What Do You Need to Know to Price More Effectively?

Hey!

Pricing is one of those things I stumbled into when I was a young marketer…

I understood the power of marketing to sell stuff, but I never knew the power of pricing to drive profit, grow brand power, and establish market dominance until I got involved in nightclubs.

Skip this if you’ve heard the story before, but the greatest question I ever learned to ask is: “What kind of gin do you prefer?”

Why?

First, the background.

As a team, we were trying to come up with ideas to drive up check averages $0.25 a person in 1997 dollars.

That wasn’t a huge percentage either because the average check was around $13.

But the intention was just to get a couple thousand dollars a week out of the 5,000+ people that walked through our doors.

So, what happened?

We were throwing around the idea of how to upsell drinks or more drinks with the usual “shots” or “extra round” being most popular.

Then, I said, “How much impact would it have if we just asked folks what kind of gin they like in their G&T?”

The answer: A LOT!

In fact, that question alone generated about $250,000 in new profit each year.

Why?

A few reasons:

First, no one really sees themselves as a well gin and tonic person.

By asking them their preference of gin, you play into the story they tell themselves.

You’d get a few people that would say, “whatever” or “whatever you pour” and you’d have a well drink, but most folks have a preference: Bombay, Tanqueray, or some other brand.

Second, it wasn’t about price, but value.

The cost of a well gin and a premium gin at that time for a big nightclub chain were not hugely different.

In a mixed drink, you are talking about $.05-.10 per drink.

The price you’d be able to get was $1-$1.50.

Meaning that you were making about a 95% profit on the upsell.

Why didn’t this matter?

Value.

Perception + Value meant that the higher price was a bonus, not a negative.

Third, the experience became elevated.

Why is that?

People felt better about their experience. They felt like the kind of person that was enjoying a premium cocktail at a “hot” nightclub.

The music sounded better.

They felt sexier because they were at a place that asked them the kind of gin they liked in their cocktail.

On and on this goes.

Was it all smoke and mirrors?

Absolutely.

But that’s what pricing is often about: perception and the story you are telling, not the cost of goods and services.

I thought about writing about cost versus price this week, but actually that is what this comes down to.

The price is what you pay. At the heart, that is a commodity decision.

The cost can be manipulated based on what you are selling and what the customer recieves.

Think about it like this:

• Are you the expert provider of a product or service? Shouldn’t that come with a premium?

• If something is known for luxury or craftmanship, doesn’t that imply that you are going to pay a premium?

• Isn’t there a difference in your expectation of a hotel when you pay a premium like the Four Seasons vs. a Marriott Marquis?

The lessons today:

• Price is about perception. Use it to move the price up or down.

• Focus on value. Not on price. Price is a commodity.

• Experience counts. Time. Space. Attention. Ease. All of these can add or subtract value that you should claim as your own.

BTW, I’m looking at putting on my first in-person workshop since 2019’s Melbourne, Australia one: “Fans for Life”. This time, we are focusing on pricing. I posted an outline and I’m looking for some feedback. Let me know what you think.