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The Power of Pricing: Healthy Margins Improve the Value of Your Business | Modern Tire Dealer

My father-in-law, Ed Tuck, was a pretty smart guy. Before becoming a venture-capitalist and founding Magellan GPS, he was a turnaround consultant to failing telecom businesses in the 1980s. (Read “A Sense of Direction,” Ed Tuck and Mike Khaldun, Dog Ear Publishing, 2018.) I once asked him about the first things he did when he took over a failing business. Ed said that first, he’d find the person responsible for the mess and fire that person just to get everyone’s attention. Then once he got their attention, he raised prices.

Ed said that most good companies underprice their products and services, and if they are losing money, that is especially true. So he’d raise prices until the first customers complained loudly, but he was OK with that. He guessed those customers might not be loyal or profitable and he could afford to lose some of them. But he kept on raising prices until the margins were healthy and the loyal and most profitable customers screamed. By then, he had a profitable business on a solid footing that could grow from there.

I’ve employed Ed’s technique in tire stores, districts, regions and even helped at the national level for a tire retailer that was losing money in the early 1990s and had not raised its service and parts prices in five years. There was some serious inflation back in those days, so imagine the catching up we had to do. We employed a new pricing strategy that was competitive with “signal” or “visible” items, but we arbitrarily jacked up the prices of everything else nationwide.

Then it dawned on us that doing business in San Francisco with its rents, wages and regulations was higher than, say Omaha or Fargo. Duh, right? So, we made market appropriate price increases and put the local districts and regions in charge of setting and keeping up with market pricing. A lot went into the subsequent 25-year run of success this company had (including retaining people, improving processes, and focusing on just three key goals), but the power of pricing was an unheralded part of it.

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The Power of Pricing: Healthy Margins Improve the Value of Your Business – Retail – Modern Tire Dealer.

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