Simple Economics and Its Application to Australian Businesses
Pricing is a critical aspect of any business, yet many business owners struggle to understand its full importance. Simple economics highlights that while price plays a significant role, consumers consider numerous factors when making purchasing decisions.
Take New Zealand’s recent decision to triple its tourist tax, for example. Despite the increase, they are unlikely to lose customers. This is because many goods and services are price-resistant. Consumers look beyond price alone; they consider brand reputation, service quality, location, and reliability.
For Australian businesses, competition is key. Does your offering align with competitors in terms of brand positioning, service, and reliability? For instance, are you conveniently located with easy parking and accessibility? Is your brand well-established, and do customers trust that you’ll be around tomorrow? Moreover, how you greet clients and whether you truly listen to their needs is crucial to forming lasting connections.
Most customers accept that price reflects cost, so it’s vital for businesses to set a reasonable profit margin. Terry Murphy from Accountants and More emphasises the importance of considering BOTH cost and risk when setting prices. Depending on the level of risk, businesses may aim for a price that is double or even quadruple their costs. However, each decision should be backed by professional accounting advice.
By considering these principles of simple economics, Australian businesses can set more informed pricing strategies and ensure long-term success.