Pricing decisions for SME business owners in high-tax environments
High taxes can diminish profit margins, limiting the ability of SMEs to reinvest money in business expansion.
Tax payments can affect overall competitiveness and pricing strategies, resulting in price rises that customers may be hesitant to pay.
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Excessive tax hikes may raise the cost of production and finally lead to the failure of a business. Pricing decisions refer to how a product or service's selling price is determined.
It is usually a key component of any business strategy because it affects revenue, profit margins, and market position.
To retain profitability and competitiveness during high-tax years, business owners must carefully assess their pricing selections.
Here are some crucial factors to consider while developing a pricing strategy during such times:
Cost reduction
Cost optimisation/reduction is a business-focused, ongoing discipline that aims to reduce spending and costs while increasing corporate value.
Conduct a thorough cost analysis to discover areas where you can cut costs without sacrificing the quality of your products or services.
Examine operational efficiencies, supplier negotiations and waste reduction for cost-cutting potential. You can reduce the impact of high taxes on your pricing by reducing costs.
Analysis of competitors
This is the process of identifying industry competitors, examining their marketing and other techniques and identifying their strengths and weaknesses.
Business owners must maintain a careful eye on the pricing strategy and market positioning of their competitors. While it is critical to remain competitive, a race-to-the-bottom pricing approach can be detrimental to business.
Instead, to justify retaining higher rates, differentiate your company by superior customer service, customisation possibilities, or added value.
Monitoring and adaption on a regular basis
This is critical in determining the success of your business operations. It aids in the identification of possible difficulties, the tracking of processes and the measurement of outcomes.
Continuously monitoring market conditions, client preferences and your company's financial health will help you make pricing decisions.
Business owners must stay up to date on any changes in tax laws or regulations that may affect their pricing selections. Regularly examine and change your pricing strategy to ensure they are in line with your business goals and market dynamics.
Explore alternative revenue streams
Having access to alternative revenue streams can greatly help firms to remain successful and stable in changing business situations, whether the business owner is aiming to improve the net profit position or maintain a regular cash flow.
Revenue streams are the routes through which a company produces income by selling items or delivering services with the resources it has.
Businesses must diversify their revenue streams by providing complementary products, services or add-ons.
This can help you offset the impact of high taxes on your principal offerings while also increasing your customer base and income potential.
Upselling and bundling
Businesses can utilise bundling to boost sales, cut costs and provide better customer service.
Businesses use bundling as a price tactic to provide a bundle deal for customers.
It is a method of upselling complementary items and services, such as purchasing one product with another or two things at the same time.
Product/service bundles or packages that provide added value at a somewhat higher price point must be purposefully created by business owners.
This enables them to keep or grow their average transaction value while giving clients the impression that they are getting more for their money.
Use upselling strategies to persuade customers to select higher-priced choices or extra features.
Segmentation of the target market
Customers must be segmented and pricing tactics must be tailored accordingly.
Setting varying pricing for the same product based on what each target market is ready to pay for is what price segmentation entails.
Its primary benefit is that it enables you to create a dynamic pricing plan to maximise sales by delivering enticing offers to all of your customers.
Customers who are less price sensitive and willing to pay a premium for quality or specialised products/services must be identified by business owners.
To keep price-sensitive customers, consider offering lower-cost options or value bundles.
The writer is a Lecturer/Business Coach
University of Professional Studies Accra
[email protected]