Charge for the value that you are offering
A famous direct-mail marketing consultant recently said, â€œYou can charge whatever you want for your services.â€ While I think this advice is ludicrous, odds are high that you can charge much more for your services than you are.
Most people set prices reactively, positioning themselves near the middle or even below their competition in hopes of â€œbuyingâ€ customers. This is dangerous for a couple of reasons. First, there will always be someone who can deliver services at a lower price than you can. Second, and most importantly, by doing so, you are typically leaving way too much money on the table.
One major, branded credit card services provider I recently worked for hired mystery shoppers to call their competitors to obtain rate information. Based on an average across 30-40 competitors of all sizes, my client felt their prices were much, much too high. This company had made a serious mistake in their analysis. By comparing their rates to small, discount providers they were artificially lowering their reference point. Some customers who donâ€™t care about the reputation, service, and support promised by large, branded providers can always find a less-expensive provider. However, most really do care about these promises and prefer to purchase from a branded provider. As we limited the price comparison to only major, branded providers, we found the price being charged was actually mid-range rather than exorbitantly low.
In interviewing their customers, we found that there were significant segments that would actually pay double or even triple their current rates to take advantage of one key, timesaving feature this provider could offerâ€”and that no other provider could match. With this additional time saved each month, customers could bring in new business, spend more time with their family, or enjoy a round of golf or relax at the spa. The opportunity to use their time for activities that truly meant something to them was huge and easily quantifiable. For this company, a very conservative price increase (by no means the double or triple that some were willing to pay) meant an increase of $16MM in revenueâ€”for extremely little effort and no additional operating expense.
As my clients have found over and over again, when you have a differentiated product or service you can charge for what customers value, as long as you can properly justify the premium over their next best alternative. Most prospects will compare you against a couple of options:
- Do nothing
- Nearest competitor
- Build/Deliver it themselves
To justify the value, you need to know what these options are, and how much they cost. More importantly, you need to be able to quantify the value of your product or service in terms of customer value/purchase drivers: how does your product or service help customers increase revenue, decrease costs, mitigate risks, or on an emotional level, achieve goals such as a better work/life balance, increase quality of life, etc. Most commonly, this can only be obtained through direct contact with your customers where you can discover just how much their current processes cost them, how long they take, and what they would rather be doing with their time.
By quantifying the attributes of your products or services according to value and purchase drivers, you can make poignantly tangible to most buyers the benefit derived from a higher priced (and higher value-laden) product, thereby increasing the prices (and profit) you command for differentiated products and services.