Andrew Gregson 
Pricing Strategies for Small Business 

Small business owners are frequently faced with challenging pricing dilemmas. Should you give Bob a better deal than Joe? Should you jack up your prices in one big jump, or frequently in smaller increments? If you raise prices by $1.00, will you make more money, or will you lose money because customers will go elsewhere? Pricing can make or break a small business.

Table of Content

CONTENTS
101 SMALL BUSINESS for
INTRODUCTION xv
1 WHY IS PRICING IMPORTANT? 1
2 HOW TO KNOW IF YOUR PRICES ARE ALRIGHT 4
Is Price Just a Number? 5
What Makes Pricing Successful? 5
How Do You Know That Your Pricing Is Not Right? 11
Summary 13
3 TYPICAL PRICING METHODS IN USE TODAY 15
Classical Economics and Ye Olde Supply and
Demand Curves 15
Where to begin? Follow the Crowd! 19
WAG, SWAG and STICK Methods 20
Estimating Solutions 22
DIY (Do it Yourself) Estimating 24
The Trap of Customer-Driven Pricing 26
vi Pricing strategies for small business
The Un-Trap of Customer Driven Pricing 27
Myth Busting: Market Share 29
Creating a Benchmark — Cost of Doing Business
Surveys 30
Risk and Return 31
5 Business Wreckers 36
Summary 36
4 POSITIONING FOR PRICE: THE ROLE OF THE
UNIQUE SELLING PROPOSITION 38
What is a Unique Selling Proposition (USP)? 38
How to Develop a Unique Selling Proposition 40
Franchises 47
Perceived Value 48
Who Is Your Customer? 48
So What, You Say? 49
Think Like a Customer 50
Summary 52
5 VALUE-DRIVEN PRICING 54
Pricing Down from Value versus Pricing Up from Cost 54
Contracting: A Recommended Strategy for Finding
the Customer’s Buying Price 56
Retailing: Testing the water 56
Consulting 59
Service Businesses 61
Selling Industrially or Working with a
Professional Buyer 62
Distributing 62
Customer Behavior and Perceived Value 63
Reference Prices 64
Perceived Fairness 67
Gain-Loss Framing 69
Pricing on Purpose: Applying Value Pricing 71
Summary 72
Contents vii
6 COST-DRIVEN PRICING STRATEGIES 73
Cost Approach Strategies 74
Know Your Costs 77
What Happens in a Strong Market? 81
Summary 84
7 MARKETING AND SALES: WHERE YOUR
PRICING DECISIONS BECOME REALITY 85
Captive Product: Finding Value in Linked Products
and Services 85
Meeting the Price Objection 86
Sales and Promotional Pricing 90
Price Discrimination 95
On Customer Behavior 98
On Keeping Customers 100
Sales Training 101
Nine Guidelines for Presenting Your Price 104
The Value of Persistence 106
Pocket Price Banding 107
Bundling and Unbundling 108
Learning to Lose a Percentage of Sales 109
The Winner’s Curse 110
And What of That Feeling That You May Have Left
Money on the Table? 111
Selling Best, Better, Good 112
Using the Price Structure to Motivate Sales Staff 114
Responding to a Price War 115
Summary 116
8 PRICING MODELS 117
Influence of Capacity Utilisation 118
New Product Introduction 120
Market Skimming 121
Penetration Pricing 123
Neutral Pricing 125
viii Pricing strategies for small business
Activity-Based Costing (ABC) and Pricing 125
Marginal Cost Pricing 127
Summary 131
9 FINANCIAL ANALYSIS 132
Know Your Real Costs: Labor 133
Know Your Real Costs: Product 134
Know Your Real Costs: Overheads 135
Know Your Real Costs: Debt 136
Know Your Real Costs: Transaction Costs 137
The Impact of Discounting Prices 138
Goal Setting From the Top 142
Summary 147
10 DIAGNOSIS AND PRESCRIPTION:
WHAT SHOULD I DO TO FIX MY PRICING? 148
Where Are You Not Paying Attention? 150
What Are You Giving Away for Free in Your
Product That is Not Reflected in Your Prices? 152
Examine Your Customer Base. Do You Know
What Your Customer Wants? 154
What Need Are You Satisfying for Which You Are
Not Charging? 154
Check your Unique Selling Proposition 154
Test the Waters 155
Train Your Staff 155
Test Different Pricing Strategies 156
Going from Analysis to Action: Implementing a
Price Increase 157
Summary 160
11 TRUE LIFE BUSINESS SCENARIOS:
THE CASE STUDIES 161
Paying Attention to Pricing — Examples from
Other Companies 161
Contents ix
Case Study
Pocket Price Banding — Castle Battery 163
Case Study
GENERIC Truck and Diesel Ltd. “Resetting
the Clock” 168
Summary 173
APPENDICES
I CALCULATING GROSS MARGIN VS. MARKUP 175
II FIXED AND VARIABLE COSTS 177
III ANALYZING YOUR FINANCIAL STATEMENTS 180
IV CALCULATING RETURN ON INVESTMENT 182
V CALCULATING LABOR COSTS 185
VI CALCULATING THE BREAKEVEN 187
VII CALCULATING HOW MANY EXTRA SALES
ARE NEEDED TO OFFSET A PRICE DECREASE 190
VIII READING LIST 195
IX WEBSITES 198

About the author

Andrew Gregson has an M.Sc. in Economics. He has 26 years’ business experience as a senior manager, consultant, and business owner and he has worked in the wholesale, distribution, manufacturing, and service sectors.