The global panic caused by the coronavirus has been replaced by a completely different, but by no means harmless panic. How to restart a halted business? How to position oneself against the competition? And perhaps the most important question of all: how to set prices in this whole story so that the business can turn around, consumers return, one does not sink into the negative, and market demands are met?
There is no right and unequivocal answer applicable to all. There are thousands of manuals on how prices are determined and according to which rules, but this is a situation full of unknowns. There are many factors to consider when determining prices: costs, demand, competition, customers’ willingness to pay for specific functionalities of the product/service, and the value delivered. It cannot be precisely defined which of them has the greatest impact on price formation, but costs must certainly be taken into account to avoid disrupting business operations. However, it must not be the only element considered, notes Jana Blažević Marčelja, Deputy Director and Head of the Step Ri Educational Center, as well as a certified pricing professional in the Professional Pricing Society, the leading global association dedicated to a strategic approach to pricing.
—
—
– The customer’s willingness to pay a certain price for a product or service is very important and closely related to the value delivered. If the value we deliver to customers is high, complaints about the price are not so frequent. Everything becomes more complicated if you sell products that are commoditized, i.e., widely available and have no additional value – advises Blažević Marčelja, who will speak precisely about this at the upcoming Leader online academy ‘How to Increase Sales’.
Some craftsmen and entrepreneurs, as well as certain businesspeople, are aware of this. For example, a fisherman from Poreč realizes that the price of fish is lower than at the beginning of the year and that it could still fall. To avoid being forced to lower it himself, he has introduced added value – he delivers fish to his customers’ doorsteps. Car manufacturers play the same card: they do not lower the price of cars but offer many additional values for that full price, such as free service and comprehensive insurance for four years or up to a certain mileage.
In such circumstances, the consumer receives a clear message: you paid the full price, but for it, you received additional value, which for some activities can be the most important trigger in deciding on consumption. Hotel operators, on the other hand, lower prices but also include offers with added value to attract domestic tourists, so those in the most distant destinations, such as Dubrovnik, refund tourists the toll amount in both directions, while hotels mainly located on islands reduce the price of stay by the cost of the ferry.
Certain sectors do not have the opportunity for such games, but that does not mean they do not take risks. Transporters are in big trouble as the volume of transport has globally decreased, while costs have increased. While large international companies confidently announce price increases, small domestic entrepreneurs in that sector see their way out under such pressure in correcting prices and margins just to survive.
– Price dumping is a dangerous area that will inevitably provoke price wars. Only those with low costs or high margins can survive this story. Extra caution is needed here as companies often start below their profitability threshold. Be aware that there is also a category of price-insensitive customers, those for whom price is not a decisive factor in making a purchase decision and who will continue to pay if you continue to deliver value. Price-sensitive customers will ‘wander’ from one supplier to another looking for the cheapest option. It is best to start from the customers and determine your differentiating values compared to the best option on the market. This way, you take an active role and have a better insight into the reasons why someone would choose you and pay for what you offer – advises Blažević Marčelja.
Those who depend on consumers, whether B2B customers or B2C end-users, their habits and capabilities, will have to adapt to consumers, which applies to entrepreneurs who have so far behaved as if end-users of services do not ask anything, believes management consultant Nikola Nikšić from Konter Consulting.
– Price is not and does not have to be the only and key competitive factor. Trust, speed of response, developed personal relationships, and the integrity of the offer are some of the factors that, along with the price criterion, are important in the selection. In such conditions, taking into account the break-even point and the principle of profitability, manufacturers and suppliers of goods and services will have to significantly transform their business. They will have to invest more in the competencies and motivation of their people, in information about the environment, in conquering new markets, primarily in exports to markets where they can be competitive and earn decently, in new business models and strategies, transforming and connecting individual goods and services into comprehensive solutions for customer needs to confirm the effectiveness of their offer and ensure adequate efficiency – emphasizes Nikšić and adds that it will now be extremely important for entrepreneurs to subtly build relationships with all stakeholders, including consumers, to ensure a safer and more stable ecosystem in which they operate.
There is no doubt that some entrepreneurs and entire industries will have to correct prices. Simply put, different groups of goods and services will behave differently.
{embed_digitalno_izdanje}{/embed_digitalno_izdanje}
