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Jun 15, 2012   //   by Helen   //   Blog  //  No Comments

Why Business Pricing Can’t Be Personal

Attendees at our most recent pricing workshop had lots of practical experiences to share and questions to ask. One question was quite intriguing; “If you charge a high price for something, and feel you are ripping off your customer, does this mean you shouldn’t be in business?”

Popcorn
Why is cinema popcorn so expensive?

Most people agree that cinema popcorn is expensive. And yet it continues to sell well and make good profits for cinemas the world over. The reasons for the high price include:

captive audience
limited selling time
high fixed costs of operating the counter
it is how the cinema makes a profit
higher clean-up costs because of the popcorn
tastes and smells better than you can make at home
part of the experience of seeing a film
because people will pay for it

The Personal Dilemma

The gross margin on popcorn is in the order of several hundred %. Pre packed popcorn, bought in shops, would have much lower margin. A lot of the reasons that cinemas charge the high price stem simply from the fact that they can. They do it because they can.
Q: Does this make cinema owners dishonest, unscrupulous merchants that rip people off?
A: NO.

The fact is that the fixed costs in a cinema are very high indeed. Rates, insurance and film hire don’t come cheap. If there is a heavy fall of snow, this has an adverse effect on the number of customers and yet the cinema will have to pay those costs regardless. Replacing screens and projectors is seriously expensive too. Cinemas need popcorn and other snacks to make the cinema as a whole profitable. Popcorn is part of the experience, and people will pay to eat it. Indeed many people choose not to eat popcorn, either because they don’t want it, don’t like it or begrudge the price. The choice is theirs. The cinema owner has more limited choices, he has to pay the bills. If he doesn’t make a substantial profit on snacks, he won’t make a profit overall.

Don’t Make Business Personal

You have to pay your bills in business. There won’t be a whip around or a bale-out for you when business is poor. There won’t be a subsidy. So you have to make strategic and operational decisions in the best interest of the business overall. And if those decisions include a high price on one product line that the customer really, really wants, then so be it.
“If you charge a high price for something, and feel you are ripping off your customer, does this mean you shouldn’t be in business?”
Forget the feelings. This is business. It’s risky, you can make losses as well as profits. Nobody is going to compensate you for losses. There is no safety net. You have to make pricing and other decisions to maximise your profits. Ultimately, your customer has a choice, they can buy from you or not. So, if you keep dwelling on those feelings, you won’t be able to sell or function as a business manager. And then you won’t be in business for very long. I think ultimately, the answer is that you shouldn’t be in business if you make business personal.

We have written a number of other blog posts about pricing, both here and on other blogs. These posts are derived from our content used in pricing workshops and from the pricing advice we have given given during business mentoring. Want to find out more? Then dive into the table below.

Blog

Article

This blog

Your Business, Your Price – Do you value YOUR Brand?

Pricing for Profit – Pitching Your Price through Innovation

Bloggertone

Pricing for Profit. [Part 1]

Pricing Vs. Costing [Part 2]

Pricing as a Process [Part 3]

Pricing for Professionals [Part 4]

All About Business

How to Improve Your Profit Margin

The Devil is in the Discount

What do you think? Please let us know in the comments below!

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