Be aware that there are two 'gaps', or surpluses, whenever any product or service is offered for sale. There is the gap between what the customer is willing and able to pay and the 'market price', in other words between their perceived value and the market price. This is the "buyer's profit."
“Developing strategies for charging different prices for different
value takes innovation, creativity and a willingness to experiment”
There is also a gap between the price the producer would be prepared to provide the product/service for and the price it is actually sold for. This is the "producer's profit." Whilst buyer's profit makes customers happy, it is producer's profit that makes firms and individuals rich.
If a supplier can identify and segment customers willing to pay more, presumably for more perceived value, they can capture some more of the buyer's profit too. Developing strategies for charging different prices for different value takes innovation, creativity and a willingness to experiment.
Anything can be differentiated - This is what marketers are paid to do. Therefore there is no such thing as a commodity, only lazy marketers!
You can differentiate yourself at low cost - It's the perceived value that matters. All it takes is imagination!
“Anything can be differentiated. There is no such thing as a
commodity, only lazy marketers!”
If you agree with these thoughts and would like to find out more about structuring your business in a better way, selling properly, how to make sales without selling and get paid what you're worth,, visit www.sws3.co.uk to download 30 more free practical ideas you can implement straight away in your business.
Service providers who charge for their time or their materials, or whose prices are influenced by their competitors can find out how to get paid what they're really worth at www.sws3.co.uk
How many people in your business have an influence on Customer Service? The Customer Service department I guess, if you have one. And the salesperson too probably, unless there is no human interaction involved in the sale? What about the delivery driver, or the switchboard operator? Should we include the Marketing function, the copywriter and the web designer? After all, they will be responsible for creating all the promotional and other material the customer gets to see and hear.
In fact any time a customer comes into contact with your business in any way whatsoever, they will get an impression of your service. Each of these occasions may be a minor event in itself, but they all add up. Each individual experience will be either Positive - magical! - or Negative - misery! - or Neutral - a rarity!
As business owner, you should ensure that every possible point of contact is managed so that as many as possible are positive and as few as possible are negative. Those that look like being neutral should be worked on too to make sure they become positive, and to remove any risk of them slipping into negative.
“Any time a customer comes into contact with your business they will
get an impression of your service”
If you agree with these thoughts and would like to find out more about structuring your business in a better way, selling properly, how to make sales without selling and get paid what you're worth,, visit www.sws3.co.uk to download 30 more free practical ideas you can implement straight away in your business.
Service providers who charge for their time or their materials, or whose prices are influenced by their competitors can find out how to get paid what they're really worth at www.sws3.co.uk
Perhaps unsurprisingly, people's views on price acceptability can vary with circumstances as well as with the issues they face and the products and services they may be thinking of buying. One set of circumstances that can vary from occasion to occasion for the customer concerns money and the way the customer is spending it.
There are essentially four ways in which money is spent, depending on whose money it is and on whom it is being spent.
* Spending your own money on yourself - You'll want the biggest 'bang for your buck'!
* Spending your money on someone else - You'll still want the biggest bang but if you're
not sure, you just give them the money - As you might with a Birthday or Christmas
present. But then you've put the recipient straight into the previous category!
* Spending someone else's money on yourself - There's little incentive to economise!
You just need to ensure you're not being totally ripped off.
* Spending someone else's money on a third party (for example Government
programmes) - Again there's no motivation to economise as there's no incentive
for spenders to evaluate Return on Investment for those providing the money,
or to ensure that the expectations of the recipients are being met.
“There are four ways in which money is spent, depending on whose
money it is and on whom it is being spent”
Understanding this pretty simple structure enables the supplier to set their pricing accordingly, so it is essential in your questioning to establish whose money is being spent and on whom, amongst the many other pieces of information that allow you to fully understand the customer's problems and the circumstances surrounding them.
If you agree with these thoughts and would like to find out more about structuring your business in a better way, selling properly, how to make sales without selling and get paid what you're worth,, visit www.sws3.co.uk to download 30 more free practical ideas you can implement straight away in your business.
Service providers who charge for their time or their materials, or whose prices are influenced by their competitors can find out how to get paid what they're really worth at www.sws3.co.uk
I've spoken elsewhere about the folly of risk aversion and the desire to be risk free. As I pointed out, profit comes from entrepreneurs taking calculated risks. But of course the customer also needs to take calculated risks in order to generate their profit too.
“It is the customer's perception of these risks that is important. No
matter if some of them aren't actually real!”
There are seven types of risk for the customer:- Will it work?
- What will I lose financially if it fails?
- How much time will I lose if it fails?
- I absolutely have to make a choice now, so will it be the right choice?
- What if it doesn't do what I thought it would do?
- What will the 'neighbours' think?
- Will it harm me?
As with value, it is the customer's perception of these seven risks that is important. No matter if some of them aren't actually real; in the mind of the customer if they are creating anxiety then they are real enough that you need to help the customer achieve an acceptable balance between overall risk and overall reward.
If you agree with these thoughts and would like to find out more about structuring your business in a better way, selling properly, how to make sales without selling and get paid what you're worth,, visit www.sws3.co.uk to download 30 more free practical ideas you can implement straight away in your business.
Service providers who charge for their time or their materials, or whose prices are influenced by their competitors can find out how to get paid what they're really worth at www.sws3.co.uk
Many will be familiar with the four Ps of Marketing:- Product, Place, Promotion and Price. But are you really sure in your mind what all four Ps mean? Could you define them all? Could you describe them all to someone else?
One analogy that I think makes things much clearer is to think about an arable farm. The farmer decides which crop to grow in each field, then prepares the ground, sows the seed, nurtures the crop and reaps the harvest.
“Think about an arable farm”
In this case:- The seeds and the planting process are the equivalent of Product
- The type of soil where the seed is planted equates to Place. Another equivalent of Place is target niche or ideal customer type.
- The fertiliser and water applied to the soil to encourage growth of a healthy crop are analogous to Promotion
- The harvest which is gathered in, the value which results from the other three Ps, is the manifestation of Price
And for those using cost-based pricing there is a fifth P: Prayer!
If you agree with these thoughts and would like to find out more about structuring your business in a better way, selling properly, how to make sales without selling and get paid what you're worth,, visit www.sws3.co.uk to download 30 more free practical ideas you can implement straight away in your business.
Service providers who charge for their time or their materials, or whose prices are influenced by their competitors can find out how to get paid what they're really worth at www.sws3.co.uk
Given the choice, and supposing there's a restriction allowing you to only do one or the other, should you focus on efficiency or effectiveness?
Is it good to be doing the wrong thing brilliantly? Firms can be inefficient yet effective. Few if any can increase effectiveness by increasing efficiency!
Productivity and efficiency are ratios - Output divided by input - But what inputs should we take? None will have any effect on the outputs of an artisan, knowledge worker or service provider. So who knows? Actually, who cares about the efficiencies of these groups?
Because costs are easier to compute than benefits, most will focus on cutting costs in order to increase the efficiency. This may well prove so, but it has little impact on effectiveness. And as noted above, we don't even know how to measure the efficiency of knowledge workers!
Efficiency is meaningless unless we know what was being attempted. It is linked to what people want and what they are willing to pay for it.
“Most will focus on cutting costs in order to increase efficiency. This
may well prove so, but it has little impact on effectiveness.”
Efficiency in the business sense or the 'knowledge worker' sense is not the same as efficiency in the thermodynamic sense. How would you go about increasing the efficiency of an orchestra? Get rid of some of them?
Efficiency is only concentrated on because it can generally be measured more easily than effectiveness, but that doesn't mean we can control it or manage it.
Efficiency and productivity should not be totally ignored, but please note that neither is a competitive advantage.
If you agree with these thoughts and would like to find out more about structuring your business in a better way, selling properly, how to make sales without selling and get paid what you're worth,, visit www.sws3.co.uk to download 30 more free practical ideas you can implement straight away in your business.
Service providers who charge for their time or their materials, or whose prices are influenced by their competitors can find out how to get paid what they're really worth at www.sws3.co.uk
It is almost business suicide for a professional services provider to operate as a commodity supplier - For example publishing a 'catalogue' listing services and prices and then competing on price - Yet many professionals put themselves in this category by their actions.
In reality the professional at least provides an 'experiential' service, with many customers demanding something totally unique. The mistake is to treat all customers equally, by having just one hourly rate - Indeed by charging by the hour at all.
“Measuring what's easy to measure is a poor substitute for
innovation. Benchmarking outside your own industry would at least
be innovative!”
Believing you are a commodity is a self-fulfilling prophesy. If you think you are a commodity - And demonstrate the fact in your products, promotion and pricing - Then so will your customers. There's nothing else for them to believe!
Benchmarking yourself against your competitors helps perpetuate the commodity myth. It's another symptom of lazy people measuring what's easiest to measure, rather than what's most important to measure. Benchmarking studies results and not processes - It confuses cause and effect.
“If you think you are a commodity then so will your
customers. There's nothing else for them to believe!”
These lazy people compare apples with apples because it's easy. Sure, they will vehemently claim that the things they measure are the important things to measure, but in fact it's just a poor substitute for innovation. Benchmarking outside your own industry would at least be innovative.
If you agree with these thoughts and would like to find out more about structuring your business in a better way, selling properly, how to make sales without selling and get paid what you're worth,, visit www.sws3.co.uk to download 30 more free practical ideas you can implement straight away in your business.
Service providers who charge for their time or their materials, or whose prices are influenced by their competitors can find out how to get paid what they're really worth at www.sws3.co.uk
It's a good idea to map out every conceivable way in which customers may come into contact with your business, even the most mundane. No potential contact point should go unmanaged. People tend to view a visit to a professional - dentist, bank manager, accountant? - as not an enjoyable experience, so do something about it.
You need to consider the four factors that affect customers' experiences - Quality, Price, Service and 'Intellectual Capital', i.e. how the purchase grows their knowledge and skill - and the balance of these four that you will deliver. You cannot compete at zero level in any of them!
“Even if you already provide unsurpassed customer service, you can
still learn from the top firms”
Even if you already provide unsurpassed customer service, you can still learn from the top firms. For example, what could you learn from Disney? Their theme parks charge for entry, not for time spent inside. But they don't charge for entry to their stores because the experience is less than at a theme park. You might even wonder what Disney would have to do to their stores to justify charging for entry, but without destroying demand for the theme parks.
Mapping this onto a professional services firm, you might have a minimum price for all customers. If you do, what should be in the minimum, or standard, package to induce people to pay your 'entrance fee'?
If you want to create wealth and remain relevant, you have to decide how much effort you and your team will put into creating and testing new ideas such as these, versus time and resources spent on executing existing ones.
If you agree with these thoughts and would like to find out more about structuring your business in a better way, selling properly, how to make sales without selling and get paid what you're worth,, visit www.sws3.co.uk to download 30 more free practical ideas you can implement straight away in your business.
Service providers who charge for their time or their materials, or whose prices are influenced by their competitors can find out how to get paid what they're really worth at www.sws3.co.uk
The application of modern Health and Safety legislation has elevated the assessment of risk in our thinking, and some of the most over-zealous examples make the headlines and get into the folklore. But, as the professionals in that sphere will tell you, the goal is to be 'safe enough' which is not always the same as 'safe as possible'.
The truth is we cannot, and we should never try to make our lives risk free. This would stifle all progress. Darwin's theories say that the most adaptable are the fittest to survive new circumstances. The most highly adapted may well have bred out some of that adaptability; restricted their gene pool if you will.
Risks should be weighed against each other, not reduced to zero or judged on 'acceptability'. We happily drive faster family cars today than we did in the 1950s because we've developed better brakes!
“We drive faster cars today than in the 1950s because we've
developed better brakes!”
In business, profit comes from taking risks! Eliminating risk in business would have the same progress-limiting effect as in the plant and animal kingdoms. Risk avoidance is the antithesis of successful business.
All purchase involves risk, and services are intrinsically riskier than products, but the upside of this is that customers show greater loyalty to service providers as the risk of change is so great.
You need to analyse the risks your customers perceive when deciding to make a purchase, and mitigate them as appropriate. Most professional service firms do an inadequate job in this area.
If you agree with these thoughts and would like to find out more about structuring your business in a better way, selling properly, how to make sales without selling and get paid what you're worth,, visit www.sws3.co.uk to download 30 more free practical ideas you can implement straight away in your business.
Service providers who charge for their time or their materials, or whose prices are influenced by their competitors can find out how to get paid what they're really worth at www.sws3.co.uk
Forget selling. Concentrate on helping customers to buy!
Easy to say, but how easy is it to do? Well, there are certainly many examples in the world of retail. Do staff in a sweet shop have to try to sell sweets or are they just order-takers? And what about a supermarket? Here the effort is first of all in getting people into the store, then once they are there presenting them with appealing and compelling propositions. Not forgetting of course, working hard to make their whole shopping experience pleasurable by adding superb customer service.
What then are the equivalents in a business to business, service scenario? Getting people into the store would be replaced by lead generation and appointment making for new customers, and by keeping in touch with existing ones. It is in the equivalent 'appealing and compelling' where steps can be taken to get the customers asking to buy, and 'appealing and compelling' generally comes down to enabling the customer to derive the value they seek.
“Appealing and compelling generally comes down to enabling the
customer to derive the value they seek”
But your price will affect 'appealing and compelling' too. A price which offers customers a huge return on investment when compared to their perceived value will be hard to resist. If a customer shows signs of buying on price alone, removing value allows consideration of a lower price, a much better strategy than just unilaterally lowering the price.
Another issue that can be dealt with by adopting a strategy that encourages customers to ask to buy is payment collection. You can effectively remove payment resistance by agreeing prices and payment terms before work ever starts, and then make paying as easy as possible!
If you agree with these thoughts and would like to find out more about structuring your business in a better way, selling properly, how to make sales without selling and get paid what you're worth,, visit www.sws3.co.uk to download 30 more free practical ideas you can implement straight away in your business.
Service providers who charge for their time or their materials, or whose prices are influenced by their competitors can find out how to get paid what they're really worth at www.sws3.co.uk
You need to focus on the total customer experience, and a large part of this involves meeting and sometimes exceeding customer expectations.
To check if customer expectations are being met, one great strategy is to become a 'mystery shopper' and discover what your organisation looks like when seen from the outside. If you can't do this, the next best thing is to regularly ask your customers about their expectations.
If you find their expectations are too high, find ways to lower them or you'll need to walk away. If you don't satisfy the customer's expectations, you'll fail to deliver value. If you can lower their expectations whilst still addressing their key issues, it's easier to exceed them.
“Your competitor is anyone who raises the customer's expectations”
Please realise, expectations are dynamic - Keep asking yourself, "What are we getting paid for? What is the customer trying to get done?" And check this with customers too, of course.
Your competitor is anyone who raises the customer's expectations, and you'll need to react when this happens. Be creative and innovative - You are free to borrow ideas from outside your own 'industry'. For example, freight companies first introduced bar-code tracking, but this then set a standard that the airlines were keen to follow for passenger baggage. The early adopters used it as a differentiator, already knowing its appeal.
If you agree with these thoughts and would like to find out more about structuring your business in a better way, selling properly, how to make sales without selling and get paid what you're worth,, visit www.sws3.co.uk to download 30 more free practical ideas you can implement straight away in your business.
Service providers who charge for their time or their materials, or whose prices are influenced by their competitors can find out how to get paid what they're really worth at www.sws3.co.uk
When I look at the promotional efforts of various businesses, I largely see that they are trying to differentiate themselves from their competitors in order to give customers a good reason for choosing to do business with them rather than an alternative supplier.
Obviously there are some that don't, such as the bland "Please like my Facebook page," but thankfully these are in the minority.
However, they don't all make a great job of differentiating themselves! Some will talk a load of bull and some will provide facts about themselves which are not immediately appealing. But one of the biggest failures I come across is using as supposed differentiators, things that your customers actually expected to be able to take for granted!
“Customers take it for granted that their problems will be solved.
Solving problems is neither a strong benefit nor a differentiator.”
My simple test for this sort of thing is to ask yourself, how many of my competitors would promote the fact that they do the opposite? Thus 'top-class service' and 'high quality' are not differentiators because no-one will be competing on second-class or poor service, or on low quality! Your customers expect to be able to take top-class service and high quality for granted.
Customers also take it for granted that their problems will be solved - Just think of visiting a doctor or dentist. Solving problems is neither a strong benefit nor a differentiator. You need to spend some time articulating what it is about you and your business that customers value highly, and that really does set you apart.
If you agree with these thoughts and would like to find out more about structuring your business in a better way, selling properly, how to make sales without selling and get paid what you're worth,, visit www.sws3.co.uk to download 30 more free practical ideas you can implement straight away in your business.
Service providers who charge for their time or their materials, or whose prices are influenced by their competitors can find out how to get paid what they're really worth at www.sws3.co.uk
Charging different prices for different value is not only highly sensible, it's a highly effective way of increasing profits.
But because value cannot be defined absolutely with surgical precision, different customers with a similar perceived value of what you are offering will have different degrees of price sensitivity. In other words, just like value, an 'acceptable' price cannot be precisely defined either. Your various customers will have a 'price band' in mind and if your price falls anywhere within this band, they will be able to agree to purchase, all other things being satisfactory.
“Just like value, an 'acceptable' price cannot be precisely
defined either”
This band in its turn is not fixed and inflexible either, but will be determined in large part by their current perception of value. A price not outrageously beyond the band may enable the customer to re-evaluate your proposition, but of course a price significantly below it can have the same impetus, causing the customer to wonder if they have over estimated the value.
If you are serving a market where people spend someone else's money on themselves, recognise their minimal incentive to economise and seize the opportunity to charge higher prices.
When you tailor your various value propositions to different customer groups, you are in a position to reserve capacity for your best customers. Your goal must be to maximise your profits, not necessarily to fill your capacity.
If you agree with these thoughts and would like to find out more about structuring your business in a better way, selling properly, how to make sales without selling and get paid what you're worth,, visit www.sws3.co.uk to download 30 more free practical ideas you can implement straight away in your business.
Service providers who charge for their time or their materials, or whose prices are influenced by their competitors can find out how to get paid what they're really worth at www.sws3.co.uk
"We sell time" is not just bad pricing strategy; it's a flawed business model. If it was true, you'd be paid for just turning up. What you sell is the value of the results of the effort you put in during that time, and this value won't have any general, 'one size fits all' mathematical equation relationship to time, let alone be in direct proportion to it.
A business exists to make profit for its customers, to create results and value outside of itself. The concept of 'profit centre' is flawed, as admitted by the man who coined the term, the late Peter Drucker.
Despite having other faults, even Adam Smith recognised that both purchaser and seller need to gain - to make a profit - from a transaction.
“The only purpose of a business is to create a customer”
In consequence, the default purpose of Marketing is not to increase revenue - It is to increase profits!
Peter Drucker went on to draw this to its logical conclusion when he said, "The only purpose of a business is to create a customer. A business has only two functions - Marketing and innovation. All else is cost."
The simplest way for your Marketing function to increase profit is to concentrate on customers who will derive greater value from their purchases and who are therefore more willing and more able to pay more. Utilising the innovative juices of the entire organisation to create and deliver more appealing products, services, payment plans and the rest for this section of your market is an excellent use of your resources. The way I have often put it to my clients is, "Look for bigger problems."
If you agree with these thoughts and would like to find out more about structuring your business in a better way, selling properly, how to make sales without selling and get paid what you're worth,, visit www.sws3.co.uk to download 30 more free practical ideas you can implement straight away in your business.
Service providers who charge for their time or their materials, or whose prices are influenced by their competitors can find out how to get paid what they're really worth at www.sws3.co.uk
If you work on the basis of Revenue = People x Efficiency x Hourly Rate x Hours then you have only two ways to drive profit :- More people or more hours.
Most services firms choose to make their people work more hours! The thought being that they can't afford more people until they have more revenue and profits.
Just look again at the inescapable logic of this. If your services firm charges by the hour, the incentive will be to get current staff working more hours! Paid overtime will reduce profit margins, and in any case your staff will only be willing to do so much. Unpaid overtime is not an infinite resource either and again there will be a limit to people's willingness to do it.
“Adding capacity after revenue is generated is not repeated in other
industries outside services”
Presuming you already have good people and are managing them well, is it going to be possible to significantly improve efficiency without paying them more? And if you increase your hourly rate to your customers, won't your staff expect to get a share of the extra profit they are helping to create?
This process of adding capacity after revenue is generated is not repeated in other industries outside services. Manufacturing companies, for example, start by investing in machinery in order to make things, in order to make revenue - Not the other way about.
If you agree with these thoughts and would like to find out more about structuring your business in a better way, selling properly, how to make sales without selling and get paid what you're worth,, visit www.sws3.co.uk to download 30 more free practical ideas you can implement straight away in your business.
Service providers who charge for their time or their materials, or whose prices are influenced by their competitors can find out how to get paid what they're really worth at www.sws3.co.uk
For the final blog in this series, I need to recap a bit more Economics theory.
One well known diagram is the 'Cobb Value Curve'. Don't worry, I won't attempt to reproduce it. I'll just describe it in the least detail sufficient to make my point.
This curve plots 'Relative value added' against 'Volume of work available'. Briefly, there aren't too many jobs available with the potential to add enormous value, but there are lots out there where you can add a small amount of value. Anyhow, this smooth curve has four key sections:
* 'Nuclear' event - Distinctive, high value - Averts a major catastrophe or
has a significant impact - Approximately 4% of a market
* 'Experiential' services - High risk and high impact - The Professional is
selected for their effectiveness - Approximately 16% of a market
* 'Brand Name' services - May be routine for the Provider but is important
for the customer - This work goes to Professionals with well established
reputations - Approximately 20% of a market
* 'Commodity' services - Stuff that customers expect any Professional
to be capable of - Approximately 60% of a market
Your customer's position on this curve is a clue to their price sensitivity. And their position can change! Most Professional Service Providers have some customers at least in the 'Experiential' bracket.
“Better to focus on the total package of value your customer
can derive”
The mistake is to treat all customers equally - which a universal hourly rate would do - no matter where they are on the curve. Once again, your goal must be to charge different prices for different value.
Another implication of the curve is that concentrating on raising the price of any one low value service will drag the prices of other low value services upwards with it, eroding differentiation. Trying to focus on premium value (and therefore price) work leaves you in a very narrow market.
Better instead to focus on the total package of value your customer can derive rather than itemising your services. Quoting a fixed fee for a 'bundle' that includes a range of services makes it easier to command higher prices for greater value.
If you agree with these thoughts and would like to find out more about pricing your services on the value your customers get out of them so you can make sales without selling and get paid what you're worth, visit www.sws3.co.uk to download 30 more free practical ideas you can implement straight away in your business.
Service providers who charge for their time or their materials, or whose prices are influenced by their competitors can find out how to get paid what they're really worth at www.sws3.co.uk
Perfection for suppliers would be to ask for and get the maximum each customer is willing to pay, every time. In the real, imperfect world Service Providers need other ways to determine the value each customer places on their offerings, so they can then set their price accordingly.
In this world it is value, not cost, that drives price. It might seem like a paradox but cost and value are sometimes inversely related. It is not uncommon to make the premium product or service the most efficiently produced item and then to deliberately downgrade or delay the top models (and incur more cost) in order to create 'standard' products.
It always has been true, everywhere, that it's the ideas which are more valuable than the act of carrying them out. In a manufacturing context, the lowest value item in the 'production chain' is often the actual manufacturing of the product. So we probably shouldn't care if this is done in a low cost part of the world, as this stage is of least value to the customer.
“It's the ideas which are more valuable than the act of
carrying them out”
It's the 'concept' and the 'after service' which are the most valuable stages, and this notion can be extended to many industries. When thinking about Professional Services, 'concept' equates to 'diagnosis of value'. This is a hugely valuable stage in the overall selling process, for both parties.
If you agree with these thoughts and would like to find out more about pricing your services on the value your customers get out of them so you can make sales without selling and get paid what you're worth, visit www.sws3.co.uk to download 30 more free practical ideas you can implement straight away in your business.
Service providers who charge for their time or their materials, or whose prices are influenced by their competitors can find out how to get paid what they're really worth at www.sws3.co.uk
I hope you don't mind but today I'm going to briefly recap a bit of Economics theory to do with Professional Services and value.
Some people think that the law of supply and demand applies to Professional Services. It doesn't! Demand will never exceed supply! Who is booked solid every single day of the year?
No Professional Services Provider is going to keep supplying up to their full capacity in response to demand - A 40-hour week is less than 25% of full capacity! Professionals don't restrict supply of themselves in order to force up prices. They do it for their work-life balance, to retain their health, both physical and mental. In any case, nirvana is to work fewer hours for higher fees; to work smarter, not harder!
“Nirvana is to work fewer hours for higher fees; to work smarter,
not harder!”
Neither do they charge more in order to reduce demand. If they charge more it is because customers value their services and are willing to pay more. Ironically (if you still believe in supply and demand) charging higher fees often increases demand!
Agreed, to be on a demand curve, a customer has to be both willing and able to make a purchase. However, a demand curve does not reflect how much the customer values the product, only how much of it they want to buy. Because willingness depends on value, and because the maximum the customer is prepared to pay is unaffected by the cost of production, a supply curve does not cause prices to be paid. You can waste a lot of time and money producing things customers don't want.
Economists also talk about 'price elasticity' - How much demand or supply will change when prices change. The theory of elasticity lumps customers together. What is needed in Professional Services is segmentation by subjective value; segmentation into different value propositions.
If you agree with these thoughts and would like to find out more about pricing your services on the value your customers get out of them so you can make sales without selling and get paid what you're worth, visit www.sws3.co.uk to download 30 more free practical ideas you can implement straight away in your business.
Service providers who charge for their time or their materials, or whose prices are influenced by their competitors can find out how to get paid what they're really worth at www.sws3.co.uk
Any time a customer comes into contact with your business and gets an impression of the service you offer, this is a 'Moment of Truth'. The Moment of Truth is the most effective way to distinguish your value proposition, so you need to ensure all your promotional material, as well as you and all your customer facing team, indeed every single way in which customers come into contact with your business, makes good use of the opportunity.
“It helps to map out what each Moment of Truth will be like for the
customer, before it ever happens”
Each Moment of Truth may be a minor event but they all add up. There are three basic types:
* Neutral - A rarity
* Positive - Moments of magic
* Negative - Moments of misery
It helps to map out what each Moment of Truth will be like for the customer, before it ever happens, and be as inclusive as possible. Even with the most mundane things, for example the width of the parking bays in your customer car park, no Moment of Truth should go unmanaged.
If you agree with these thoughts and would like to find out more about pricing your services on the value your customers get out of them so you can make sales without selling and get paid what you're worth, visit www.sws3.co.uk to download 30 more free practical ideas you can implement straight away in your business.
Service providers who charge for their time or their materials, or whose prices are influenced by their competitors can find out how to get paid what they're really worth at www.sws3.co.uk
A value proposition is the entire set of resulting experiences from which your customer derives value from what you do. A good value proposition will have an enormous number of elements, or individual value outcomes. The more you have, the easier it is to promote your offering in a compelling way.
It is not unreasonable to suggest you need to identify at least 50, and likely up to 100 different things that your customers will find of great comfort and value if they buy from you. Some elements of what you do may be inferior to similar elements in other suppliers' offerings, but it is the overall package that wins.
Beware of the tendency to focus on internal stuff that's of no consequence to the customer. Customer experiences generally revolve around Quality, Price, Service and 'Intellectual Capital'. Social Capital - the value in your customers, suppliers, vendors, networks, referral sources, alumni groups, joint ventures, alliance partners, professional bodies, reputation and so on - is the least exploited form of Intellectual Capital, yet is the most highly valued by customers.
“Customers actually aren't price sensitive - They're value conscious!”
By emphasising total quality service and transformation, you offer a superior value proposition. But please, don't use the language of bul***it, or so blooming what. Don't kid yourself that things your customers expect to be able to take for granted will be compelling differentiators. No one expects 'poor' quality or 'lousy' service!
Communicate value outcomes with numbers, free information, rapid results, and exclusive viewpoints all served up in easily digestible bite-size chunks.
Customers actually aren't price sensitive - They're value conscious!
If you agree with these thoughts and would like to find out more about pricing your services on the value your customers get out of them so you can make sales without selling and get paid what you're worth, visit www.sws3.co.uk to download 30 more free practical ideas you can implement straight away in your business.
Service providers who charge for their time or their materials, or whose prices are influenced by their competitors can find out how to get paid what they're really worth at www.sws3.co.uk
Just as there are 4 Ps of Marketing, so there are 5 Cs of Value:
* Comprehend - The value to the customer
* Create - Value for the customer
* Communicate - Value with the customer
* Convince - The customer that the value is worth paying for
* Capture - Your share of the value using a value-based price; not one based on cost
or effort
Most customers have no incentive to capture data on the value your work will deliver, largely because they buy what you do infrequently. But you sell frequently, so you need to develop the skill and competence to comprehend, create and communicate value.
And it must be a core competency right across your company, the ability to help the customer understand value for themselves. This is another of the most important points in the Concept of Value!
“The ability to help your customers understand value for themselves
must be a company-wide core competency”
When we make a purchase, we consider value, not the product itself. We deliberate on what the product will do for us. Mostly this is anything but obvious. Consider what marketing impact you would make if you made this obvious to your customers! Don't complain that they don't understand what you do. It's your job to make it clear to them, so they do!
You have to help them understand value, and as part of doing this, you must understand why they chose you and choose to stay with you.
If you agree with these thoughts and would like to find out more about pricing your services on the value your customers get out of them so you can make sales without selling and get paid what you're worth, visit www.sws3.co.uk to download 30 more free practical ideas you can implement straight away in your business.
Service providers who charge for their time or their materials, or whose prices are influenced by their competitors can find out how to get paid what they're really worth at www.sws3.co.uk
Years ago in their research labs in California, Xerox effectively created the design of a personal computer. Unfortunately the Xerox mindset was so fixated on cents per page that they couldn't see any value or financial potential in their invention, so they didn't exploit it. Eventually, up popped a marketing savvy chap called Steve Jobs who created Apple and still makes a fortune out of personal computers!
When Napster first started enabling the easy download of music over the internet, the music industry thought it had a crime-wave problem. The industry was wrong! It had a marketing problem. It didn't understand the perceived value of recorded music stripped bare. Eventually, up popped a marketing savvy Steve Jobs who created iTunes and still makes a fortune out of downloadable music!
Now for someone who got it right over 130 years before Steve Jobs. In Britain before 1840, if you wanted to send a letter or parcel to someone in another city, you took it to the stagecoach office or the coaching inn, and it went on the next coach to the city you wanted. The recipient either had to be psychic or had to check regularly at all the stagecoach offices and coaching inns in town to see if there was anything for them. If there was, they could pay a carriage fee based precisely on the weight of the letter or parcel and the distance it had travelled, and then take their item away. Or they could decide not to pay and not to even see or collect their item.
“Up popped a marketing savvy chap called Steve Jobs who still
makes a fortune out of it!”
Proving the point that marketing is about far more than just promotion, a marketing savvy man called Rowland Hill thought hard about this and came up with an alternative. He realised that the recipients didn't like paying just to find out whether or not they had been sent junk mail. He concluded that the sender should pay, and that there should be a very simple charging system that didn't charge by the page or penalise people for having friends a long way away.
In Hill's scheme you would take your letter to his coach company's office and pay a standard fee, almost regardless of weight and distance. It still required the recipient to check regularly, but at just one local office, and at least they didn't have to pay to receive a letter. In order to let everybody know that the fee had been paid, Hill came up with an adhesive receipt which could be attached to the letter or parcel. This receipt wasn't personalised - It was the same for everyone. In fact you could even buy these 'receipts' from your local office in advance of writing your letters! Hill called it a "Postage Stamp".
So successful was this idea that it soon caught on around the globe, and because it was so valuable and popular, Hill gained Royal approval for his Mail system. Eventually he could afford to add the extra service of placing a collecting box on every street corner and employing people to empty these boxes and deliver the letters and parcels right to people's houses, which the recipients valued highly too.
If you agree with these thoughts and would like to find out more about pricing your services on the value your customers get out of them so you can make sales without selling and get paid what you're worth, visit www.sws3.co.uk to download 30 more free practical ideas you can implement straight away in your business.
Service providers who charge for their time or their materials, or whose prices are influenced by their competitors can find out how to get paid what they're really worth at www.sws3.co.uk
Why are diamonds more valuable than water? Nothing is more useful than water, yet it will buy almost nothing. On the other hand, diamonds have little value in use but a lot of other goods have to be sold in order to buy one. There's far more water on this planet than diamonds, but scarcity doesn't always equal value!
Value is not an intrinsic property of a good or a service. Value only exists in the perceptions of people. Value only exists in the eye of the beholder.
And why would we pay more for a bottle of water at midday in the middle of the Arabian desert than on a wet Saturday afternoon in Manchester?
Value is not only subjective, it is contextual. This is one of the most important points in the concept of value!
“Value is not an intrinsic property of a good or a service. Value only
exists in the perceptions of people.”
Cause and effect are often confused when it comes to value. Some people dive for pearls because other people are prepared to pay a high price for pearls, not vice versa. Costs do not create value. Value causes customers to be willing to repay costs!
This doesn't mean that businesses cannot create demand for their products. Availability (especially of innovative products) can create demand, but there is no guarantee of customer acceptance just because development and production costs were incurred. Production will only continue if people value the product/service and its price covers the cost of production.
Whereas when it comes to commodities, their market price is determined by the value of the last unit consumed.
If you agree with these thoughts and would like to find out more about pricing your services on the value your customers get out of them so you can make sales without selling and get paid what you're worth, visit www.sws3.co.uk to download 30 more free practical ideas you can implement straight away in your business.
Service providers who charge for their time or their materials, or whose prices are influenced by their competitors can find out how to get paid what they're really worth at www.sws3.co.uk
I hope I have persuaded those of you who provide services of a professional nature, and whose goal is to create valuable transformations for your customers, that charging on a cost-plus basis or for your time is seriously harming the profit both you and the customers will get out of working together.
I also hope I have demonstrated the folly of setting your prices somewhere in the middle of your competitors' prices, plus the profit limiting results of charging the same price for the same service to all customers, with no heed to the value each individual will get out of that work.
But the question remains, how to price your services? In case you have missed the point so far, don't price your services! Price your customers!
“In case you have missed the point so far, don't price your
services! Price your customers!”
How? Well here are ten things to consider when it comes to 'pricing your customers'
* Perceived substitute solutions - How many other ways do they have available to fix
the problem
* Unique value - What do you bring to the party that is so valuable, no equivalent exists
* Cost of switching supplier a later date - What would it cost the customer to start again
with someone new
* Difficulty of making comparisons - Can anyone else put together a value package that
allows any sort of comparison
* High price equates to perceived high quality - Do you come across as a Rolls-Royce
where the odd few hundred pounds is neither here nor there?
* Absolute and relative expenditure - Is your proposal different enough when examined
in both ways?
* Ultimate benefit or value outcome - How large a chunk of the customer's overall value
goal is your work going to deliver?
* Whose money being spent on whom - Is the customer spending someone else's money
on a third party, or their own money on themselves?
* Fairness of pricing - Do you continually come up with chargeable extras or are there
reductions available for larger bundles?
* Storage capacity - Has the customer got the ability to take advantage of your bulk
purchase offers?
All of these need exploring by great questioning in the sales conversation.
Professional Service Providers who charge for their time or their materials, or whose prices are influenced by their competitors can find out how to get paid what they're really worth at www.davidwinch.co.uk/sws_emp.htm
In my previous post I talked about price discrimination as a necessary option for getting your customers to self-differentiate, thus allowing you to charge different prices for different perceived value. There are actually three major levels of price discrimination:
* First - Charge the maximum the customer is willing to pay - e.g. Auctions
* Second - Charge the same customer different prices for identical items -
e.g. Bulk purchase discounts
* Third - Charge different prices in different markets - e.g. Money off vouchers given
to a segment of your market
Once you understand this you'll start to see more, more ingenious examples being practised in many markets!
Professional Service Providers are ideally placed to implement first level price discrimination, not because they run auctions but because they can determine individual price elasticity at minimal marginal cost. How? Simply by asking the right questions in a sales conversation!
Professional Service Providers occupy a market that most sellers would die for - The ability to establish a price with each individual buyer at extremely low cost.
“Positioning yourself as 'cheaper' just because you have lower
overheads is to be abhorred”
Professionals need to start taking advantage of this huge opportunity to move to first level price discrimination. Can't you see how daft charging by the hour now sounds in this context?
In the general context, at the macro level, there are only three possible pricing strategies:
* Skim - Premium products at premium prices
* Penetration - 'Value engineered' products at lower prices
* Neutral - Mid range products at mid range prices
Note the absence of 'low' prices! Too many Professionals assume they need low prices. Low prices just attract low value customers which you'll come to regret!
So what strategy should Professionals adopt? Whichever it is, it should certainly be based on value and not cost or time.
* Skim - More profit, narrower market
* Penetration - Not cheap but low priced relative to perceived value - Tends to be a
default for established service companies
* Neutral - General default strategy
Positioning yourself as 'cheaper' because you have lower overheads is just cost-based pricing and is to be abhorred - In any case it's a penetration strategy.
Professional Service Providers should start with a 'neutral pricing' strategy but, if they offer high value services by challenging established practices which customers are fed up with, they would be under-pricing. Professional Service Providers should be aiming at a 'skim pricing' strategy!
Professional Service Providers who charge for their time or their materials, or whose prices are influenced by their competitors can find out how to get paid what they're really worth at www.sws_emp.co.uk.
Being a Professional Service Provider means you are already a transformation business. Buyers of transformations are aspirational - They actively seek change. In a transformation business, the customer is the product. They are begging, "Change me!"
What happens after purchase and after consumption is what really determines price sensitivity amongst customers of Professional Service Providers, but you can't afford to wait that long. You need to price your services like an airline prices its seats on the same flight. To do this, you have to segment your customers by how much they're willing and able to pay. This is price discrimination.
Forget demographics! Get them to differentiate themselves each time they're thinking of buying. Whose money they're spending, and on whom, will also have a bearing. Use of the word 'discrimination' is correct in this context but it has unfortunate undertones! This discrimination is based on the customer's subjective perception of value.
“Great pricing strategies are designed to get customers to reveal
the maximum they are prepared to pay”
Great pricing strategies are designed to get customers to reveal the maximum they are prepared to pay. To do this your strategy needs to meet four requirements:
* Market Power - You are able to raise prices without losing all your customers
* Separable - You can divide your market into sub-markets
* Transaction cost less than potential profit - The cost of doing the segregating must be
outweighed by the extra profit
* You, the Seller, must separate buyers to prevent a 'black market'
All this is very easy to do when you're providing services! Very few services fail to have Market Power!
Segregation requires understanding of motivations - This is easy in a sales conversation, which is a necessity when selling services!
And it is impossible to create a black market in services because they can't be sold on!
Professional Service Providers really should be taking advantage of the strong position they naturally have.
Professional Service Providers who charge for their time or their materials, or whose prices are influenced by their competitors can find out how to get paid what they're really worth at www.sws_emp.co.uk.
If you have read my previous blogs you will know I argue strongly against time-based charging. Hourly billing fails on tests for morality and ethicality. Time-based charging is not intrinsically unprofitable, but it is sub-optimal. You need an alternative, and there is one.
Each customer creates a price 'band' based on their perception of the value - to them - of what you propose to do. A price outside this band, at either end, will be ignored. You need to discover this band each time, and to do this you need to be a price searcher, not a price taker.
This would apply to hourly rates too. How might someone earning £20 per hour view a £300 per hour quote? Better to quote a fixed price for the package.
“There is a challenge in moving forward through the charging
hierarchy without resorting to the billable hour”
You will increase your customers' willingness to pay when you are communicating value between you. There is a challenge in moving forward through the charging hierarchy without resorting to the 'billable hour'.
And do remember that a service needed is always worth more than a service delivered. Note that members of the oldest profession in the world always demand payment in advance!
Professional Service Providers who charge for their time or their materials, or whose prices are influenced by their competitors can find out how to get paid what they're really worth at www.sws_emp.co.uk.
Unfortunately, when faced with the sort of issues I've discussed in the last four posts, some Service Professionals take a predictable but less than brilliant course of action. It all seems so very reasonable to them, but it's not the best strategy they could follow.
Their preferred techniques include trying to increase efficiency by lowering fixed costs, basing their prices on customers' willingness and ability to pay, or trying to be something they're not. By this I mean either charging for:
* "Stuff" - Acting like a commodity business
* Tangibles - Acting like a goods business
* Activities - Acting like a service business, or
* The time customers spend with them - Acting like an experience business
“Their preferred techniques include trying to be
something they're not”
What they don't seem to realise is that following the herd in this way could easily mean that they:
* Miss out on the greatest payoff in terms of profit - This comes from strategic pricing!
* Miss out on charging for demonstrated outcomes achieved by customers - Acting like
the transformation business they actually are
* Fail to notice that as professional service providers, they are already providing
transformation!
* Fail to notice that they are already at the top of the curve!
Professional Service Providers who charge for their time or their materials, or whose prices are influenced by their competitors can find out how to get paid what they're really worth at www.sws_emp.co.uk.
Well, presumably if you set your price way above the customers' perception of the value they'd get from the purchase, you won't sell anything. And if your price is only a minute fraction of the value, you won't sell much either because people will think they smell a rat.
The problem with trying to fix a fair price is who decides what is fair? For a start, never allow competitors to determine your prices. They have no interest in your long term survival.
Price your customers, not your services, so that you are dealing with those who get the most value out of working with you. Don't neglect the section of your niche where price is of no consequence, but before you charge a premium price, make certain you believe you are worth it.
There's only one profession that says, "Pay me and I'll fake it," and that's the oldest one in the world!
The objective of your pricing strategy is not to fill your capacity - It's to maximise your profit over a given time period! If maximum profit is achievable by running at half capacity, then run at half capacity!
Purchasing decisions are made on emotion and justified on reason. Emotional decisions are made on relative, not absolute prices, and people perceive prices in relative, or proportional terms.
If you agree with these thoughts and would like to find out more about pricing your services so you can make sales without selling and get paid what you're worth, visit www.sws3.co.uk to download 30 more free practical ideas you can implement straight away in your business.
“The objective of your pricing strategy is not to fill your capacity -
It's to maximise your profit”
Professional Service Providers who charge for their time or their materials, or whose prices are influenced by their competitors can find out how to get paid what they're really worth at www.sws3.co.uk.
If you consider yourself to be a Professional Service Provider, or a Professional Knowledge Worker, what exactly do you do for your customers? Sure you 'add value', but how does the customer perceive the results of your effort?
Although Professional Service Providers don't supply commodity 'stuff' or tangible goods, they still need to be wary of how they, and therefore their customers, view their services.
A service business charges for activities, such as fixing a leak. A higher level of service business might charge for the time a customer spends with them, for the 'experience', such as an evening spent at the theatre.
But a Professional Service Provider operates on an even higher plane, causing the customer to demonstrably achieve certain outcomes. Professional Services are 'transformation' businesses.
The customer holds the Professional responsible for guiding the transformation, but if the customer is not willing to follow the advice given, the results and thus the value outcomes are impossible to achieve.
It is crucial to accept that there is absolutely no similarity between guiding a transformation and a selling a commodity product, or even a bundle of services. In facilitating a transformation, the professional is 'touching the customer's soul' and by touching the soul the Provider becomes virtually impervious to competition.
If you agree with these thoughts and would like to find out more about pricing your services so you can make sales without selling and get paid what you're worth, visit www.sws3.co.uk to download 30 more free practical ideas you can implement straight away in your business.
“Professional Services are transformation businesses.
The Professional is touching the customer's soul.”
Professional Service Providers who charge for their time or their materials, or whose prices are influenced by their competitors can find out how to get paid what they're really worth at www.sws3.co.uk.
Pricing is analogous to a farmer harvesting his crop. It's the way product and service providers gather in their share of the value their efforts have created. You wouldn't imagine a farmer going away on a family holiday just at the start of harvest time, would you! So why neglect your pricing?
Pricing is the most important of the four Ps of marketing. It is literally the only means available to the seller for capturing value. So, in your marketing strategy, Price needs to be aligned with Product, Promotion and Place in order to create a viable value proposition.
Your Price sends a signal to your customers about what you think your product or service is worth. This is a far louder message than advertising or any other form of Promotion! Consequently more resources should be devoted to Pricing than the other three Ps.
Pricing must be a core competency in every business - including yours. If you are dealing with professional buyers, you need professional Pricers on your side.
If you agree with these thoughts and would like to find out more about pricing your services so you can make sales without selling and get paid what you're worth, visit www.sws3.co.uk to download 30 more free practical ideas you can implement straight away in your business.
“Pricing must be a core competency in every business -
including yours”
Service providers who charge for their time or their materials, or whose prices are influenced by their competitors can find out how to get paid what they're really worth at www.sws3.co.uk.
Napoleon Hill once wrote, "There is no standard price on ideas. The creator of ideas makes his own price, and if he is smart, gets it!"
We are all entitled to be compensated for the value that the results of our efforts create for our customers, so don't get squeamish about asking to be paid. Some people seem to think 'money', and even more often 'profit', is a dirty word.
There's nothing dirty in making a profit - Doctors profit from our illnesses and accidents. Professors and Teachers profit from the ignorance of their students, and Farmers profit from our hunger.
Profits get a bad press because many people are unclear where they come from. Profits come from taking risks - Entrepreneurs have to give long before they receive.
If both parties in a transaction make a handsome profit - The purchaser gets a good return on their investment in the price and the provider does the same based on their investment in being able to deliver whatever they deliver - then all is well. It's Win-Win!
If you agree with these thoughts and would like to find out more about pricing your services so you can make sales without selling and get paid what you're worth, visit www.sws3.co.uk to download 30 more free practical ideas you can implement straight away in your business.
“We are all entitled to be compensated for the value that the results of
our efforts create for our customers”
Service providers who charge for their time or their materials, or whose prices are influenced by their competitors can find out how to get paid what they're really worth at www.sws3.co.uk.
