Entrepreneurs drive the business world. They are the ones that take the big risks. They move fast instead of waiting for things to happen. They are way more action oriented than other companies. They have the tenacity and drive to succeed. So why then do so many start up companies fail. There are some obvious reasons, such as the usual barriers to entry; it can be difficult especially if you are trying to go up against the big boys without a tenth of their budget. But I believe there’s more to it than that. I think many entrepreneurs are so excited to start their business that they do so without giving the process enough thought and planning. This is especially true of online businesses, where the start-up costs are relatively cheaper (the cost of a domain is much cheaper than renting an office). Here are some reasons why I think many new bushiness fail…

1. Belief that being good is all that is needed to be successful

I live in a neighborhood where many people know how to cook excellent food. Yet, there aren’t many successful “mom and pop” restaurants. Sure, I see new ones pop up all the time, but they don’t really last very long. Having visited some of these places (hey I’m all about helping local business thrive) I can tell you the quality of the food is far superior to most places. However, quality is just not good enough in this day in age. You can have the best product in the world, but it doesn’t matter if you aren’t taking care of your other business responsibilities. Little things like bringing in customers, pricing strategy, customer service, location, keeping proper hours, etc. Having an excellent product is a definite must, but don’t forget that it’s only one piece of the business puzzle. Remember the basics… play to your strengths and passions, be objective in regards to your business, and seek help from others when you need it.

2. Lack of goals

Let’s face it, this is a problem even for the big companies. The difference is that they can afford to make mistakes, you can’t. One of my favorite movies of all time is “Deep Cover” (yeah, I said it), and there’s one part in that movie where a father turns to his son and asks him what he wants for Christmas. The kid shrugs and says he doesn’t know. The father then says something like “how are you ever gonna get what you want if you don’t even know what you want.” Exactly, I couldn’t have said it better myself. Setting goals is essential in life and in business. Sit down and identify your personal goals. See where they sync up with your business goals (spend more time with your family, more money, etc), visualize what you want to achieve, and then develop a plan to get there. Set up milestones (divide your big goal into smaller objectives), and timelines to achieve these milestones. Prioritize your efforts around these goals and milestones and you will be much more focused on what is important to you. There are rules for setting goals, but I’m sure we’ll get to that in a later post.

3. No process

One of the biggest mistakes entrepreneurs make is that they have no systematic processes for anything. Most of them keep everything in their head, and never commit ideas to paper. Let’s face it, business is complex. If it wasn’t then we wouldn’t have to go to school for years to learn how to do it, and you probably wouldn’t be reading my posts. Put those ideas on paper. Write out your processes, especially for some of the more complex things. This will make it easier for you to identify where things can be improved. Also it makes it easier to train others whenever you get to that point. Remember, a good business needs structure, processes, and people. You need a plan, tasks, timelines, etc to reach that plan, and people to execute it.

There are probably more things that I’m leaving out, but these are the major factors. What do you think? Why do you think so many start-up companies fail? More importantly what can entrepreneurs do to make sure they succeed?

Everybody enjoys a good sale. A reduced price can be an excellent way to penetrate a market, excite unmoved customers, or re-brand. There are tons of reasons to discount products, but you should be aware that reducing your price too much or too often can really hurt your brand in the long run. It’s common sense if you think about it, but if your company has made mistake #4, you probably haven’t thought about it at all.

If I was to have a laptop, worth about $500 in my possession, and told you that I’d sell it to you for $100 bucks, would you buy it? Maybe, but you would definitely go into that deal thinking “I wonder what’s wrong with it.” If you discount a product too low, customers will wonder, what is wrong with your product. There must be something, otherwise, you’d sell for more. Why leave money on the table after all. Also, what about your customers that paid full price in the past? If you lower your price too much, you will create some seriously bad feelings for your formerly loyal customers. On the other hand, severely lowering your price could be okay if you offer a catch of some sort (like those free or cheap phones that require expensive contracts), but those propositions are annoying for a whole different reason.

I don’t watch much television (I prefer to rot my brain with comics and video games), but I remember when I was a kid I’d hear about the Foley’s red apple sale (Foley’s is/was a local department store). I mean it seemed like they had a “red apple sale” every month or so. Even though I was young, even I understood that no one was excited about these sales. They occurred too frequently, and no one was really excited by them. If you are putting your products on sale too often, you are actually creating less excitement for them.

There are other ways to make your products attractive to your customers. Don’t be lazy about it. Sometimes a promotion doesn’t necessarily have to include a price break. Find other ways to increase the value to the customer, and then you’ll be on the right track. Remember, customer’s purchase products based on perceived value (tired of hearing this already?). Price is just one component of value, so don’t overlook other ways to increase value.

Well, those are my top 5 pricing mistakes. I’m sure there are more out there. If you know of one I haven’t mentioned already, go ahead and comment.

If you’re in business, then you want to make a profit. Let’s break this down, there are basically three variables that control profit… costs, sales, and price. Profit, by definition, is revenue (sales x price) - costs. While most companies spend a ton of time and effort cutting costs, and improving advertising / marketing / sales activities, most do not spend this same time and effort on pricing practices. Personally I don’t really understand this. Pricing is just as important as the other variables, and can also affect your sales volume (a more effective price will naturally result in an increase in sales).

Lately companies have been focusing more and more on cutting costs in order to improve their “bottom line”. Cost cutting has been refined down to an exact science (though many cost cutting efforts in fact have a negative effect on profit, but that’s a whole other story). Likewise, most companies are constantly working on new marketing efforts, some more effective than others. However, when it comes to pricing many companies wing it; they base prices on the wrong things, or even worse, they don’t have a person that decides on pricing strategy.

Most companies have a chief financial officer,a director of sales, and a director of marketing. Why not have someone in charge of pricing. Every company should have someone who’s sole purpose in life is to define the pricing strategies for each product. Make sure they use actual methods, and aren’t just pulling prices out of the air.

Different products have different customer segments, each of whom will have different perceptions of value (based on different criteria). So with all of these variables, why is that some companies try to make the same profit margin on different product lines? This is a rookie mistake, and shows that you don’t really understand your customers very much. Remember, the first rule of marketing is you do not talk about marketing… sorry, the first rule of marketing is to segment the market. If you’ve done this properly, then you should have an idea of what your customers expect from your product and can price competitively.

I’m not going to talk to much about this, because I think it’s kind of common sense. Look at it this way, if you stick with a set profit margin, then you may be pricing too high or too low. The golden rule of pricing is that the optimal price point is one that matches the most that a customer is willing to pay. How much a customer is willing to pay depends on their perception of value. The profit margin of a different line of products is totally irrelevant. Instead, you should focus on segmenting your customers and finding out how to price each product line accordingly.

I think it was Isaac Newton that said that “every action has an equal and opposite re-action.” This is true in business as well. Many companies set or change prices without understanding that competitors will react accordingly. If you want to turn your product into a commodity and get into a price war, then by all means go for it. Otherwise, you will need to look before you leap as they say.

When you significantly lower your price, guess what? You’re competition will likely do the same, and then you’ll have a price war on your hands. This could actually work to your benefit, but only if your competitor(s) is financially poor. If you get into a price war with a company that is financially poor, you will successfully damage their profits, and may drive them out of business (look at what the most evil company of all time Walmart does on a routine basis). If you are the financially poor company though, you may have just destroyed yourself. Please do your homework first, and adjust your price accordingly.

Let’s take a look at the other side of things. What if you are trying to match your competitors price. Let’s call this mistake #2b; you base your price on a competitor’s price. This is a great way to turn your product into a commodity. If your product is better than the competitors then why should you charge less? Instead, you should focus on how to differentiate your offering from your competition. If your product is not as good as the competitors, then maybe you should re-market the product accordingly and lower the price point so that you can be the value option for the consumer.

Remember, customers will purchase products based on what is the most valuable to them. Think of it this way… if a customer values your product at $100, and you’re selling it for $80, then that’s a $20 value for the customer. If the competitor is selling a similar item at $80, but the customers’ perceived value of the competing item is only $90, then guess what? that’s a $10 value for the customer, and they’ll choose your product, which is more valuable to them.

It can get complicated, but the bottom line is that you should look at the competitions prices, adjust yours accordingly (so that you will offer the most value), but also understand that your competitors will do the same. It’s a game. Remember my previous post? “Marketing is a game, and money is how we keep score.” Be a mastermind, and defeat your competition on value, not price.

Pricing mistake #3 coming soon.

What do you think? Comment below or email me at edwardviator@evil-marketer.com.

Let’s face it, pricing is a very important ingredient in your overall marketing mix (it is one of the 4 p’s after all), one that is often times an afterthought. Good pricing strategy can mean the difference between profit and loss, but all too often, companies have no idea how to price their own products. There are a number of philosophies and strategies, but rather than go into all that, I want to take a look at some of the common mistakes made when creating a pricing strategy. Let’s begin with the most common, basing your price on costs rather than value.

Costs are in fact relevant to pricing, especially if you want to make a profit. There are reasons why you might decide to sell a product as a loss leader (price below costs). As a matter of fact, this is the case with almost all new video game consoles. They usually price themselves at a loss in order to generate more sales (which leads to market penetration, more games being sold, developer support, accessory sales, etc), but for the most part, you will need to price above costs. The costs are there to show you where your minimum price should be set. Your actual price needs to be based on the perceived value by your customers. How can you find out about this value? Research my friend, research. Something most companies don’t do enough of, but I digress…

Here’s the scenario, your price is higher than what the customers’ perceived value is. This results in a longer sales cycle, an increase in the cost of sales (you’ll need extra convincing, which means more money spent on marketing efforts), product discounting, and an overall loss of sales. All of these things will hurt your profits. Remember when the Playstation 3 launched a few years back? Many gamers balked at the $600 price tag (myself not included, I had to have that state of the art gaming machine, and I’m happy with the purchase). Many customers thought “why pay so much for a next generation gaming system when the X-box 360 was selling for much less”; $400 if I’m not mistaken. While there was tons of extra value in Sony’s Playstation 3 system (free online, blu-ray, internet surfing, etc), some customers did not perceive that the value was worth an extra $200 bucks and sales suffered as a result. Sony is a sharp company, and they’ve been able to successfully re-launch the PS3, but imagine how dominating they would be if they had gotten it right the first time.

Scenario two, your price is lower than what the customers’ perceived value is. The product will be flying off the shelves as they say, but you will be leaving tons of cash on the table. Remember those old Warner Brothers cartoons where the character gets fooled and then turns into a sucker or a donkey? If you’re pricing yourself too low, then that’s exactly what’s happening to you. Also, if you’re pricing your product too low, it could be a red flag to customers that there must be something wrong with it; your product may seem cheap, which could hurt your brand.

Do some research and find out what your customers’ perceived value of your product is. Then price your product(s) accordingly and maximize those profits. Mistake #2 coming up tomorrow.

What pricing mistakes do you see going on in the marketplace. Let’s discuss in the comments, or privately in email.