The Power of Price

Issue #2304

• WEALTHY: 3 steps to a business that’s low cost for you and your clients (Paul Lawrence)
• HEALTHY: A one-minute stress reliever for the office (Craig Ballantyne)
• WISE: Michael Masterson on pricing your product

ALSO IN THIS ISSUE:

• How to keep your personal life off limits (Suzanne Richardson)
• Why a dictionary won’t always resolve language disputes - and where to turn instead (Don Hauptman)
• It’s Fun to Know… about the link between hair and tap water
• Add "thaumaturgy" to your vocabulary

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"However valuable your product is… however clever your marketing… nothing will grow your customer base faster than underpricing the competition." 

- Michael Masterson

The Power of Price

By Paul Lawrence

When I was in college, I was desperate to find a way to make some money. And I wasn’t crazy about the idea of working at the usual part-time, minimum-wage jobs available to students. So I came up with a business plan and put it into action. One hot summer day found me trudging from door to door, passing out flyers and praying that I would get some customers from the effort.

By the time I returned home, I’d received my first inquiries. And those quickly resulted in my first customers. Within a week, I had a business that was earning more money than I needed. Within a year, that business earned over $100,000 in profits. Not bad for a college kid living at home with his mom!

That first successful start-up was a pool service. Since then, I’ve launched more than a dozen very profitable small businesses. When I analyze what made those businesses successful, I can pinpoint several reasons. But my pool service was successful because of one business strategy: price.

I got people’s attention by offering a monthly rate that was 20 percent lower than the competition. On top of that, I had an introductory "special."

Michael Masterson says that underpricing the competition may be "the most important secret a businessman can know, for it is the most powerful and most reliable way to make a small business grow." It’s also one of the best ways to enter a market and grab a share of the customer base.

When it comes to consumer merchandising, a small business can’t compete with giants like Wal-Mart. But a new service business can usually offer a better price than larger established companies providing the same service. That’s primarily because a small start-up can keep overhead low and sometimes accept a smaller profit margin. So if you can operate your small service business out of your back bedroom, without hiring a lot of employees or needing a lot of fancy equipment, you can almost certainly afford to underprice the competition.

But just because you enter the market with the lowest price in town doesn’t mean you stay there forever. For example, one of my entrepreneurial ventures later in my career was a ballroom dance instruction business. When I entered the market, I was a one-man operation, and I offered lessons at $29 when most studios charged $60. Sure, I made less money per lesson, but it was still pretty good money for me at the time. And once I had a nice little client base, I gradually inched up to the going market rate. That allowed me to hire other instructors to teach the lessons… and freed up my time to develop additional sources of income.

I already had considerable experience as a ballroom dancer - and teacher - before I decided to go into business for myself. But with the pool service business, the only "skill" I needed was the willingness to do the work. So let’s go back to that example so I can show you how well the underpricing strategy works.

Here in South Florida, where I live, the average monthly rate for pool service is about $65. In this particular industry, an account is generally worth six times the monthly gross. So an average pool account would be worth $390.

But let’s say you decided to get into the business by undercutting the competition by $15 a month. That means your average account would be worth $300. That’s a difference of just $90. Would you be willing to give up $90 a month to get a loyal, long-term customer?

And you’d only have to give up that $90 for the first six months. I can tell you from experience that if you do a good job of servicing your pool customers for six months and then raise your price by $15, at least 95 percent won’t drop you. In fact, most of them will feel that they got a bargain, because they enjoyed a very low price for a reasonable period of time. It’s not like you low-balled them and then jacked up the price right away.

And, let’s not forget that you were still making money on all those initial $50 accounts… just not as much.

Here’s how to use this strategy to start a small service business:

* Identify a service business where you see a chance to compete on price

Some of the easiest service businesses to get into are house cleaning, lawn maintenance, exterminating, and car washing. Services like these are often offered by big operations that have been in business a long time. But they tend to have big overheads, and aren’t hungry for new business, so their prices are somewhat inflated. Crunch the numbers and see if you can offer the same level of service at a better price.

* Create a marketing campaign that emphasizes the price savings

Whatever advertising medium you choose, make sure the discounted price is mentioned prominently. For the pool service business, I used flyers and direct-mail pieces. But for the ballroom dance business, I started with classified ads in newspapers and the local Yellow Pages.

A good way to emphasize the savings is to show how it adds up over time. For instance, in the pool business, I didn’t just tell prospective customers that they’d be saving $15 a month, I pointed out that they’d be saving $90 over six months.

One thing to keep in mind: Make sure your customers know they won’t be getting a lower standard of service from you. Explain that you can provide high-quality service with a lower price because, for example, you’re doing the work yourself and have practically no overhead.

* Be ready to begin operations immediately

When you launch a marketing campaign that offers a greatly discounted price, you can expect to get customers ready to do business with you in as little as a few hours. So make sure you’re prepared. Providing the promised service efficiently (and well) will assure your profitability.

[Ed. Note: Paul Lawrence is the creator of the Quick and Easy Microbusiness System, ETR’s program for starting a business for under $100. He is also the publisher of the Street Smart Business program, which has dozens of "no nonsense" tactics for the small-business entrepreneur. Check out the details here.]

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Now Starring… You!

By Suzanne Richardson

Now that there are over 70 million blogs online (according to the April 2007 Technorati count) and about 120,000 more popping up every day, almost everyone’s a writer. And with all those writers out there looking for inspiration, you might find something you did or said being featured on their site. Not such a big problem… unless you’re uncomfortable sharing your life with millions of potential Internet users.

I touched on this problem on Tuesday, when I looked at the subject from the point of view of the writer. I said that, whether you’re a blogger, e-newsletter writer, journalist, or book author, you have a responsibility to protect the people you write about.

Now let’s look at it from the opposite point of view. What can you do to keep your personal life off limits to story-hungry bloggers?

Seth Godin, author and marketing expert, suggests that you label any communications you want to keep confidential with "NFYB" (Not For Your Blog). That way, you can keep your e-mails, private conversations, and personal life off the record.

But, gee, what’s wrong with good old "CONFIDENTIAL"? That’s been the business standard for probably hundreds of years. I don’t see why we need to jump on Godin’s new acronym. (What was it again? I already forgot.)

[Ed. Note: See a real blog in action at MichaelMasterson.net.]

Bet You Can’t Do This Simple Exercise

By Craig Ballantyne

I’m guessing that when you sit at your desk or in the car, your head is in a forward position and your shoulders are rounded.

Over time, that is going to reduce your shoulder mobility. As a result, you could develop chronic tension in your neck and upper back, and even reduce your ability to do simple tasks (such as reaching for things stored on overhead shelves).

In short, this posture is a pain in the neck (and shoulders).

I have a one-minute stress-relieving stretch that will help - especially if you do it several times over the course of the day. It may look and sound easy - but years of forward shoulder slumping could make it a real challenge for you. Trust me, though. It will "hurt so good."

Here’s how to do the Stick-Up:

• Stand with your back against a wall. Your feet should be six inches away from the wall, and your butt, upper back, and head should be in contact with the wall throughout the entire exercise.
• Stick your hands up over your head. Try to keep your shoulders, elbows, and wrists in contact with the wall.
• Keeping your shoulders, elbows, and wrists in contact with the wall, slide your arms down the wall and tuck your elbows into your sides. This will bring your shoulder blades down and together. You should feel a strong contraction in the muscles between your shoulder blades, as well as in your shoulder muscles.
• From this position, slowly slide your arms up the wall until they are in the "stick-em-up" position - again, trying to keep everything in contact with the wall.

The goal is to improve your range of motion more every week by improving shoulder mobility and posture control.

[Ed. Note: Fitness expert Craig Ballantyne is the creator of the Turbulence Training for Fat Loss system. For a free online source of information, motivation, and social support to help you improve your health, lose weight, and get fit, sign up for ETR’s free natural health e-letter.]

The Language Perfectionist: What’s Wrong With Dictionaries?

By Don Hauptman

"Let’s look it up in the dictionary."

When people disagree about language, someone is bound to utter this sentence, as if it will settle everything. But the solution is not always so easy. Here’s why.

If you need the definition of an uncontroversial word, such as portico or remoulade, a dictionary is an appropriate tool. The problems arise with words whose meanings are routinely misused, abused, and in dispute. Examples include disinterested, enormity, and verbal - all of which have been discussed in this column.

Decades and centuries ago, dictionaries were prescriptive; they were authorities that told us what was right and wrong. Increasingly, however, they have become descriptive; they simply report on or reflect language as it is used. Thus, if a word is used often enough in the wrong sense, that sense is deemed "right" by popular, democratic vote.

This reasoning has never made much sense to me, but descriptivism is now accepted practice among lexicographers. Still, not all dictionaries are alike; some are more permissive than others. Some include "usage notes" indicating that the newer, permissive sense of a word is "nonstandard." But you can’t always count on finding or trusting such warnings.

Thus, in addition to a good dictionary, every writer needs to have a good usage guide close at hand. Many choices exist, of varying quality and reliability. And no single volume covers everything. But here are three that have served me well for many years:

* The Elements of Style by William Strunk Jr. and E.B. White

This is the classic - a slender volume packed with tips on how to write well and clear explanations of commonly disputed words and expressions. The current Fourth Edition was revised and updated after the deaths of the authors. Some sticklers take issue with the changes. Any version is useful, but if you’re a purist, you may wish to seek out an earlier edition.

* The Careful Writer by Theodore M. Bernstein

This is a much larger book, so it contains many references not found in Strunk and White. The author explains each point clearly and elegantly, with common sense and vivid examples.

* What in the Word? by Charles Harrington Elster

More recent than the above titles, this book covers more contemporary words and expressions. Moreover, it’s entertaining, written in a light, conversational style, and includes wordplay and fun facts about language. The author takes the sensible position that we should strike a balance, respecting tradition but also recognizing that language changes and evolves.

So don’t be cowed by the argument "It’s in the dictionary!" After all, dictionaries include the word ain’t. Keep one or more of these recommended volumes on your desk, and you’ll use the written and spoken word with greater skill and effectiveness.

[Ed Note: For more than three decades, Don Hauptman was a direct-response copywriter. He is author of the wordplay books Cruel and Unusual Puns and Acronymania, and is now writing a book that blends language and humor.]

It’s Fun to Know: The Link Between Hair and Tap Water

University of Utah scientists have discovered that the chemical makeup of your hair can reveal where you’ve spent the last several months. It turns out the water molecules in human hair take on the characteristics of the water molecules of the local tap water you drink. The chemical makeup of tap water differs slightly in every region of the world, allowing investigators to pinpoint your geographic location.

(Source: National Geographic )

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Word to the Wise: Thaumaturgy

"Thaumaturgy" (THAW-muh-tur-jee) - from the Greek for "wonder" + "work" - is the performance of miracles or magic.

Example (as used by John Mcgurk in Contemporary Review): "There was ever a cautious hesitancy on the part of the [Irish] clergy to recognize evidence of thaumaturgy, and the superstitious use of relics."

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Copyright ETR, LLC, 2008