- January 26, 2021
- Posted by: Paul Foster
- Category: Pricing Advice for Small Businesses
This is a story about Joe’s business. I would rather talk about Joe than about my business or your business – it’s just more fun and insightful being on the outside, looking in!
Joe’s business degree is S.O.H.K. – the School Of Hard Knocks.
In other words, he learned by doing things – so his perceptions of the world of business are from real experiences. His business has survived and been profitable for quite a number of years – just not as good as it could be.
He hired me to help him grow his business profits. We spent a lot of time exploring a new pricing and differentiation strategy. Even when you easily see the opportunity from the outside looking in, it doesn’t help unless you can get past Joe’s current hard-earned beliefs about his customers.
Some data can be a good way of breaking through the barriers. Since his gross profit percentage was 30%, I explained that if he increased his prices by 10%, he could lose 1 out of 4 customers before he burned through the extra profits from the price increase. This math reduces the risk of trying a price increase.
He said no way! (I should have reminded him the ones he would lose would be the worst customers he should have fired anyway.)
So I tried another angle. I went directly to have the discussion with some real live customers. They all validated that the value was there to continue being a customer even with a 10% price increase.
He said no way.
Unfortunately, I had another insight I never got a chance to follow up on. Joe Business wasn’t doing all the product pricing. There was an employee who was pricing the new products as they came in (which was fairly regularly). This was the employee who was known for giving away more discounts than anyone else. Every new product that was coming in was getting priced as low as possible! And nobody was checking how the guy was pricing these products!
Shortly after that conversation, I got fired by email! These are Joe’s exact words:
“Our industry has been one of the most price-sensitive segments of the business world. I
have spent over 4 decades in this sector and price has been and will be more of a factor than
ever before. We will continue to exhibit and set the stage as being a forerunner on customer
service, quick delivery, and all the ingredients necessary for success but having an
oversimplified view on this topic will be problematic.”
Wow! I agree with him. It was overly simple to me. His closed mind is the barrier in the way!
What do you think?
Want to guess the industry? (Email me your guess and I’ll give $100 to the first person who gets it right! – Even you, Joe!)
There is another part of that statement that was a critical insight, “price has been and will be more of a factor”.
This is exactly what we humans do so often. We take our perceptions of the past (price-sensitive customers) and project the future to be the same as our past experiences. We, in fact, create the future from the past experiences without realizing we are doing it!
Poor Joe believes he already knows the future and the future will always be the most price-sensitive industry!
I hate to say it, but the rough annual profit improvement left on the table was conservatively $100,000 per year.
Joe validates that a closed mind will cost your business money. He would need to have an open mind just to challenge any mindset he has. But since the mindset comes from real past experiences, Joe would also need a new experience to change his mindset going forward. He would need to be open to experimenting, testing, and trying out a different future.
I realize now that with Joe there were some really painful past experiences that created his view.
He wasn’t ready. I should have taken the conversation over to the third person, so we weren’t talking about him directly. It’s why I wrote this content this way – it’s way easier to observe other people’s bad behaviors than look in the mirror ourselves!
This was a few years ago. I have since fine-tuned a very effective methodology for breaking through what Joe was up against. It still requires an open mind. When a business owner is ready to step out of their comfort zone and create a future that is different from their past, it becomes possible!
My mentor Rick Solomon captured it so well:
“The world doesn’t care what you believe, it just reflects it back as truth.”
If you haven’t already, be sure to download your free copy of our newest e-book: the Four Bad Business Behaviours. In this e-book, you will discover the four bad behaviors that could be costing your business money and the simple strategies you can use now to fix them.
Feel free to share this e-book with others who may find it helpful, and reply with any questions, comments, or concerns as you read along!