Start-ups should also bear in mind the importance that price has on the value of their brand.
Manning suggests businesses align price and value, charging a high price for high value, medium price for medium value and a low price for low value.
Misaligning price and value equates to overcharging, with a high price and medium value often seen as a rip-off, while something of high price and low value viewed as a false economy, he says.
Companies should also remember that prices that end in zeros are typically associated with quality, while prices ending in nines are often associated with cheapness, Manning says.
Also, pick your distribution channels carefully. “You don’t look for Louis Vuitton suitcases in the Reject Shop,” Manning says.
“And be sure to provide excellent customer service. Service is an experience that is hard to replicate and commoditise.”
“Cheap products are often associated with little or no service, premium products with exceptional customer service,” he says.
If you’re pricing on the basis of value, rising costs shouldn’t concern you that much because innovation and value-adding are the key driver of price increases, says Manning.
However, because most companies use the cost-plus pricing approach that the experts frown upon, rising costs is an issue, he says.
Manning praised the approach taken by both an airline and a chemical manufacturer when passing on costs.
Both businesses developed fuel or raw material price indices, published them on their website and told their customers that when this indicator breached a certain threshold, they would no longer be able to absorb the cost increases and would be forced to pass them on to customers.
“This is a really great, transparent approach that I would recommend,” Manning says.
