Pricing is a language.
It delivers a series of subtle and not so subtle indicators about your business, your product, your service and maybe even you.
Most certainly it tells your prospect a lot about how much YOU value your product or service.
I know you’ll have been in the situation where you’ve been looking for quotes.
How often do you go for the cheapest?
Is there is such a thing as too cheap?
Think about this, how often has ‘too cheap’ sent a signal of unease to your gut making you question this ‘too good to be true offer’?
Robert Cialdini in his book Influence: The Psychology of Persuasion claims that the most popular funeral casket across the USA is not the cheapest, but the second to cheapest.
Makes sense really…who wants to send their nearest and dearest off in the cheapest vessel…but second to cheapest, well, that’s not so bad…we can handle that.
Likewise, too expensive…you’ll have seen situations where something seems more expensive than you’d expect…
What signal does that sent to your gut?
I’m guessing when it’s happened to you, you’ve been forced you to cast about looking for what extra value you’ll get from your purchase.
You’ll seek to justify the over the norm pricing and see whether the additional value is worth the additional price you’re being asked to pay.
Note: here you’re not comparing the total price with the total value…you’re JUST comparing the additional value with the additional cost…that’s worth remembering for later on.
Plus, you should factor in that in today’s environment, price is not the number one objection in many instances.
Price is just how the buyer’s reservations manifest themselves…
Think about this:
Pricing sends a series of key signals out to the market place.
When you’re aware of what those signals are and, more importantly, how they’ll be interpreted, then you’ll be able to use them to send the right messages, at the right time to the right people and markets…and to get the response you want.
The right response.
I’ve seen sales led organisations using ‘rate card’ pricing, ‘cost plus’ pricing, ‘leave it to the sales person on the day’ pricing and even ‘what are our competitors charging?’ pricing…plus, one, any and every combination of the above.
According to this BCG Perspectives article (Transformed by the Power of Pricing) there is tremendous benefit in reviewing pricing on a very regular basis.
They claim, reviewing the pricing model within your business can lead to an increase in revenue of between 2 – 8%…
How great is that?
But, you know what’s even better?
That 2 – 8% most typically goes straight to the bottom line…now that’s what I call a winning strategy.
A strategy worth spending some time and effort to look at.
So why aren’t more firms doing regular price reviews?
That’s any easy question to ask and a more complex one to answer.
In my experience there is a high level of reticence around reviewing and remodelling pricing for one very simple reason…what if it goes wrong?
I’m not saying boards are fearful, I am saying that they typically perceive a high level of risk associated with reviewing pricing, and even where there is a strong leaning towards doing this, it typically throws up a high level of resistance by those less keen to test their markets.
Let me say this, their reaction is only fair…it is a high risk activity BUT only if this crucial business area is not considered in the round.
Let me give you three real examples of how it’s worked for me and my clients and how it can work for you too:
Company A – selling a business critical business service to a range of international financial institutions.
Having completed some basic Customer Satisfaction Insights the trends and specific details associated with the trends were very clear.
Almost every client rated one part of the service very poorly.
Using the slightly modified CSI template we went to the users of a range of competitor’s clients and surveyed their user experience.
The feedback, thankfully, was much the same.
Thankfully because this issue wasn’t just a Company A issue and source of irritation to Company A customers only, this was an INDUSTRY PROBLEM.
Some background… This ancillary service that scored so poorly made no real-time impact on the primary service that Company A provided BUT it did temporarily delay the benefits and value that clients could derive from using Company A.
This meant that there was a period of about 1 week between services being rendered and value being assessed. Anything that could shorten or eliminate that time lag would be a BIG positive for Company A’s clients and therefore for Company A, and its reputation in their marketplace.
This was especially important since Company A operate in a commodity based, highly price sensitive, very competitive arena.
So, what was our aim?
- To solve Company A client’s problem.
- To solve Company A’s problem.
- To increase turnover.
- To increase profit.
- To build market share.
- To cleave clear blue sky between Company A and their competitors.
Here’s how we did it:
Company A stopped offering the ancillary service as a part of the primary service.
The ancillary service was no longer available as part of the primary service, so, if customers wanted the ancillary service they would have to pay/order this service and pay for this service separately.
The price of the primary service remained static.
The truth is the primary service and the ancillary service HAD to be purchased together. One without the other was not an option.
Plus, to further minimise the risk of any fall out we structured the ancillary service into gold, silver and bronze package with different price points for clients of Company A to select from.
This way we could scale the level of service offered in the ancillary service with the level of the problem experienced by the clients and charge accordingly.
To further cement the value of the ancillary service and the graded packages, Company A launched the ancillary service as an additional and separate division and declared a very robust set of SLA’s that completely and utterly wiped out the customer problem and gave them exactly what they wanted.
You see, by Company A looking at what their customer’s biggest problem was and solving that, we eliminated a BIG headache for their clients, made the Customer Satisfaction Survey Insight results sky-rocket, put clear blue sky between Company A and the competitors…as well as creating an additional revenue stream for Company A of which 90% went straight to the bottom line.
Not really, Client A customer’s needed the solution, no other competitor was addressing the issue, there was a solution in place with a graded pricing structure for even the most economical of clients to subscribe too and still feel they were getting tremendous value. Company A lost no clients as a result of this.
It was a BIG win.
The skill was in how the sales team framed the problem and Company A’s solution, how they framed the customer’s perception and lifetime cost of the problem, stressing how moving suppliers wouldn’t solve the issue, as many of the customers had already tried that.
Company A minimised the risk with the customer by building value in their perception of the solution, being open and transparent about their current failings, explaining the reasons for abandoning the current packaged product and their move towards segmented solutions, at which point, fuelled by a robust ROI demonstration and a big value proposition, Company A sales team found that clients were happy to sign up.
Which just goes to prove:
Some thought, some market research, some brainstorming, retraining the sales team to re-frame the problem and present the solution…100% sign up.
Almost Pure Profit.
Could you do this?
Most likely you could
Let’s look at another client:
Company B – Selling software for around £750. Competitors were pricing anywhere from £1500 to £5k typically.
Which just goes to show that selling it cheap doesn’t make it fly off the shelves because Company B was struggling and profit was a long ways off.
Close rates of 1:20, poor quality prospects, non-existent sales pipeline and a senior management attitude that was akin to selling strawberries at the market come 4pm on a hot day…the company motto was – just close the deal, don’t care what price you get for it.
Consequently, the business was spending more to acquire a sale than they realised from making the sale.
So the challenge was simple – get the average order price up, increase the close rate and get some stability into the business via careful prospect selection so the sales pipeline delivers a predictable and profitable stream of valuable customers and long-term asset/business value.
What would you do?
Demand that the sales team immediately revert to a more sensible price?
Not going to cut it.
Of course not.
We’re dealing with an entrenched mentality.
What else can you do?
Together we adopted the following series of steps to triple the average order value over a very short period of time.
This staged approach helped to minimise the risks and increase the confidence of the business and the sales team in asking prospects to pay more.
Here’s a brief summary of the stages, see how these apply to your business:
1. Pick a niche where the prospect target has a BIG problem that your product or service can solve.
2. Your competitors maybe in this space on mass, or they may be staying away, for all sorts of reasons, however having identified the niche – reformat the sales story. You might call it marketing BUT, in my experience if you rely on marketing to change an industry story you’ll run out of budget, patience, and the will to live before you get any real impact…simply because if you’re looking to change the buyers and prospects perception, then it’s the sales team who are the ultimate agents of change, not the marketing team…so the easiest way is to craft a new message for the sales team to use as a re-framed sales and educational marketing story as a vehicle.
3. The new sales story resets and re-frames the market niche, the problem, the solution and the part that your product or service has to play in providing THE solution to the niche’s BIG problem
4. Extend your competitive advantage at this stage by maximising the value you deliver. This doesn’t mean chucking in loads of free stuff, it doesn’t mean offering any form of incentive, you simple need to capitalise on the sales opportunity, that could mean you’re selling multiple years, multiple sites, it could be cross selling, up selling, additional low-cost, high value services, mini training sessions, and more than anything these elements of the sale should contribute to the robust ROI demonstration you’re going through with the prospective buyer.
Sounds simple…it is.
No. not so much.
Think about it this way, you’re operating a higher VALUE, higher price position in a niche market that is suffering sufficient pain from a SPECIFIC problem, whilst providing valid proof that your product/service can alleviate that pain.
Why would your prospective market not want to see you, talk with you, buy from you?
No, not at all.
Not risky to the tune of Company B being able to treble their average order value in less than 4 months as well as get their conversion rate down to between 1:3 and 1:4.
And even better, any company can do this.
Which just goes to show:
Let’s take a final case study.
Customer C – struggling with a few profitable clients but being eaten alive by the majority of the customers.
Again, it’s about re-framing value.
Here’s what we did:
1. Reviewed each customer and looked at their worth to the business, the cost of servicing that customer and the ideal price point to aim for, then segmented the client base based on profitability, the focus was to deal with the low profit, no profit and profit drain clients…a bigger list than you’d like to imagine
2. Booked a meeting to meet the clients on the profitless list, the purpose of the meeting to explain how Company C was letting them down and failing to service their need adequately, how the client was getting what was left of Company C’s services after the rest of our customers had been services, why this was happening, simply based on having to maintain basic profit levels.This was all true and the clients knew this but they’d enjoyed and liked the cheaper prices and therefore suffered the inconsistent service
3. Company C painted a picture of a brighter future where Company C put them at the top of the tree, the sales team re-framed the customer’s thinking about what was important, what was nice to have and what was vital, where the gaps were between the service Company C delivered and the service Company C would like to deliver and the difference it could mean to the VALUE the customer got.
4. The sales team got many nodding heads…what the sales team had done was to isolate the old service from the new – the old service was in the bag, signed sealed and delivered. Instead the sales team were selling the new vision and the slight increase in price….and asking the customer one simple questions. Did the increase in service, value, output and commitment to structured SLAs constitute value in the eyes of the unprofitable customers?
Now instead of the customer seeing Company A delivering a cheap but second-rate service, they saw a Utopian solution for just a small increase in price…Simply by splitting the ‘new improved’ service from the old mediocre service and attaching a small price increase for major additional perceived value then Company C secured a conversion rate of over 80% of customers who said yes to the price increase.
Yes, to a small degree.
BUT…We did’t sent out a blanket letter or a round robin email – Company C had face to face meetings and did it carefully…and it paid off.
Was it worth it?
It’s worth remembering that:
So you see, just three examples:
In Company A you can see that the risk was minimised by using a graded pricing system.
In Company B you can see the risk was minimised by selecting a niche and providing a robust ROI.
In Company C you can see that what was being sold was a huge improvement in service in exchange for a comparably small increase in price.
Why am I telling you this…?
Firstly, I think any reticence you have about reviewing and remodelling pricing and prices is valid.
There are some things you just shouldn’t mess with.
But some things you can test, reposition, re-frame, explore, and with a careful and measured approach can change whilst minimising any fall out.
After all, this is not a race, it is a structured approach to dealing with low profits, competitor led markets, diminished growth and sometimes, it’s a real fight for long-term survival.
Secondly, increasing your prices is natural, it’s business, it’s good business and it shouldn’t be avoided.
Honestly, from my (too many) years in sales and marketing, sales turnaround and sales performance improvements, most firms don’t push their pricing and prices to the limits that they could.
Too many firms are held in a price lock, imprisoned by their competitors and how they price, totally in fear of the customers and the market, desperately under valuing their business and not enjoying the rewards they could be enjoying.
In fact many firms are looking for profits in all the wrong places…
The best bit of advice I can give you is this, well it’s three bits actually:
Forget about price – THINK value.
Find a sector/niche that has a huge problem and solve that – the bigger the problem, the bigger the value you bring when you solve it, the bigger the reward to you, and remember this is a continuous process.
Never be led by your competitors when it comes to pricing…it’s a downward spiral and there will be fatalities and any company that has the where with all to sustain that sort of activity short-term will be crippled long-term – don’t be a mug.
Instead refer back to points above and strive continuously to create clear blue sky between you and the competition, it’s surprisingly easy and worth an afternoon exploring how you can do that. You’ll be surprised how easily it can be done.
To get your creative juices thinking around this take a look here Only Dead Fish Go With The Flow
Finally, you can work, you can work hard, and you can work well…you have a right to earn rewards commensurate with the value you bring to your clients.
However, that’s not an automatic right, you must make it easy for the customers to say yes to your product, your service, your proposition, your value, your solution AND your pricing.
Number one priority and the key to long-term business success is delivering high levels of value, because attached to that are high level profits…
So when is a pricing review appropriate?
When you are in a crowed and competitive market space, when you are operating on very tight margins, when your margins are not growing but your costs are, when your margins are stagnant, when your competitors are failing, when growth in your sector is slow, when you’re in an industry that discounts heavily, is seasonal or subject to newcomers benefiting from easy entry…
PLUS, there is never a bad time for a pricing review, and pricing reviews can act as a validation that ‘this is as good as it gets’ or ‘hey,why don’t we try this’.
Personally, here’s why I like regular pricing reviews with my clients.
- It forces my clients to sit back and pat themselves on the back and recognise what they are doing well – this is important and doesn’t happen often enough, but that’s just the starting point, because it also encourages them to look at where they want/need to improve and where there are additional revenue generating opportunities for their business.
- Plus, one of the key outputs is helping the business to connect with customers, their markets and their prospective markets at a deeper level.
- Encouraging them to look at where they can deliver additional value, solve bigger problems, build more benefits and simply make them the better choice, the preferred supplier/partner to their prospect market and existing customers.
- It assists the business is identifying and highlighting their strategic competitive advantage and allows them the opportunity to build on key differentiators they can exploit that separates them from their competitors.
Typically, pricing is the last thing to be reviewed, pricing is only reviewed when costs take a jump.
I’ve seen businesses work exceptionally hard to maintain prices at pre-recession levels even in the face of escalating costs until such a point that something has to give, in the meantime wage increases have been frozen, suppliers cut to the bone, extra funding is secured, personal guarantees are given, credit cards are used to prop up the business, research and development costs are eliminated, marketing spend is reduced, no one gets a new car, great staff leave, dividends are reduced and still the end results is the same, prices need to increase else the business fails…
It really need not be that way.
Especially so if, at the same time, a business is investing heavily in new technology, plant, people, training and all sorts of things in the name of improving business performance …price is the last factor to be reviewed as part of the same strategy, when maybe it really should be the first.
So, if you’re still feeling uncertain about reviewing and adjusting your prices then think about this:
Hotels do it…as you’re sleeping you can congratulate yourself on getting a great deal or wondering how much you’ve over paid because you didn’t check for a discount code or book through the cheapest website, booked early enough, booked late enough, waited until there was an ‘r’ in the month you booked or made sure your booking coincided with a full moon…or any other seemingly random factors that prompt hotels to use pricing matrix that we all happily, if confusingly, subscribe to.
Flights do it – rarely are two seats sold at the same rate, we know that, we accept it, it’s how they manage supply and demand, we still book flights, we still pay what they ask.
Amazon does it….even retailers do it…they do it consistently, we know they do it, we’re sort of OK with it…it’s business…
So why don’t you?
You have the power to manage your pricing in any way you wish PROVIDING you bring enough value to your clients and prospective markets.
If you need help on what that value might look – download this free report Only Dead Fish Go With The Flow.
If you’re still reticent because you think you’ll lose business, let’s be real about this.
You may lose some business, and that can be factored in, but you’ll most likely make more money.
At some point you must choose – do you want to serve everyone and go broke or do you want to serve the people and entities that value your contribution and are prepared to pay you commensurate with the value you offer?
You can choose. You do have that right. That privilege…
Your choice….and choice it is….
Plus the sooner you make a choice to systematically review your prices, well, lots of good things happen…typically stress levels start to drop, you’re in control, chasing choice prospects and business relationships that’ll bear long-term fruitful outputs for both parties….because at the end of the day, being all things to all customers is firstly, exhausting, secondly, unproductive, lastly, rarely profitable.
As the BCG Perspectives article points out:
A 2-8% increase in profits is the average seen by firms who undertake regular price reviews – that’s 2-8% of which the bulk goes directly to the bottom line.
What sort of difference would that mean to your business?
One last thing – the price you ask your customers to pay is a direct reflection on the VALUE you bring to the relationship.
You can influence and control value, therefore you can influence and control the price you ask, regardless of what the rest of your market is doing.
The truth is you have as much control over price as you want to have.
The question is, do you want to exercise that control or be swept along by the value and price exhibited by your competitors?
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Additional free reports that will assist you in addressing some of the issues we’ve covered here:
Only Dead Fish Go with the Flow – a free guide to help you move out of the Commodity Trap by creating high levels of value, boosting your competitive advantage and positioning yourself so as to disrupt the market for your competitors and reset the field in your favour
How to Out Sell the Competition – How to Unlock Your Market, Close More Sales, More Often and at Higher Prices
20 Ways to Price Like a Pro – a step by step guide to positioning your price so as to achieve higher profits and a higher close rate
In addition you can claim your free subscription to the Advanced Business Achiever here – it’s a weekly email of Sales and Business Development insights designed to help you boost your sales results. It’s great to bring new information to your sales meetings, brainstorm your own business growth initiatives as well as helping you to tackle some of the more regular sales hurdles that stop sales teams getting the results they deserve.
For our full range of free reports – check out the Morton Kyle Limited Blog
Additional information about our services can be found on www.mortonkyle.com
Additional Articles of Interest – not written by Morton Kyle Limited