Question: Dear Mark – a quick one – in a commodity market (like bagged cement, ceramic bricks etc) – how can you increase pricing to fully compensate the cost inflation and also improve gross margins?
Answer: There is so much to unpack in this question, unfortunately it is not a quick one.
First, repeat after me, “There is no such thing as a commodity.” As soon as you believe you sell a commodity, you’ve given up on creating and capturing value.
Let’s assume what you meant to say was, “Mark, in a market with a lot of competitors and there isn’t much differentiation …” That implies the answer. If you have no differentiation, you have to charge the same price as everyone else. The only way to raise prices above the market price is to differentiate.
There are lots of ways to differentiate. It doesn’t just have to be the product. Can you offer faster delivery? Coaching so they create a better product? Financing? Services along with the product? Design services?
Here’s how you find the areas to differentiate. Listen to the buyers’ complaints. What do they not like? Are they annoyed standing in line? Do they hate carrying your bags to their truck? Do the bricks fall over during transport? You’ve heard them all before, but you never stopped to think, is that a problem I should try to solve?
When you are the easiest, fastest, friendliest, the most helpful, efficient, and reliable supplier around, people will pay more to do business with you. The only way to get better margins than your competitors is to have better offerings.
Hope that answered your question.
Tags: pricing strategy