Pricing 101: your pricing strategy

Pricing is the most important aspect of your business. No other factor has a higher impact on improving profits. A 1 percent improvement in price optimization results in an average boost of 11.1 percent in profits. That’s no small change.

The following are methods commonly used when determining how to price inventory. Read through these pricing options and compare them to how you currently price items in your dealership. Keep in mind the services your dealership provides when trying to match the best method for you moving forward.

Value based pricing: It’s all about the customer

To consumers, price is a number of how much they value what you are selling. For example, if I needed a new winter hat, I could get one from the local Goodwill store for a dollar, or I could go to Macy’s and buy one for $25. If I only cared about covering my head, Goodwill would win, but since I care about my fashion sense, Macy’s wins. A customer’s willingness to pay is contingent upon the value he or she places on the product desired. Essentially, value based pricing cuts through the red tape of this scenario to determine the true willingness of a customer to pay for a particular product.

Unfortunately, the most common pricing strategies and methodologies forget about the customer. Instead, people in charge of pricing justify price points based on internal reasons or simply adopting existing market prices. Newsflash: customers don’t care how much something costs you or your competitors to make. Customers want to know how much value they are receiving at a particular price.

Value based pricing requires a lot of research. But it allows more interaction between you and your customer. Plus, unlike pricing done by market norms, this method focuses on isolating qualities that distinguish your product from a dozen similar products on the market.

Value based pricing models utilizes customer data, as well as breakdowns of the relative value of different features within your offering. You’ll also need to conduct an analysis of competing goods, because once you have the data, you’ll want to know the other options consumers have open to them. In the end though, you have the greatest amount of data to make an informed decision about your profit maximizing price.

Pros of value based pricing

1. It helps you develop higher quality products.

Value based pricing not only determines a more accurate price for the end product, but the process will also benefit your business. Taking on a consumer perspective will also help you discover what customers are really looking for. Products and features will be driven by consumer demand, which raises perceived value, thereby resulting in a higher price.

2. It allows you to provide phenomenal customer service.

Much of the customer data in value based pricing is collected through customer surveys or interviews. In past newsletters, we have stressed the importance of building relationships with customers and providing them quality customer service. Your customers will perceive that you are providing the best service available and building repeat business instead of a one-time customer. The customer will trust that you are providing the most bang for his or her buck.

Cons of value based pricing

1. It takes time and resources.

The method takes time; both while building relationships with customers and researching competitors’ prices and services.

2. It’s a science, just not an exact science.

Value based pricing is more of a process that requires consistent dedication, not just a “set it and forget it” mentality. Think about it, willingness to pay differs between different customers, regions and even offers. A 100 percent accurate prediction is impossible, but we can get pretty darn close.

Summary: Value based pricing should be a part of almost everyone’s pricing strategy. When done right, value based pricing provides increased opportunities to provide customer service and motivates you to provide a higher quality product.

Cost plus pricing: The oldest and simplest method of setting prices

Cost plus pricing is the simplest method of determining price, and embodies the basic idea behind doing business. You buy something, sell it for more than you spent buying it (because you’ve added value by providing the product), and the difference between your price and costs equals profit.

A lot of companies calculate their cost, determine their desired profit margin by pulling a number out of thin air, slap the two numbers together and then stick it on a couple thousand widgets. It’s really that simple. This method involves very little market research, and also doesn’t take into consideration consumer demands and competitor strategies.

Pros of cost plus pricing

1. It takes few resources.

Cost plus pricing doesn’t require a lot of additional market research. Cost of product is something businesses are mostly aware of by adding up different invoices, labor costs, etc. Businesses can then take the total costs and place a margin on top of them that they believe the market will bear. Cost plus pricing is especially helpful when you have no information about a customer’s willingness to pay and there aren’t direct competitors in the marketplace.

2. It provides full coverage of cost and a consistent rate of return.

As long as whomever is calculating the costs per item is adding everything up correctly, cost plus pricing ensures that the full cost of the product is covered, allowing the mark-up to generate a positive rate of return.

Cons of cost plus pricing

1. It’s horribly inefficient.

The guarantee of a target rate of return creates little incentive for cutting cost or for increasing profitability through price differentiation. This inward facing approach discourages market research, including watching your competitor’s prices. Plus with no research, you have minimal data on your customers’ perceived value of your product.

2. It doesn’t take into account consumers.

Perhaps the biggest downfall of cost plus pricing is that it completely disregards the customer’s willingness to pay. To make money, a customer must be involved. They’re the most important part of selling anything, so any pricing strategy that doesn’t take customer value into account is creating a vacuum that’s sucking all of the profit out of the business.

Furthermore to be blunt, customers don’t care about how much something cost you. They understand there are costs associated with doing business, but consumers care more about how much value you’re providing.

In summary, cost plus pricing isn’t ideal for most businesses, unless you truly cannot spend some extra time on the most important aspect of your business – your customers.

Competitor based pricing:  logical, but ineffective

Competitor based pricing is a lot like a bad case of plagiarism in a college class. Because you don’t want to do the work yourself, you look at your competitors’ prices for similar products, and set your prices similarly.

Imagine stacking all of your competitors on a totem pole with the most premium or luxury brand on top and the bargain brand on the bottom. You then decide where on the pole you fit, place yourself in there and set your price accordingly. This is not the way to do business.

Pros of competitor based pricing

1. It’s fairly simple.

If you’re in an industry with even one or two direct competitors, you can implement a reasonable competitor based pricing strategy. In most industries, marketing and product managers will then have to do relatively little research to find a price.

2. It’s low risk.

It’s rare to royally screw up using this form of pricing, and chances are if your competitor has never filed bankruptcy, neither should you.


Cons of competitor based pricing

1. It leads to large missed opportunities.

You will miss the opportunity to work closely with your customers and provide them true customer service if you just sell a product without any extra perceived value. You will likely lose profits and not take advantage of improving your product or business. Maintaining a lower price than your competitors isn’t always the best way to attract consumers, and as Lisa’s chart on page 2 showed, prices are not a priority like customer service and communication.

2. Formed by group consensus and lacks personal responsibility.

Competitor based pricing operates off the assumption that businesses already in the market have the correct answer and that every decision competitors’ make is intelligent. However, if a large portion of companies all use this tactic, then with time, competitor based pricing can lead to the entire industry losing touch with demand.

Summary: Competitor based pricing should be a part of everyone’s pricing process, but not the central pillar. As we alluded to before, competitor based pricing also gives you too much of a “set it and forget it” mentality. Pricing is a process that requires data and attention. If you’re not changing your prices and differentiating your product over time, you’re not sustainable. Yes, you should know what your competitors’ prices are, but knowing your customers and their demands is more important. If you take elements of all three of these pricing strategies, you should see increased business and an increase in your profits.

Managing Heat Stress

Heat stress impacts cattle performance and costs millions of dollars in annual economic losses. Animal responses to heat stress include reduced dry matter intake, decreased average daily gain, decreased milk yield, decreased fertility and poor reproduction.

As Figure 1 reflects, the severity of heat stress is commonly estimated by temperature-humidity indexes (THI).

Some have hypothesized that it is not just the extent of heat stress alone that affects animals, but also the duration of the heat stress. This is supported by anecdotal evidence from the field, where it is commonly observed that adequate night cooling reduces the impact of heat stress during multiple-day periods of elevated temperature and humidity.

It is also presumed that the minimum threshold where animals begin experiencing heat stress is a function of the production level of the animal. For example, in growing steers the threshold is considered to be a THI of 84, whereas in a high producing lactating dairy cow the threshold will be considerably lower, starting at a THI of 70. At the same ambient temperature, a higher-producing dairy cow will have to dissipate more heat to the environment than a lower-producing cow of the same size.

In addition to reduced performance, physiological responses to heat stress include increased respiration rates and body temperatures elevated above 39°C (102.2°F). Body temperature rises when cows are no longer able to dissipate body heat to the environment, and is a very sensitive indicator of heat stress. Cows may exhibit panting and drooling as behavioral and physical responses to heat stress.

Feeding Amaferm® during heat stress has multiple benefits including improved digestibility, increased energy availability, improved rumen function and decreased loss of performance. The improved digestibility observed with Amaferm provides more energy to the animal during heat stress when intake is reduced. Amaferm has been shown to improve milk yield performance with lactating cows under heat stress (Figure 2) and help maintain body condition (Chiou et al., 2002). The benefits of Amaferm in dairy cattle production can also be translated to beef brood cow and feedlot performance. In summary, feeding Amaferm during heat stress can:

  • Increase digestibility.
  • Increase energy availability.
  • Improve microbial protein yields.
  • Help stabilize rumen function and pH due to stress disrupting feeding patterns, which can lead to consumption of unusually large meal size.
  • Improve milk yields and help maintain body condition.
  • Improve overall performance.

If you have questions about heat stress in cattle, please email support@biozymeinc.com and we’ll put you in touch with one of our nutritionists. Also, be sure to check out our mineral products, VitaFerm® HEAT and VitaFerm HEAT CTC 3G, specifically designed to help you combat summer heat stress and the effects of fescue pastures.

Product Focus: VITAFERM® HEAT

KEEP THEM COOL, KEEP THEM GRAZING

A common question our dealers, Area Sales Managers and nutritionists receive is what product should I feed after Concept•Aid®? VitaFerm® HEAT is a logical next step for producers who are concerned about heat stress and insect control. VitaFerm HEAT is a vitamin and mineral supplement used to reduce heat stress during warm seasons of 70 degrees and above, especially in fescue pastures. VitaFerm HEAT contains Amaferm® and Capsaicin, research proven to lower body temperature, which can help improve conception rates and maintain pregnancy. It also includes garlic, a natural insect repellent.

VITAFERM® HEAT

Key Selling Points:

  • Ideal summer mineral because it helps combat the negative effects of heat stress and fescue grasses.
  • Contains organic copper, zinc and manganese to support reproduction, immunity and hoof quality.
  • Contains Capsaicin, a unique combination of added extracts to help maintain circulation to support animal performance in both heat and fescue situations. Capsaicin is research proven to lower body temperature, which can help improve conception rates and maintain pregnancy.
  • Also includes garlic, a natural insect repellent.
  • Amaferm is a natural feed additive that acts as a prebiotic increasing digestibility to maximize the energy value of feed. It is research proven to maintain performance during heat stress. Amaferm supports the beneficial microbial population and fiber digestion that is often limited in fescue.

vitaFERM® HEAT ctc 3G

Key Selling Points:

  • All of the above plus…
  • VitaFerm Heat CTC 3G provides FDA approved level of Aureomycin® for control of Anaplasmosis that can severely impact reproductive performance within infected herds.

April 2016 – Letters From Lisa

’P’ for price

Pricing is one of the four P’s of the marketing mix, the pillars that support and sustain your business. The first is Product; the second is Place (distribution); the third is Promotion and the fourth is Price. All four of these factors must be implemented before you can succeed in business.

I am going to focus on price, which some people consider an afterthought to the other three. But, I argue price is the most important factor, and it’s critical to your business that you get it right. Remember price is the only element in the marketing mix that produces revenue; all other elements represent costs.

Without proper pricing, your gross margin will suffer and that will translate into less profit than you deserve and ultimately limited cash flow. Limited cash flow will eventually impact the sustainability of the business.

One trap that is easy to fall into is thinking that the price must be as low as possible to get any traction with sales. This just isn’t true. We routinely survey our end-user customers to see what matters to them in their purchasing decisions. What they say about price and its importance will surprise you. The following is a list of the top 10 factors to provide proof and understanding of the definition of value, or in other words, why you don’t need to assume your prices need to be kept to the lowest number possible to close the sale.

  1. Product makes a difference in animal’s health & performance.
  2. Product is easy to feed.
  3. Product is consistent in quality.
  4. Knowledge of product by sales personnel.
  5. Reliability of product supply.
  6. Personnel respond quickly to requests.
  7. Ease of contacting the right person for help.
  8. Product is packaged in useful quantities.
  9. Problems are resolved quickly.
  10. Ease of doing business.

So, instead of worrying about keeping prices low, worry about the items highlighted in yellow. Focus your energy on educating, having inventory, responding quickly and making doing business with you easy. If this is your focus, you can use value based pricing, which means believing that you can sell at our suggested retail price plus the freight to get the product to you. No smirking without giving it a try.

To end, I’ll quote Lawrence Steinmetz who wrote a book on sales called “How to Sell at Margins Higher Than Your Competitors.” “The first thing you have to understand is the selling price is a function of your ability to sell and nothing else. What’s the difference between an $8,000 Rolex and a $40 Seiko watch? The Seiko is a better time piece. It’s far more accurate. The difference is your ability to sell.”

lisa-norton-signature

Tap Into the Online Messaging Board

The BioZyme Online Dealer Center hosts an incredible tool for gaining product knowledge and direct access to our nutritionist team. Here you can post questions about anything you’d like in regards to product information, selling tips, shipping or freight and more. You are guaranteed to receive a response from our team, but this is an opportunity to interact with dealers as well.

Great discussion is always happening on the message board and we invite you to join by going to the Online Dealer Center at www.biozymedealer.com and selecting Resources >> Message Board in the main navigation menu located at the top of the screen!

4 Ways to Improve The Way You Creep

Now is the time to begin thinking about your creep feed rations. Creep feed allows producers to efficiently put weight on young calves, as small calves are very efficient at converting feed to gain. Also, as calves pass the 90-120 day mark, they begin to need additional supplementation as the lactating beef cow is only providing 50% of the daily nutrition that the calf needs. Ideally, lush pastures would provide the additional nutrition; however, lack of pasture due to challenging weather or acreage constraints can limit this.

At BioZyme® we offer three different products that can be incorporated with feedstuffs found at your local mill to create a complete creep ration, and a fourth product that can be incorporated into any pre-formulated/bagged creep feed.

Our wide variety of proven products help keep your cattle healthy and efficient. Producers also notice a big different in consistency in intake, and calves transition more easily at weaning. All VitaFerm® products contain the Amaferm® advantage, which increases the digestibility of feed and improves digestive health, allowing for more efficient gains.

SURE CHAMP®
Proven in the show ring, but works equally as well in creep feed to help maintain the strong appetite and healthy digestive system needed to unlock the genetic potential of your calves. Contains high levels of essential micronutrients for the extra bloom that show and sale cattle require.

VITAFERM® SURE POWER 37™
A high protein and macro minerals pellet that is a great fit for building today’s modern creep feeds. Contains moderate levels of essential micronutrients to ensure animal performance. Use it alone for commercial calf creeps or together with Sure Champ to build high performance show and creep rations.

SURE START® PELLET
The ideal supplement for stressed cattle during weaning. This pellet also works extremely well as a creep balancer, bringing high levels of vitamins and minerals when additional protein is not needed. Works well in distillers and corn gluten-based creep feeds.

AMAFERM® DIGEST MORE®
A low inclusion way to supplement Amaferm in any diet. At the feeding rate of 0.5 ounces, Digest More provides 2 grams of Amaferm. Digest More is best suited when additional protein, vitamins and minerals are not required.

For more information about creating a custom creep feed ration, contact Lindsey Grimes, BioZyme Nutrition Field Support, at lgrimes@biozymeinc.com or 816 596-8779.

Welcome Cody!

Welcome, Cody!
We are excited to introduce BioZyme’s newest team member, Cody Jensen, Quality Control and Production Efficiency Coordinator. In his new position, Jensen is responsible for ensuring that quality parameters are met during product receiving, manufacturing and delivery. Additionally, he will work to maximize mill efficiency and through put on a daily basis.

“Cody brings a great deal of experience in raising and showing animals to our production environment. We can better learn what is important to our customers in our finished product. Cody will be integrated into our production facility and provide direct quality control on all products made at the BioZyme plant,” said Chris Feiden, BioZyme Director of Supply Chain.

Jensen’s past internships have provided him some diverse experience. He previously interned as a Plant Engineer at

Kent Nutrition Group in Altoona, Iowa, and had an internship as Summer Manager at Nelson Poultry Farm, Inc. in Manhattan, Kansas.

He has an associate’s degree in Agriculture from Butler Community College and a bachelor’s degree in Feed Science from Kansas State. Jensen has served as Chairman of the National Junior Hereford Board and was a member of the Butler Community College Livestock Judging Team.

Understanding The Value

Without an understanding of what all is included in a bag of BioZyme mineral, it is possible your customers feel they are comparing apples to apples when, in fact, they are not. BioZyme mineral prodcts contain a host of things other mineral brands simply do not offer:

AMAFERM®
The key ingredient in all of BioZyme’s products, Amaferm® is a natural feed additive, that acts as a prebiotic increasing digestibility to 
maximize the energy value of feed.

OPTIMIN® Proteinates
The nutritional success of any organic trace mineral depends on the ability of the organic escort to hold onto and protect the metal from undesirable reactions. Optimin’s superior chelation stability maintains the integrity and keeps the organic mineral in its original form during digestion. Optimins are soluble and ready for absorption, especially when they are needed most – under stress or during difficult dietary 
digestive conditions.

PRICELESS Attributes of BioZyme Mineral Products

  • Research proven vitamin and mineral levels
  • Exceeds NRC requirements for respective production stage
  • Highest ingredient quality and consistency
  • No least-cost formulations as BioZyme manufactures to the ingredients, not the guarantee

An Inside Look at how the Value Pencils Out

Pricing is an issue of which 99-percent of all dealers struggle. However, Doug Underwood and his Area Sales Manager, Ben Neale, contest this issue with testimonials to demonstrate the benefits of including BioZyme® products in their customers’ nutritional programs in order to prove its value and thus price accordingly. 

Underwood has been selling BioZyme products for more than five years and became a dealer when he needed access to the supplement and mineral lines for his own cows. After using it for 19 years on his Polled Hereford seedstock, Underwood was a convinced of its worth. When his local dealer retired, he decided to establish his own BioZyme dealership at his farm near Campbellsville, Kentucky.

Many of Underwood’s customers were familiar with the products, but to continue to educate them as well as new prospective customers, Underwood and Neale have hosted field days to talk about how and why BioZyme products work. Underwood says when he hears the question of expense, he focuses his selling points around Amaferm®.

“That is what sets this brand apart from other mineral products,” Underwood says. “It’s one particular ingredient that makes a big difference in cattle. They have a much better feed intake and appearance. That’s the positive result you get from Amaferm.”

Neale’s territory covers Tennessee, Kentucky and Mississippi, so he’s on the road working with dealers like Underwood. In addition to field days and producer meetings, he says BioZyme has many marketing tools available to help dealers explain to producers how investing in premium products will increase their bottom lines. When Neale visits with dealers, he encourages them to think about inventory control. “Our price list shows buying 22 tons at a time is the best way to achieve greater margins, but if you have to sit on inventory for 6-10 months that may cost more money if operating on a line of credit,” Neale says. “So, we try to focus on flipping inventory faster. You can still turn a profit if you buy 5-10 tons at a time, and the product remains fresh for the customer.”

Underwood says the time he puts into selling a value-added product like those BioZyme provides is worth it. Even when cattle prices are down and it seems like input costs and supplements, like BioZyme, don’t make sense, he encourages fellow producers to try the product. Their return on investment will become apparent when they wean heavier calves or when cows settle on the first cycle. And he says, he would never lower his prices to match a competitor. “When they start comparing ingredients and prices from the local feed store, I have to show them what Amaferm does for them instead,” he says. “The math will speak for itself. If I can get a cow bred on the first cycle instead of the second I’ve saved 21 days at maybe $1.50 per pound and gain another two pounds per day for those 21 days for a total of 42 lbs. at weaning for an additional $63 per calf. The benefits BioZyme products provide for the additional cost pencils out in the long run.”

Neale says dealers should remember when faced with price comparisons from other mineral products they should focus on the ingredients BioZyme provides and how the ingredients found on the tag are not found in any other product. That’s what the extra pricing goes toward – better ingredients plus Amaferm in the mineral bag.

Neale says he talks to customers about Amaferm and how this prebiotic increases gut health, increases feed efficiency and helps animals recover faster from times of stress. The added benefit, he says, of two products in one bag is also a good selling point during price discussions.

Another benefit of the Neale-Underwood team is that ASM’s like Neale can help dealers grow their business outside of an established customer base. Neale is working with Underwood to recruit sub-dealers and build a network from customers who are two or more hours away. 

“I am working with Doug to build upon his strong local relationships,” he says. “It’s new for both of us but without the availability of stores in his area he has to network with breeders and others who can help grow his business.”

“Real business is successful when someone sees a return on investment not on price,” Neale says. “We want customers who use these products to understand and believe that as well. When you talk with someone who’s going on a diet, are they going out to buy and consume healthy food or junk? It’s the same with cattle. If you want higher returns then you have to be conscious of what you’re feeding them. You may have to pay more to be efficient.”

“Just let the product speak for itself,” Underwood says.

4 Myths to Debunk about Pricing

Pricing tends to be looked at as this ominous figure in business that’s so difficult that most are left paralyzed. As one of the least studied branches of marketing, pricing has become a black box for many dealers, who simply adopt existing prejudices and misinformation.

Put simply: if pricing is a black box, you’re losing money. A lot of it.

Therefore, let’s dispel some of the most common myths so you can be catapulted into action and start capturing all of that lost cash you’re leaving on the table. Increased revenue makes every business owner happy.

Myth #1:
We need to accept market or competitor pricing

Basic microeconomics teaches that in perfect competition, individual companies cannot affect market prices. In other words, businesses must accept the equilibrium price, where the demand curve crosses the supply curve. While this is a convenient way to calculate price, this theory doesn’t correctly reflect how the real market works. Prices in any market span across a range, rather than fixing on only one point. Product and service differentiation through brand, quality, etc. can all affect where your business lies on this range.

TRUTH: No matter the density of your industry, product and brand differentiation can take you well above the market standard.

Myth #2:
The only way to increase volume of sales is by decreasing price

It may sound too good to be true, but it is indeed possible to raise prices and increase volume at the same time. As Lisa states in her letter this month, price isn’t the only factor that attracts customers. Focusing on giving customers a reason to pay a higher price for your product or service is crucial, whether that be greater quality or better service. A powerful tool is market segmentation. Most products have a target audience, whether it’s the progressive cattleman, the bargain hunter, the show segment or the hobby horseman. Creating different classes for your product depending on quality or services can expand the number of customers you cater to, thus increasing buyers. Additionally, sometimes lowering your price can actually deter people from buying your product. Think about it. If I came up to you and said I’d sell you an Apple MacBook Air for $100, you wouldn’t buy it, because you’d definitely question the quality.

TRUTH: Volume is created by customer segmentation, charging different sets of customers different prices, and thus increasing volume and revenue.

Myth #3: 
We need to charge lower than everyone else

This is quite possibly the biggest misconception. A race to the bottom is one of the worst ways to compete, because you end up underpricing and losing out on your customer base. Your customers begin to question the quality of your product, but needs to buy the product. So they continue to shop around, and you lose customers. Lower prices equal lower revenue rates, which means the number of sales must increase to cover the loss. Obvious, yes, but it needed to be stated. Additionally, a lower price tag doesn’t mean customers will automatically flock toward your product. For example, if BMW suddenly sold its cars for $35,000 instead of whatever ridiculous dollar amount they’re priced at now, would that necessarily increase its revenues? Possibly in the short term, but in the long term they would begin to compete with cars made by Honda and Toyota who already have that market cornered. BMW would also lose out on the consumers that put luxury value in the premium pricing of their cars.

TRUTH: Underpricing is rarely the solution to any pricing woes. You end up dropping into a different segment of customers and lose out on cash from your current customers.

Myth #4:
Pricing isn’t important

Pricing is the most important aspect of your business. Period.
A 1 percent improvement in pricing results in an average increase of 11.1 percent in operating profit. No other business lever has that impact – not cost optimization, volume increases, or anything.


TRUTH:
Pricing is, bar none, the lever in your business that has the highest impact on the most important cell on your end-of-month spreadsheet – your revenue. You need to take it seriously.

Source: http://www.priceintelligently.com