means to get customers. I had earlier realized the business thrived on turnover. Again, my sales team leader said to me, “Madam, if we can capture (he named a very thickly populated area) we are made, in short your problem will be how to spend your money”. That sounded wonderful; isn’t the pursuit of fabulous wealth one of my reasons for resigning to run my own business?
I gave my consent to crash prices. I also singled out some very big customers for even more discount. My more discerning rivals could not take it and fled. I was left with a customer base to die for. I couldn’t believe my luck. My only problem was meeting the huge demand. My vans were running by night and by day. My phones were ringing non-stop. I felt blessed.
How we toiled, I mean my staff and I! We worked at all hours throughout the season and then I sat down to count my money. That was when it dawned on me that something was wrong. There was no money to count. I was broke. I couldn’t fathom out what went wrong. It took days of pondering the matter for me to discover I had committed one of the deadly first-timer blunders. I had put turnover above all else and didn’t heed the injunction to always ‘count cost’.
I had also played into the hands of my smart sales team. They robbed me blind. I was losing money on all sides. Apart from the stupidity of having my highest price being below cost of production, I was also ‘selling’ the bulk of the product to the big customers at an even lower price.
It happened this way; my salesmen pretended to be selling almost everything to the big customers. Every trip was recorded for them. The difference went into the pockets of my staff. There was a particular day I called one of the youngsters and asked him where they sold for the day and he innocently named the market. Later, I called the head of that team and he said the goods were supplied to one of the big customers. It appeared the other man was not put in the picture that day. I believe the others met him and settled him later because he later came around to report he made a mistake about where the goods were sold.
I did joke in another write up that my boys made me develop some sharp detective abilities, that wasn’t altogether a joke. I developed a sharp ear that could say the exact location of my men by listening to the background noise while talking to the over the phone. There was this day I called them and they gave me their location. I knew they were lying, I was sure where they were; the background sounds were those of a place I knew too well. A few calls to customers in that area confirmed my suspicion. Life was one long nightmare trying to track my men and arguing endlessly about where they went for the day.
I had earlier pointed out that at the end of the season, I was broke. That was when I sat down to count the cost of production. I discovered I was selling far below that. I took a hard decision, I must increase prices and maintain a uniform price. Everyone will have to pay the same thing even if you are buying up the entire factory. My men rebelled. The customers were infuriated. They told me to keep away from the very big market I wanted by all means. I lost the very place for which I threw away all my money.
I was sad but then I knew I made the right decision. I kept off while another naïve company took over the entire market. I was sure the company was making a mistake, so I didn’t envy them as they took over all my numerous customers. That company was out of business in a matter of months. I went back to the market wiser.
Since then, I made up my mind not to play with prices anymore. These days, no amount of sweet talk or promise of driving volume will convince me to bulge on the issue of prices.
I have seen a lot of toying with prices by small businesses trying to snatch customers from each other. This accounts for many cases of closure as people keep fighting the price war until they chisel off all profits and sell at unreasonably low prices. The bad thing about lowering prices to get a customer is that he will run the day you attempt to effect a much-needed price increase.
Price war is harmful wherever and whenever it starts. It leaves a lot of casualties. Darrell Zahorsky, former About.com guide, described the problems a price war left in its wake. “A price war can wreak havoc in any industry and leave many businesses out of business. In the early ‘90s, I observed the competitive exercise market enter a price war in a large city market. Profits were plentiful but a price war took the gross margins from 42 per cent to 12 per cent. In less than 18 months, over 60 per cent of the retailers were out of business...”
Price wars may be one of the many reasons small businesses collapse fast around here and in other climes. Here the cost of production goes up daily while prices of small business products remain unchanged. This erodes the profit margin and then along comes someone and crashes prices of her products; that is suicidal.
Take my advice, especially if you are a new comer, don’t play around with prices. It is harmful. Now, I run far from any customer who would have me alter prices significantly. I rarely shift grounds on prices. I read an article where a man was writing about customers to avoid and he was talking about those who would insist on a ridiculous price. Getting and keeping them may be too expensive.
