These are my highlights from Dan Kennedy’s No B.S. Price Strategy. I highly recommend buying this book and reading it for yourself, but until then, this should get you going.
Most business owners are failures at price strategy, to an extent they are unaware of. That ignorance might be bliss, but it’s very costly and hazardous to one’s wealth. When I say they fail at price strategy, I mean that they fail to use price as a positive marketing tool and path to advantage. I also mean that they fail to create the greatest possible profit in their business.
Sale prices are often nothing more that statements of what you should really be paying for something. And that is the downside to discounts. They can destroy price integrity with blinding speed. On the other hand they can bring a stampede of buyers through the door faster than just about anything else.
When you offer a discount you are taking the focus from the value you provide and placing it squarely on your price. There is no way to escape that. To maintain higher prices you have to be adept at selling value. Discounts erode your ability to do that.
Any reduction in prices can damage your price integrity.
Later, getting the same customer to stop thinking about price and re-focus on value can prove difficult.
Part of the explanation for that may be that the discounted rates drew a poorer quality customer. That would not surprise me—in my health care business, I deliberately try to repel clients concerned with price and discounts.
Giving away a premium offering for free degrades its perceived value. To make matters worse, the more recently it had a premium price, the more likely giving it away for free will compromise the price integrity of the other offerings by the same business.
I’m sure the guys who are doing this have convinced themselves otherwise, but they are wrong. I don’t care how fast this grows your list, I don’t care if you think you are triggering reciprocity, you are degrading the quality and viability of your buyers by giving away a premium offering for free.
You are not, I repeat not, building trust or loyalty. You are building discontent and sowing the seeds of hatred.
Watch the long-term behavior; it will deteriorate just as it has for the news media. As the old saying goes, why buy the cow if you can get the milk for free?
With all that said, FREE used thoughtfully, carefully, and sparingly, or with a standard new customer offer, or in ways that do not degrade product previously sold at full price without a very good reason palatable to all, can be a powerful business-builder. I do not believe you can simply swear off free—or discounts, for that matter. Despite personal biases, I strive to adapt to the evolving culture of free in ways that help rather than harm my businesses and my clients’ businesses, and you should too.
I had to challenge my belief about participating with free. As much as I hate it, I had to come to terms with the fact that I can use it. Most of us do. We give certain things away while charging for others. Maybe it’s a bonus, maybe it is a sample, maybe it is free information such as a blog post or an e-zine, but free is there and being used. Free is not going away anytime soon. It and the expectation of it is expanding.
If you ignore it or deny the threat it poses to your current business model, you do so at your own peril. If you ignore it or deny the opportunities it offers, you operate under a handicap.
“Never discount. Never free.” is impossibly stubborn, but for very, very, very few providers of elite professional services to very small numbers of elite clients. “Always/often discount. A lot for free, all the time” is a high-risk game, too high-risk for my taste, and historically, consistently, a path to a cliff’s edge from which there’s no retreat.
If you must discount, must put items on sale or must promote free offers, don’t be predictable. This is the only way to negate training people to expect something. If you do the same thing at the same time, every time, you train them. Once you train them to expect something you have to deliver it or you sow the seeds of discontent. If they come to realize you advertise at full price for three weeks, then discount the fourth, they’ll wait; if you stop the discounting, they won’t buy at all. If you run a Half-Price Sale every July, customers will sit on their hands in May and June. If you frequently discount, they’ll lose all faith in real prices and buy only when you run sales, then build up immunity to that, forcing you to conceive bigger sales with bigger discounts and more free gifts.
That dates back to the 1970s, and I first learned it from Howard Bonnell, then a sales management executive with the World Book Encyclopedia Company, and from Paul J. Meyer, the founder of Success Motivation Institute, who gave a talk about perpetuating an “endless chain of referrals.” Very recently, I spotted an item in Entrepreneur magazine about a similar strategy, referring to an electrical contractor who, after closing the sale reveals a lower available price, if the customer will fill out referral postcards to be sent to the neighbors, right then and there.
In the above example, the idea of a $188,000.00 fee for copywriting work might shock you. And if it were being paid by the client simply for a few days of copywriting work, i.e., for the time or the labor, it would be outrageous. He could hire his own copywriter as a full-time employee to be underfoot forty hours a week every week for a year for that sum. But for me, it’s relatively routine because I’m not charging for time or labor; I’m charging to develop an asset the client will own, that will yield dividends over time far beyond the initial investment. For example, if, for that fee, he obtained an ad campaign driving prospects to a website where they read a sales letter and bought his products that he used for the next five years, that amortizes the fee to $37,600.00 a year. And if it sells $500,000.00 of goods each year, that’s $2.5-million across its five-year life, a return on investment of almost 1,400%. Or: a discount of $2.3 million; the buying of money at a huge discount. This is what intelligent businesspeople try to accomplish anytime they pay for expertise; buy money at a good discount. And, just how many times would you like to buy something for $188,000.00 that will yield $2.5-million over five years?
Some years back, I had a regional chain of optical stores as a client. We ran a “Sizzling Summer Sales Event,” with customers getting a pair of prescription-lens sunglasses free when purchasing a regular pair of glasses, plus a family pass to a popular area water park as a free bonus. For its time, it was an extremely generous, enticing offer. I worried it might be too good to be trusted, absent some quid pro quo. So we tested one change in the advertising in one market vs. the same advertising in the other: in one, we added the requirement that the customer bring a donation of two canned food items or at least $10.00 cash for the local food banks; in the other, no such charity connection or requirement. The results were so much better with the charitable donation requirement that no argument was possible. It mattered.
We are now not just a society of consumers rather than producers, but we are a debt-based society rather than an ownership-based society. Given the quick obsolescence of much of what is bought on extended payments, most people actually own next to nothing, ever, and are renting everything, although most do not think of their situation in those terms.
My parents’ generation gradually embraced a less rigid allegiance to “if it is to be, it is up to me” and became more accepting of, then slowly eager for government expansion and liberal philosophy. Today, the secular religion of self-reliance is as antique as pay as you go; in its place, a fast-growing, politically encouraged lust for unearned goodies, benefits, support and assistance, transfer of responsibility—to the point of entitlement.
Whatever field of enterprise you are in, seeking out buyers willing to pay for value rather than those seeking value far in excess of payment or, worse, feeling entitled to value far in excess of payment, or worst, willing to steal to avoid any payment, is critical. Being able to position yourself in a category of one for certain desirable customers, critical. Creating immunity to downward price pressure, critical.
Price Strategy Warning #2 – If you fail to help your prospective customers or clients see the “hidden price” of free or cheap, you will always be in a disadvantageous competitive position, because there will almost certainly be others willing to sell or work for far less, or even for free.
Let’s take a look at my health care business for an example. If you take the free therapy through the government, you are going to pay by wasting precious time wading through the rivers of red tape to get a therapist of your choosing. If you pay for therapy privately, you can choose the therapist that is best for your child and get started as fast as you want. If you take the free therapy from the government, some bureaucrat, with absolutely no qualifications to do so, will tell you how much therapy you can get. Only when you pay privately are you and your therapist able to do what is in the best interest of your child. When you take the free therapy from the government, your child’s history becomes part of his permanent record. When you pay privately, you are in full control of what becomes a part of your child’s permanent record. By taking free therapy you pay with wasted time, lost control, uncertain quality, and loss of privacy. Those are not small costs for many people. You could find similar hidden costs in any product or service being provided for free.
People all value different things. You cannot attract or serve them all. The vast majority of people will always have zero interest in whatever it is you sell. Your offering may be the center of the universe to you, but it is irrelevant to most people. You must get that through your head. Even if you were offering everything free, the majority would be disinterested. Even if they did all want what you sell, what would you do if they all tried to buy? You would be seriously screwed. You would not be able to handle it.
If you become very adept at this, as I am in marketing our practice, the law of supply and demand still works to your advantage, even though the overwhelming majority of people are not good prospects for you. But among those who are, who are repelled by the costs of free, and prefer paying for excellence, great demand for you will develop. The more demand you create the more scarce your offering will become in relation to demand and the higher your prices can go as a result. We have been able to raise fees again and again, against the recession, and against both free and low-fee competition, because the demand for us and no one else exceeds our capacity. The best price strategy of all is creating visibly excess demand—in our case, a very busy, thriving practice, often with a waiting list.
This is the game played out at airports often, when flights are over-booked. Free roundtrip tickets are offered to anybody who will stay put and wait hours to get on a later flight. If there are 300 on the flight, you never see a stampede of 300 fighting over the free tickets. Sometimes only 2 or 3. Often the airline’s announcer has to sweeten the offer, after no takers go to the podium. If it was impossible to combat free, and everybody wanted it, there’d be a mad rush. Why isn’t there? Because the majority prefer the cash price they’ve paid to get where they want to go when they planned on getting there than a free trip now plus another free trip later, with its costs including not getting where they wanted to go when they wanted to get there, waiting around the airport for five boring hours, and uncertainty about really getting out on the next flight. For 295 of 300, the price of free is too high.
Let me summarize the million dollar secret again. Every “free” has concealed costs, and when those costs are revealed to a market, there are many customers who are unwilling to incur the costs of free and who profoundly prefer paying for the goods or services they want.
There is a three-part strategy you can use involving Free to draw in a lot of good prospective customers, in a controlled way. You need 1) a compelling Free offer that people need to register to get, so you collect their contact information for all the follow-up you care to do; 2) a controlled environment, so the Free offer is directed at the right customers, and there’s good reason for it that does not extend to ruining your price positions; 3) a marketing system to convert the people attracted by the Free offer to paying customers immediately after their Free experience. (You can’t just let them loose, to wait for the next Free.)
The minute you decide not to think of whatever you sell as a commodity, you liberate new, different, and better price possibilities.
Once you start to compete on price then you can count on there being somebody coming along who’ll beat your prices, even if doing so ultimately bankrupts them. There is no glory in having the second lowest price. When you compete on price you have no choice but to be the cheapest. Second cheapest is not good enough. As a result, price wars are fought constantly and the race to the bottom continues to intensify while the margin for error continues to shrink.
The bargain of a cheap price and securing of a big discount may satisfy a customer momentarily, but only real value, quality, and service can retain that customer. If you sacrifice the latter for the former, be prepared to endlessly chase and always, desperately need more new customers that you pour into a bucket with a hole in the bottom as big as the hole at the top.
American business, from big migrating down to small, has increasingly focused on shorter-, shorter-, and shorter-term results, with leadership willing to take profits today at certain, serious expense, risk, and damage in the long term.
Why isn’t the impact of commoditization universal? Why doesn’t discounting force everyone in the category to discount? How can there be a price war with conscientious objectors who prosper? The answer is a big glaring secret hidden in plain sight: some people are willing to knowingly pay more.
In the back of every intelligent customer’s mind is the oftrepeated warning: if it sounds too good to be true, it is.
Approach One: The Hawaiian Fisherman’s Method One year, on vacation in Hawaii, I was relaxing at a beach, watching whales in the distance, when a fisherman, obviously a local, drove up in his pick-up truck. He got out with a dozen fishing rods. Not one. A dozen. He baited each hook, cast all the lines into the ocean, and set the rods in the sand. Intrigued, I wandered over and asked him for an explanation. “It’s simple,” he said. “I love fish but I hate fishin’. I like eatin’, not catchn’. So I cast out 12 lines. By sunset, some of them will have caught a fish. Never all of ’em. So if I only cast one or two I might go hungry. But 12 is enough so some always catch. Usually there’s enough for me and extras to sell to local restaurants. This way, I live the life I want.” The simple fellow had unwittingly put his finger on a powerful secret. The flaw in most businesses, that keeps them always in desperate need—which suppresses prices—is: too few lines cast in the ocean.
Preeminence means “surpassing all others in a distinguished way.” That was the second thing I set out to do. In attacking this objective, I developed what I now teach as the Triangle of Preeminence: expertise and excellence in patient/customer service; extraordinarily effective, high-visibility marketing; and generosity in community service and involvement. With this Triangle, any professional or business owner can stand out so dramatically from any crowd, that he will attract patients/clients of the attitude and philosophy that price is the least of their concerns!
In the area of wrinkle-erasing treatments, I don’t just inject Botox® like many doctors—I combine a number of anti-aging and skin treatments into my own proprietary procedure, making price comparison impossible. This is all part of the first side of the triangle: expertise and excellent service. Another way to say it is incomparable expertise and service, deliberately designed and presented so it cannot be compared.
Why then, you might ask, does it seem so many B2B sales and purchases are made based on competitive pricing? Two reasons. One, because that’s what you believe to be true, so you see, hear, and accept everything that verifies your belief and reject without actually seeing or hearing everything that contradicts it. Two, because 80% of the marketers and salespeople in the B2B world advertise, market, and message price despite it being a purchase determinate only 20% of the time. So the noise is much about price. And the excuse ignorant or ineffective or ignorant and ineffective manufacturers, wholesalers, vendors, professionals, and salespeople give for their failures is losing a competitive pricing battle they could not win. People love placing fault elsewhere rather than embracing personal responsibility—think overweight folks and their bad genes, big bones, low metabolism, food industry conspiracy theories.
The B2B buyer is no different. In the absence of persuasive information about differential value, he will buy the cheapest product that meets his need, and he may very well go searching for it. As he should. The problem here is not the buyer. He’s doing his job given what he has to work with—an absence of persuasive information other than price. It’s the seller who’s failing at his job—providing persuasive information other than price. It’s you, not your customer.
Here is a million dollar fact for you. If you will hammer it into your head, it will easily be worth a million dollars during your career, probably more. There is no B2B buyer of anything for whom some factors other than price aren’t relevant and important. Please stop, think, read it again. And again.
There are two chains that bind product to price: one is in the customer’s mind, the other is in yours. BOTH must be cut. It’s a near certainty that the chain in your mind is bigger, thicker, stronger than the one in the customer’s mind. Customers embrace de-linking product and price routinely given reason to do so. Business owners and salespeople are, ironically, more committed to the linkage. In this case, as in most, income improvement will follow self-improvement!
Point is, your product-price price-product link is in your mind. It is not necessarily fixed in the same way in consumers’ minds. It probably isn’t. Yours is more rigid, theirs more elastic and flexible. Further, the marketplace consistently displays its welcome of creative de-linking of price from product. Income limitations businesspeople live with based on prices they believe they can charge are more of their own lack of creativity and imagination, than of the products they deliver. So, as soon as you truly disconnect price and product in your own mind, the easier you’ll find it to make a lot more money; the more successful you’ll be in selling up, to the affluent; the less competition will matter.
Some years back, when I was doing a lot of work with the chiropractic profession, it was the norm for the doctor to deliver his “report of findings” or case presentation to new patients in his tiny, messy little work office or even a corner of a treatment room. I took a doctor averaging $2,000.00 for treatment programs to averaging $5,000.00 overnight with no suppression of closing percentage (buyers per presentation) and no change whatsoever in patients or his presentation but for two “little” game-changers: one, we created a “closing room”—a well-appointed, very professional looking office that stayed neat and was comfortably furnished, with a built-in light box to show x-rays and a screen to show video; two, we took him out of his casual shirts and put him in a blue shirt, conservative tie, and white doctor’s jacket. A 250% price increase with no change to the product.
In her way-back- when, former-life business as the infamous Mayflower Madam, in its time the classiest, highest-priced escort service in New York, Sydney learned that having phones answered by a mature woman with a British accent made higher prices acceptable than if the phone answered by a young New York girl with that New York accent and, at times, chewing gum in her mouth. You might think of this as contextual congruency—everything, i.e., every little thing, fitting together to reinforce an idea supportive of a certain price.
One more example, then the all-important moral of the story. If a florist near the entrance to a fairly large, upscale community prices a dozen roses at, say, $95.00, and has nothing but those roses available, he probably won’t sell all or even many of his roses this Friday. Men stopping on impulse on the way home will judge his price way too high. They will not care enough about their impulse to pay such a price. But if somehow magic occurred and this Friday was Valentine’s Day and every man had suffered from amnesia about this life-or-death holiday until the very moment he saw the florist’s sign, and these men had much to lose by divorce, the florist would be out of roses in no time, outrageously high price be damned. Now, don’t mess this up. The important variable here isn’t the Valentine’s Day holiday or the amnesia or the risk of costly divorce. They are just factors that create the state of mind that makes a high price irrelevant: caring a lot more about getting “x” than its price.
There are five kinds of propositions to concern yourself with: 1. Unique Selling Proposition (USP). Your Unique Selling Proposition can be found in the answer to my copyright-protected question: why should I, your prospect, choose to do business with you vs. any and every other option available? You need a continuing USP for your business and, often, additional USPs for different products, services, offers. In a sense, this is a concise summary of your positioning. It’s best if it telegraphs benefits. You can review a detailed presentation about USP in my book, The Ultimate Marketing Plan. Implicit in your USP, from a price strategy standpoint, should be the answer to a second question: why should I, your prospect, choose you regardless of price, be unconcerned about price, and never consider comparison shopping based on price?
Unique Value Proposition (UVP). This includes presentation of price, and justification/minimization of price by various means, including, when bundling, the higher value of components if purchased separately; the value of the benefits to the user; money to be made or saved through ownership of the product or use of the service. The best value propositions find ways to make price a non-issue or to make the product pay for itself. An example of the latter is the new, energy-efficient windows that pay for themselves through lower electricity bills. The task is to make a believable case for value far in excess of price. Remember that value encompasses intangibles as well as tangibles. If you hire a private VIP guide to escort you around at Disney World in Orlando, you still ride the same rides, see the same shows, eat in the same restaurants, buy souvenirs in the same shops as you would without the guide. There aren’t two different parks. The core tangible remains the same. But the $195.00 an hour VIP guide delivers different value to different customers. There’s status, showing off, and bragging rights; there’s speed and convenience, so it’s less tiring and stressful, thus making the whole excursion more enjoyable; there’s being able to do more in the time you’re there, thus making the whole vacation more valuable. And so on. Don’t leave out all the intangibles when you build your value proposition—or when you price.
Irresistible Offer. Never forget: you aren’t doing direct-response advertising or direct marketing unless you extend a specific offer. But a bland, vanilla, ordinary offer isn’t much better than no offer at all. You have to ask yourself what your customers will find irresistible. For example, we know from split tests that, when selling conferences to doctors, free airfare and lodging is much more persuasive than a discount of equal value. You have to know your own customers’ psyche. A complete I.O. will often include discount, premiums/bonuses (plural), incentive for fast response, penalty for response after a deadline.
Unique Safety Proposition (USP). This usually revolves around a guarantee or guarantees, warranties, providing risk reversal or risk reversal-plus (e.g., double your money back), and can be supported statistically—years in business, numbers served—and with social or peer proof—testimonials, client lists. The greater the skepticism, the stakes, and/or the present resistance to spending, the stronger and more reassuring the Safety Proposition needs to be. Sometimes, this can be the basis of its own profit center. I recently bought a modestly priced piece of jewelry from a catalog. The catalog copy included a 60-day “She’ll Love It Or Your Money Back” guarantee. When ordering on the phone, I was also given a one-year replacement warranty—if the item got damaged, the chain broke, the jewel dislodged, the surface scarred—they would replace it free. I was upsold a two-year extension of the replacement warranty for “just $49.00 a year.” I’m confident selling these $98.00 pieces of paper is more profitable than selling the $395.00 pieces of jewelry. A lot of people are subconsciously if not consciously looking for safety, security, and certainty in an unsafe, insecure, and uncertain world.
Unique Experience Proposition (UEP). This is the newest proposition on this list, acknowledging the reality of The New Economy as an Experience Economy, where people most willingly buy and pay premiums for complete, total, enjoyable, and unusual experiences. People want to be assured of a good experience when buying and from the deliverable.
Maybe the most important thing about this for anyone inexperienced with direct marketing is that you begin thinking in terms of making propositions. Most business owners do not. Most merely advertise the existence of their business or products or services. Or its existence plus features/benefits. Or existence plus products/prices, like car dealers’ or electronics stores’ advertisements do. These types of marketing messages are so common they encourage commoditization and either focus on price, suggest price shopping, or fail altogether. There are very few people who care that your business exists—beyond your spouse, ex-spouse getting alimony, creditors, and possibly somebody who awakes that day with an emergent need for what you do and is in hot pursuit of it. Likewise, for the features and benefits of your products. It takes more than that to stir up interest. The making of a good proposition goes a long way.
Here’s the obvious yet often overlooked fact about all this, that directly affects price strategy: I will pay more for a product, object, or service specifically, precisely “for” any of those four subcultures or my professional niche, than for a generic equal of the same product or service, and I will rarely if ever question whether a cheaper generic will do just as well. To put it another way, the movement of a product or service from generic to niche or subculture automatically permits price increase, with no change in the actual manufacture or delivery cost of the product or service. You might want to stop and read that again.
In the professional practice arena, my long-time friend and “student,” Dr. Gregg Nielsen, advertises his Back-to-Work Treatment Program, his Auto Accident Injury Recovery Program, his Anti-Stress Treatment Program, and other specifically named treatment programs. All involve essentially the same chiropractic treatment. But if you’ve been injured at work, which strikes you as more valuable: ordinary chiropractic treatment available anywhere or the Back-to-Work Treatment Program? If he were to take that a step further and market an Almagam Industries Back-to-Work Treatment Program to employees of Almagam Industries via the union, free lunch-and-learn presentations at the factory, and direct-mail to the employees at home, he would virtually negate all competition and make price, certainly competitive price, irrelevant.
The deeper the commitment to niche or subculture, the less price matters for the precisely matched product, so the more price elasticity exists when moving a generic product to the niche or subculture.
I own, train, and drive Standardbred horses in harness races. I have also owned Thoroughbred racehorses. These horses are different breeds, but both are racehorses, with more similarities than differences. Their owners and trainers, however, inhabit two entirely separate subcultures and, generally, do not like or respect each other. The exact same liniment or potion for the racehorse’s sore muscles or nutritional supplement to boost the horse’s stamina will have virtually the same impact on either breed of horse, engaged in either type of racing. But if you are the manufacturer or marketer of the liniment or the supplement and you are so tone deaf and dumb as to name and package it the same for both markets, put a generic horse’s head or both types of horse on its label, and run the same generic ad in both the Thoroughbred and Standardbred trade journals, you’ll be selling those products for half what you could be selling them for, maybe even less. You could command a significantly higher price from each subculture community by presenting yourself and your product as exclusive to each of them. Were I advising such a client, two separate companies would be formed—say Thoroughbred Stamina Laboratories and Standardbred Stamina Laboratories; two different product packages made with two different product names—say Kentucky Derby Performance Power (for the Thoroughbreds) and Hambletonian Performance Power (for the Standardbreds), and two different ad campaigns made, with only testimonials from Thoroughbred trainers in one, only testimonials from Standardbred trainers in the other. And never the twain would meet.
Too much thought about price is tied to tangible factors, as Jason describes in Chapter 7. Too little thought given to intangibles, notably including the customer’s perceptions and feelings about the product. Even with theoretically pragmatic, practical B2B buyers, feelings play a profound role in most buying decisions, and most reactions to price.
In the liniment and nutrition example just above, there’s no difference in the two products bottled for the two different subcultures. The only difference lies in the buyers’ feelings about the product. Because it is presented as formulated specifically and exclusively for the buyer’s type of horse, he has more confidence in its efficacy and therefore in its value than he would in a generic product, so he is naturally agreeable to paying a higher price for it.
There are two chains that bind product to price: one is in the customer’s mind, the other is in yours. BOTH must be cut. It’s a near certainty that the chain in your mind is bigger, thicker, stronger than the one in the customer’s mind. Customers embrace de-linking product and price routinely given reason to do so. Business owners and salespeople are, ironically, more committed to the linkage. In this case, as in most, income improvement will follow self-improvement! De-linking value in your own m
The most interesting thing about price is the wide range, from very low/cheap to very, very high/ expensive there is for just about every product and service. For every price there seems to be buyers.
Any business can do this, at national or local level. The specific association tactic used by Allen Brothers is getting and bragging about cachet clients. The great ad man David Ogilvy got great self-promotion mileage out of having Rolls-Royce as his client.
A lot of emphasis is put on product, proposition, and price, and rightfully so, but never lose sight of how important the prospect’s perception of the seller is—of the seller’s expertise, status, authority, etc. Two different merchants can present exactly the same proposition to the same prospect, and one be met with enormous resistance (and price resistance) and the other met with unquestioning acceptance.
Great marketing, extraordinary salesmanship, even a truly extraordinary product cannot—CANNOT—overcome bad economics.
In direct marketing, I rarely panic after test marketing to determine the cost of selling whatever is being sold, even if it is appreciably higher than can be tolerated. Between the cost to make the sale and what can be spent to make that sale may be a crevice or a canyon. Either way, as a marketing strategist, I then go to work on bridging the gap.
OK, I know that was exhausting. But the willingness of the business owner to work at bridging gaps is a big factor in success or failure, especially if trying to grow and expand a business. For many businesses, bridging a gap is not so complex and arduous. But even if it is, the asset owned afterward can be well worth
Cost-plus pricing is inherently flawed because it focuses on two things that have little or no influence on what the customer will gladly pay: cost and profit. The even bigger problem with cost-plus pricing is that it constricts how you think about price. Cost plus forces you to focus on costs and not value. While it is designed to give you a profit, it does nothing to maximize your ability to illustrate and collect the value you provide, nor to give you the maximum possible profit.
Those who prefer to set high prices often use a pricing method called Skimming. It got its name from milk. If you take milk straight from the cow and let it sit for a while, the cream will rise to the top. The objective of price skimming is to serve those customers at the top because they are the ones who are willing and able to pay a premium. They are the cream of the market.
Our internal philosophy is that we’d rather provide the best therapy possible than provide the most therapy possible. Everything we do is aligned with that attitude. We’re in the results business. That is one of the key values we provide. Ironically we don’t promote that, our clients do. Our reputation is that of being expensive but worth it.
The rich are paid for what they do in advance, before they do it. The poor are paid after their work. The poor work from the first through the fourteenth day to be finally paid on the fifteenth. The rich are paid before they even begin.
Another, related price strategy is membership with pre-purchased services, that may not be fully utilized, thus giving you the extra profit of “breakage” or non-redemption.
I have a client who switched delivery of a very elaborate home study course to PDF, online without lowering its $495.00 price, added a “deluxe option” including a printed copy. i.e.. “library edition” delivered in a box for $200.00 more, and in 3 months testing, over 65% of the 300 or so buyers bit on the deluxe upsell, and overall conversions barely dipped a smidgen. Sheesh. He’s charging a $200.00 premium for delivering what was standard as a deluxe option and nobody’s batting an eyelash.
There is a big difference between knowing what a problem is and stopping the behavior. Selling on price is no different. Selling on price is like an addiction.
At bare minimum, you can design a marketing process that weeds out tire-kickers and committed price buyers before they even get face to face with you or your salespeople, moving much of the selling forward into the advertising, websites, online video, and literature they go through before arriving at a sales event, and that builds value, exclusivity, scarcity, expertise, and authority for you and your product in the buyer’s mind before that sales event.
The business owner who clings to past Strategy FOR ANY REASON lets his past determine his future.
There is, of course, great responsibility on you to present self and products and services and prices in the best manner possible, to the best qualified customers obtainable, in order to successfully sell at the highest prices and profits possible. That’s not the customer’s responsibility at all. It’s all yours. But then he is the lone juror with legitimate clout. Too much attention given to the judgments of the jurors with no legitimate clout is how people undermine their own ambition and achievement.
This flies in the face of one of the great, universal truths about price: that the overwhelming majority of buyers of any product(s) or service(s) prefer making their choices based on criteria other than lower price, and will do so, and spend more than the cheapest available price and/or more than originally intended when given a good reason/value proposition and sufficient emotional motivation to do so. This changes only slightly during tough economic times. If
Even under adverse economic pressure, the majority of buyers respond to motivating factors others than price. They will even abandon their predetermined intent to buy at the cheapest price if given other persuasive criteria for their purchasing decision.
There is even a step up to better quality—and higher per item/ per experience prices – that occurs in recessions. Smart marketers can capitalize on upscale consumers’ tendency in recession to cut back on the quantity/frequency of purchases while searching for best quality when they do purchase.
The best recession or tough times price strategy is creative and complex—not a red pen to mark down prices.
“That Few Parents or Therapists Know About.” Jason calls this their “Theory of the Mind” ad. This is a very effective ad that tends to attract a very serious, thoughtful parent, i.e. one for whom price of services or access to free services will be less important than a unique, superior approach to treatment. The ad lays the groundwork for differentiation between their practice and all other therapists. This translates to any business. The key ideas are (a) differentiation from competition, and (b) deliberately attracting potential customers for whom price will not be the driving factor of their buying decision. It also will repel less-qualified prospects, who may not be willing to take the time to read this much copy or are immediately looking for price information.
Good-Better-Best Offers Order Form. This Form shows how Jason has used tiered pricing and assembled three different packages or bundles of services. As we’ve said throughout this book, there is a customer for every price. Good-Better-Best options allow different customers to do their price shopping within the walls of your offerings, and make their decision in the context of “which is right for me?” (or: which can I afford?) rather than a simple yes/no. This is a powerful Price Strategy in and of itself, but it is plus-ed here by also presenting ala carte pricing, which is substantially higher than the same services bundled. This provides price comparison within the walls. It also gives the buyer a feeling of having gotten a bargain by choosing one of the bundles. It should be noted that this is not just handed out with a brochure; it is given to the parent only after a diagnostic process and recommendations are made.