Whatever your business does, it will be positioned somewhere on the following line: Extreme Price Taker Extreme Price Maker What Are Price Takers?
Price takers operate businesses where the sales price of products/services is dictated by highly competitive market conditions and entrenched customer expectations.
Examples of extreme price takers would include cleaning contractors, tax preparers, convenience stores and newsagents. With larger companies, think Billabong (standardised product, easy to replicate). As a result, price takers are fairly limited to three basic options when attempting to achieve better profitability.
- Lowering costs and tight cash flow management
- Increasing revenues without sacrificing margins
- Trying to influence the overall product/service sales mix by highlighting, marketing and promoting any strong margin lines
What Are Price Makers? On the other hand, price makers have businesses where the sales price of products/services is decided by quality, consistency of delivery and service, reputation and abstract factors such as desirability and status.
Price makers are focused on margin quality rather than revenues and generally use marketing to reinforce reputation and reliability rather than sales of specific products or services.
Examples of price makers include high quality accessories, consultants (sometimes), genuine innovators (product or service) and those with a story to tell. With larger companies, think Oroton (heritage + fresh innovation). Price makers increase profitability by:
- Opening new outlets, licensing, increasing distribution
- Improving contact and reputation with existing purchasers and suppliers
- Keeping the faith on margin quality, return on investment and astutely targeted capital spending
Your Signature Is Required Most of us are a mixture of both. No matter where your business stands, it is vital to develop an individual ‘signature’. For example – I go there for the pancakes (cafe); she didn’t waste my time and came up with a productive solution (consultant); both delivery and after sales service were excellent (e-commerce); they were friendly and helpful (anyone).
