Set the Right F%^&* Price!
Ha!
How’s that for a subject line to start your Sunday?
I’m using that subject line because it is the title of the new cohort-based course I’m going to test out.
What is that?
It is a small group class that I’m going to put together around pricing and pricing correctly.
As I imagine it, this will be limited to 12 or so folks in the first session with live Q&A, homework, a private group, coaching from me and more.
If you are interested in learning more as I put the idea together, let me know by emailing me.
So, what will you learn?
Let me give you 10 ideas from the outline I’m putting together:
1. The power of perception in pricing: This is one of the biggest things that people miss when setting the price is that most of the impact of your price is on the perception people have about your brand and that the real lessons learned come from understanding what people feel about pricing after the fact. An idea that is called post-price perception.
This is something you can test and study, allowing you to know what is working and what isn’t work to help you set the right price.
2. The power of bundling and unbundling: I learned about the power of unbundling services from Alan Weiss and I learned the power of bundling over and over again through my work in sports, tickets, museums, nightclubs, and continue to learn it over and over in my consulting work.
There is power in breaking your offering into its component parts and there is power in putting pieces together.
Depending on what you are up to, each one should play a part in your pricing strategy.
3. The impact of your brand on your price sensitivity: Strong brands can command around a 30% price premium.
Don’t believe me?
Look at Apple. Look at Nike. Look at Mont Blanc.
4. Pricing is marketing’s MVP moment: Price setting is when you make or break your margins.
The price-setting discussion is when you have the opportunity to capture some of the value you’ve created for your market through your marketing efforts and your product design.
Don’t short-change price setting at the start.
5. Proper pricing demands Market Orientation: You have to know what your customers value, want, and need to set your prices effectively.
If you aren’t sure what your customers really want or need or value, you are likely not customer-focused enough and probably you are making your price up…one of the most common pricing practices.
6. Cost-Plus Pricing leaves money on the table: You aren’t focused on the customer, you don’t factor in all of the real costs of your product, and you are probably leaving profit on the table because you don’t know what the perception of your product or service is in the market.
Cost-Plus Pricing is better than nothing, but it is often little better than guessing.
7. Value-Based Pricing should include tangible and intangible value: In most cases, price isn’t about anything rational. In fact, the more rational someone tells you they are, the more likely they are acting with a great deal of emotion.
This is why you need to focus on the value you deliver to your customers and the tangible and intangible forms of value that a customer receives from you.
8. The price lever is the quickest way to improve your bottom line: The OG study on the topic from Harvard Business School back in the 1990s, showed that for every 1% you can increase your price, you grow your profit on average 11%.
Cost-cutting can often get you 3-5% or so as a point of comparison.
9. Flipside of price increases is discounting and boy do those numbers suck: So, my marketing professor, Mark Ritson, shared research with me that showed that for every 1% you discount your price, you lose 40% of your profit.
Because this number was so crazy, I went did my own research to see what I could come up with.
I found that on average, in my experience, for every 1% of the price we discounted or cut, we destroyed about 25% of our margin.
I also found another study that showed a 1% discount drove profits down 11%, reversing the research on price increases.
Whatever number you choose, the impact of cutting prices is clear.
10. Discounts are for dummies: Oh boy! The line that sparked a thousand price articles, this course, and a lot of my work over the last 7 years.
I’ve only grown more dismissive of discounts over the years.
I’ll give you a short list of the ways that discounts destroy your brand here this morning:
Destroys profit
Undermines your brand equity
Teaches customers to wait to buy
Opens up opportunities for your competition to swoop in and steal business by positioning themselves against the discount brand
Hurts your employees’ perception of your company
That’s five and I am just getting warmed up here.
The thing is, don’t discount! It hurts you.
Reprice, yes. Discount, no.
There’s obviously going to be a lot more. If you want to join in or learn more as we move forward, let me know by replying to this note!
Thanks for being here!
Dave