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.
