Women: Are You Selling Yourself Short? Pricing for a Healthy Business

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 by: Anne Alexander

A few years ago, Vlasic Pickles teamed up with Walmart to
sell a gallon of pickles for the unheard of price of $2.97. They sold
over 240,000 gallons of pickles a week. Vlasic loved the sales numbers,
only to discover that profits were shrinking by 25% or more, since they
only made a penny or two of profit on each jar. Vlasic filed for
bankruptcy in 2001.

This story (fully described in Fast Company December
’03 issue), highlights a vital point. In general, we want to price with
a goal of maximizing profits, not sales volume. Too often, business
owners look at gross revenues (sales), when the net profit is what
really matters. We could have sales of $250,000 a year, or $1 million,
and be losing money. More sales do not necessarily mean more profit.
Having sound accounting and analyzing financial reports regularly are
essential. It’s important to remember that profit is not a dirty word.
A business must earn a profit to stay in business. Whether a particular
business’ profit is fair or is excessive is another matter – that could
be the subject of another article!

Why Women Underprice in Their Businesses

Underpricing is a common problem for women entrepreneurs,
which happens for several reasons, one of which may be that we don’t
know how to properly set a price that will yield a fair profit. Another
reason is we often undervalue ourselves and our product and/or service.
Furthermore, many of us have concerns about fair economic access to our
products and services.

Pricing basics

The first problem of understanding the best way to
approach pricing one’s product or service is solved by getting sound
business advice, which is readily available in Western North Carolina’s
entrepreneurial environment (see sidebar).

There are many methods for pricing for service
businesses, retail operations and manufacturers. Going into many of
them would be too extensive for this article. However, the basic
parameters are easily set. Costs determine our lowest price and must
include overhead expenses, marketing costs, R & D, etc. Demand and
competition determine our highest price.

Self-worth

Another reason for underpricing is that we often
undervalue ourselves. It’s only in the past decade or two that women
have been business owners in the large numbers that currently exist.
Most new business owners, whether male or female, do not have extensive
prior experience in running a business. Women have the additional
challenge of overcoming our internalized devaluation of ourselves,
especially in the business world. We may feel unqualified or
undereducated. Where men might have the tendency to understand and
properly value (or sometimes overvalue) their product or service, this
is usually not the case with women.

Related to this, we may also underprice so customers
will think we’re reasonable and nice. In charging full worth for our
products or service, we value not only ourselves but others, because we
know that they will receive full value from what they buy. Charging too
little for our product or service ultimately devalues both the customer
and us. Have you ever had someone charge you too little? You may well
have felt bad because you were getting away with something, or you may
have paid that person more because otherwise it wouldn’t have felt
right. I’ve done both. We must get the help we need to fully value
ourselves.

To handle this, we need to get a more objective
evaluation of the worth of our product or service. First, we must come
to terms with our own worth, through our own inner work with or without
the help of friends, therapists, etc. Then we need to do market
research. We must know what competitors are charging. This doesn’t mean
we charge what they charge, but we need to think through the reasons to
charge less, the same or more. Any of these may be effective and
profitable, depending on our business.

Equity & social justice

Another reason we might underprice is that we want to
have our service and products available to a wide spectrum of people,
not just those with higher incomes. This comes from valuable ideals of
social justice. Instead of lowering our prices across the board,
perhaps to the point of inadequate profits, we can offer unadvertised
discounts or sliding scale prices, when appropriate. Another approach
is, in our marketing materials, to invite prospective customers to
inquire about opportunities for low-income people. If we offer too much
at low prices or pro bono, we may end up out of business. Then we can’t
help anyone!

Sell on value, not price

The key benefit of our product or service should not be
having a low price or the lowest price. This turns our product or
service into a commodity (as in the Vlasic pickle story), which is
something to be avoided at all costs, no pun intended. We will do best
to sell on value. Lowering our prices may result in competitors
lowering theirs, so we gain nothing and actually lose. As Bill Caskey
wrote in Same Game, New Rules, “The real question is not "what's the
price?" although that is what the prospect asks. It's really, 'Is there
value in changing from my current situation without this product?' ”

Cash flow

Sometimes we need cash quick, and lowering prices can
accomplish that. However for long-term profitability, we may need a
higher price. Remember, our product or service helps people solve their
problems. The good news is that there are plenty of problems to be
solved. So if some potential customers find our prices too high and we
have fully explained the value they’ll receive, we can let them go,
knowing there are plenty who will see the value and buy from us.
Changing our pricing may not be the solution, but rather developing our
communication skills.

Raising prices

It’s the same with raising prices. We may gain customers.
However competitors may raise theirs, too, and keep their existing
customers. If we raise prices and sales decline, it’s not automatically
a bad thing. We need to examine our net profits. If our profits are the
same or higher, we’re okay. Also, if sales decline, we should see if
there has been an overall market decline, rather than a decline in our
market share.

In summary, analyze the pros and cons that affect
various pricing options you have. If you have extensive industry
knowledge, trust your intuition on pricing. Review your pricing
frequently, but don’t change it frequently. It’s good to experiment in
the beginning, but after the start-up phase, change your pricing only
if there is some fundamental change in your product, service or market.
Do your homework, experiment scientifically, and don’t get yourself
into a pickle!

About the Author

© 2003 Authentic Alternatives. all rights reserved in all media. Anne Alexander combines 20 years of small business experience with professional coach training to provide “Breakthroughs Coaching” to people who want to do well by doing good. Anne’s clients are socially responsible business owners and professionals who make a positive difference in their communities. They work with her as their strategic partner to have more time, more money and more fun. See what her clients say at www.authentic-alternatives.com.

anne@authentic-alternatives.com

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