Pricing by value, rather than margin

Whether done on paper or through a computer software program, many businesses subscribe to the formula of marking up costs to set their prices. With an average 30 percent margin in mind, business owners then work out what to charge for their products. Markups can vary by industry, from 12 to 15 percent for grocers and food wholesalers to 100 percent or more for retail clothing.

This approach is effective, but according to author and consultant Rafi Mohammed, it can also mean leaving money on the table, or losing sales because of a lack of growth.

Mohammed, who founded Culture of Profit LLC in Cambridge, Mass., and is author of “The 1% Windfall: How Successful Companies Use Price to Profit and Grow,” says value-based pricing is a better model with which to work. Profits can rise by an average of 11 percent if companies just increased prices by 1 percent.

Consumers value products differently, depending on the message attached to them. While in Florida, Mohammed saw a sign for locally caught wild shrimp, something he says would likely make him pay more than the going rate for imported farmed shrimp.

Similarly, he says, customers put a higher value on labels such as “made in America” or on the different points of origin for gourmet coffee.

“Customers make purchases based on value," he says. “So don’t be modest, brag about it.”

To read the rest of the story on pricing seafood, click here. Written by SeaFood Business Contributing Editor Joanne Friedrick, the feature appeared in the December issue of SeaFood Business magazine.

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