We have to give it to smallbiztends.com in this recent post about pricing for a catchy title….they spent a lot of time drawing the parable between the types of people you meet at a party and pricing, which was interesting, but much too long.
So, as we are wont to do, we’ll take their title and structure and fix it.
The Wallflower: when it comes to pricing, the wallflower is ’emulation pricing’, or doing what the other guys in your field do. In other blogposts and in our courses, we’ve called it ‘me too’ pricing. It necessarily pricing based on what your customers expect. This is really a separate category. If you’re going to price with the other guys, you better beat them on selection and/or service.
The Arrogant Jerk: The article says the cost plus margin approach to pricing is arrogant; we’re inclined to think this is ‘me too’ too, unless you’re doing a lower plus than others. It’s not too imaginative. But, it’s quite common.
The Amazing Conversationalist: The article states that this approach is the one where one listens to customers, and prices according to their wishes. This is all good, but works best on new products, or ones that your competiors don’t have. Customers are inclined to tell different vendors the same thing, so if you’re not careful, you’ll wind up with ‘me too’ pricing. Where customer-oriented pricing can help is with selection, discounts, frieght terms and the like that possibly your competitors don’t offer.
The Robber Baron: in the spirit of the article, this is a category that we invented, known as perceptual pricing, or pricing based on the worth of the job being done. A famous example of this was one of our sales clients, who said to a client that he would guarantee that his organization could increase sales $500.000 in a year. Therefore, he priced his services to the client at $5,000 per month, with a one-year minimum. The $60,000 fee looked pretty reasonable….it was perceived to be reasonable. The client is up $450,000, or about 200,000 gross contribution. Another example is a plaster removal machine that one of our clients invented, which will roughly double productivity of cleaning crews. We’re going to try $100 per hour or $500/day pricing on prospective customers and see how then react. This pricing has nothing to do with anyone else…..just the value of the money saved.
So, the bottom line is listen to your customers about the value of the job they want to have done!