Pricing is a massive area in business that is often ignored by many business owners. This can be a huge mistake since it can be the difference between making a profit or making a loss.
When they started, Ben and Jerry were making their ice cream for three years before they got any better than break even. They would have continued to just break even if Ben’s dad hadn’t stepped in.
Ben’s dad was an accountant (hurrah!) who challenged them on their pricing of their ice cream. Ben’s dad could see that they were trying to sell a quality product which wasn’t reflected in the price. He challenged them to raise their prices.
Ben and Jerry were reluctant as they saw the reason for them not making a profit was because of overscooping, waste, expensive labour costs, bad employee scheduling – in short, inefficiency. Ben’s dad responded by arguing that they couldn’t turn all these inefficiencies around, they were only human, but they could increase their prices.
Ben and Jerry followed the advice and the rest is history. What we can learn from this?
Ben and Jerry ice cream didn’t become profitable because they raised their prices. Anybody can raise their prices. What Ben & Jerry did was to have a price that matched their value proposition to the customer. The customer was happy to pay the price for such quality ice cream. You can’t price for 100 percent efficiency but it doesn’t matter that you can’t. Your price should reflect what the value is in the eye of the customer.
As the great business thinker, Peter Drucker, says – the point of a business is to create wealth for its customers not to operate efficiently. Many businesses have gone out of business despite being efficient but if you have something that people want, your chances of great success is more likely.
