Everyone is different. We have different needs, wants, desires, tastes, habits etc. Most relevant to pricing, everyone has a different Willingness To Pay (WTP). We don’t force everyone to wear the same clothing style, or eat the same foods, or drive the same cars. Similarly, we don’t have to force everyone to pay the same price. We can customise pricing.
Car pricing is customised. Not the sticker price, but the actual price people pay. I just bought a new car and it is very unlikely that I paid the same price as anyone else for the same car at that dealership. I certainly negotiated differently and had a different WTP.
Airline seats are pretty customised. Although a few people on the plane may be paying the same price, not many are. The airlines have figured out great techniques for charging different customers different prices, trying to capture more of each customers’ WTP.
Some items, like potato chips, are harder to customise for just a few people, but they do customise for larger groups. They charge different prices for different flavors in different regions of the country. They offer coupons to let the price sensitive pay less.
Pricing is customisable. The first step is thinking of two customers or customer types that have different WTPs. The second step is figuring out how to let people with lower WTP pay less while not letting people with higher WTP have the low price, all while everyone thinks it is fair. That’s where the fun comes in.
Mark Stiving is a pricing strategist, runs Pragmatic Pricing, and is the author of Impact Pricing: Your Blueprint for Driving Profits.
Want to read more by Mark Stiving? Read Why value-based pricing works best.
All too many products or services are seen by the marketplace as being very similar to one another and as a consequence they’re treated as commodities.
Most people, for example, consider one motor insurance policy to be much like many others, one brand of petrol or diesel to be much like the others, one Windows computer as much like many others, one accountant, lawyer, banker, IFA, web designer, printer or utility supplier to be much like many others, one hotel much like many others, one airline much like many others and so on.
Even in the best of times nobody wants to pay more than they have to for a product or service. So whenever your customers believe that they can get products or services that are similar to yours from other sources, your product or service becomes a commodity and your prospects and customers will always tend to shop around for the best price. And in today’s world of online search tools and web-connected mobile devices anyone can easily compare your prices with others in a matter of seconds, wherever they are.
In a commoditised marketplace whoever charges the best price for a given product or service tends to win. And if you don’t want to lose out, you have to be prepared to match prices.
But if you manage to set your product or service apart from all the others out there, you can charge what your product or service is really worth. Differentiation, as in so many things, is the key.
The question then becomes “what will the market bear?”
And in many cases it’s a lot.
You can buy an entry-level Lexus car for around £23,000 and they go up to £90,000 for the LS 600, without extras. Then Lexus introduced the LF-A supercar at £330,000. That’s around 50 per cent more expensive than the most expensive Ferrari or Lamborghini, and on a par with the most expensive Rolls Royce Phantom.
If you think of a Lexus LF-A as “just” another Lexus, £330,000 seems like a ridiculous price. But that’s before you see how it’s made; what it can do; the astounding attention to detail; and above all how it does what it does so well. To hear one is to want one. And to drive one is to want one even more. So can it really be worth £330,000? Let’s just say that the entire planned production run completely sold out within two weeks. And I’d have one in a heartbeat, given the chance, in preference to any Ferrari, Lamborghini, or Porsche. It is SO astounding that anyone who is truly passionate about cars, and can afford it, will likely part very happily with the value of a suburban house to own a Lexus LF-A.
What about professional services? There are plenty of reports in the press of top lawyers with specialist expertise and high profile clients earning millions of pounds a year. Top PR consultants like Max Clifford make millions looking after clients such as Simon Cowell, Kerry Katona, Freddie Starr and Rebecca Loos. The market will happily pay a fortune for anyone who can demonstrate that they’re not a mere commodity like so many others in their field.
Those are great questions. But before you answer them, consider this story about Pablo Picasso.
A woman was strolling along a street in Paris some years ago when she spotted the world famous painter Pablo Picasso sketching at a sidewalk cafe. She plucked up the courage to approach him and asked him if he could do a sketch of her and charge her accordingly.
Picasso obliged, and minutes later she was the owner of an original Picasso.
She then asked what she owed him.
“Five thousand francs” he replied.
“But it only took you three minutes,” she politely reminded him.
“No,” said Picasso, “It took me my entire life.”
The point is, if you’re not just seen as another commodity you really don’t have to charge by the hour like everyone else does. You can often charge by the years. And if you’re good enough, plenty of people will happily pay a premium for your special expertise, because like an original Picasso for FR5,000, it is still represents amazing value.
It’s like the man who suffered from a persistently squeaky floor in his house. He finally called in a carpenter who had been recommended to him as a true craftsman.
The craftsman found the squeak, set his toolbox down on the floor and got out a hammer and nail. Then he pounded the nail into the floor with three blows. It took all of 30 seconds. But it fixed the squeak forever.
He wrote out an invoice for £95, which itemised what the invoice was for:
The moral of the story: charge for knowing where.
I was in Shanghai doing a few seminars a while ago. It's a dizzying place. Every time I looked out of my hotel window the building they were putting up had gained another storey in the night, because people were working 24 hours a day.
Ambitions there are limitless — but not many people understand marketing well as yet. What they are especially good at, though, is asking highly relevant and perceptive questions.
One man asked me to explain the relationship between sales and marketing.
This made me think about a problem we come up against time and again. As Thomas Watson Jnr of IBM put it, "Nothing happens in business until something gets sold."
Many of the people we work with who are in sales appreciate that unless they have a full pipeline of leads the business is in trouble.
More to the point, they are in trouble — because they're judged by sales results.
And why are they in trouble? Very often because although they have to produce the results, they don't have the money — the marketing budget. The marketing director has that. And he or she is often more concerned with things like branding and advertising. Lamentable, really.
Results: impasse — and very often bad blood between sales and marketing.
What's the answer? Collaboration.
In far too many firms, sales and marketing — who should be natural partners — are sworn enemies. The sales people see the marketing folk as a bunch of high-falutin' theorists who know nothing about the real world. The marketers regard the sales people as a bunch of unsophisticated oafs. Yet the truth is — as you would know if you ever had to take money off people face to face, that selling is damn hard work.
Get them to talk to each other. Get them to explain each other's problems. Then get each side to come up with solutions — for the other guy's problems. A session which involved doing this would achieve a lot more than some of the stuff that passes for training in business.
Want to read more by Drayton?
Here are a few of his inspirational articles and blogs:
Forget you and forget your standard sales presentation.
Let me explain. All of us have our own unique way of perceiving the world. This map has been created from the moment you were born to this very day; all your experiences have gone into the pot and created your map. Nobody else will have had your experiences in exactly the same way. They will have had their own experiences and will perceive the world in their very unique way.
So what does this mean to you and importantly how can you use this to increase your sales?
It’s really important to get into the map of your potential client, really understand them, their problems and desired objectives. Only then can you deliver an offering that is irresistible and create the desire to buy from you.
Why is it then that so many people pitch their offering before finding what the buyers “map” is?
This causes so many challenges when it comes to sales:
It’s so much more effective, and actually easier, not to start with your pitch. Start by asking well-crafted open questions — any that start with who, what, when, where or how. Avoid “why” questions as they can seem confrontational. Find out what’s going on in their world, from their perspective. Do they want to solve a problem or do they need something to move them forward.
Forget what you think they need until you’ve got every last scrap of information from them. Then you can tailor your pitch exactly to their needs, using their words, values and beliefs.
It’s also crucial to use “you” language. This is so much more engaging and shows that you are really in their space — their map! Whenever you use “we”, “I” or your company name, you are in your own map and focusing on yourself, your offering or your company.
The benefits are enormous:
One more thing — give your buyers lots of time to answer, really listen and pause when you think they have stopped. It’s often in these pauses that you’ll get the golden nuggets of information that make all the difference!
The sales team and the marketing department: often at loggerheads, always playing the blame game and usually situated at different ends of the office. Why?
The benefits of these two vital cogs working together are numerous and far reaching. Here are our four top tips on how to improve those inter-departmental relationships:
Before implementing any marketing initiatives, speak to the sales team. Get input and feedback from the people who speak to the customers on a daily basis and work together to generate campaign ideas. The sales team has the knowledge and awareness of what is likely to work and how your customers will respond.
Invite members of your marketing team along to your client meetings. There is no better way to learn the motivations of your customers, their needs and how to win business than in face-to-face situations. This information will prove invaluable in the development of successful direct marketing campaigns, identification of new markets and product development.
Incentivise the members of your sales team. We all know sales team motivations lie in their wallets (most of the time) so use this fact to promote a closer working relationship. Bespoke incentive schemes can be used to ensure all leads are followed up, CRM systems are regularly updated and team morale is kept at an all time high.
Information is power, and the sharing of information is vital. If when communicating to your clients, the marketing team is saying one thing and sales another, it makes you all look stupid. Make sure you are giving the customer the best impression you can of your company by all singing off the same hymn sheet.
Getting your sales and marketing teams to work together will reap rewards for the success of your campaigns. Both camps have precious information about your customers and target market which when used together will ensure that your marketing efforts pack a powerful punch.
Get more ideas in our article on motivating your sales and marketing team.
So you already know that whatever claims are made, there aren’t actually any “one size fits all” magic treatments that bring business to your door in droves.
So, how can you work smarter?
I hope the following insight through hands-on experience provides some food for thought.
Not only about their industry, markets, challenges and issues, but also who they are as people. What switches them on? Where do they hang out – at industry or networking events? Behind a desk? On Linkedin or Twitter? Reach out to your targets in the places they are most like to be, and where they are most comfortable.
Base it on your observations. Be concise. Be clear on why you’re getting in touch and what you want from them. Make your content engaging and compelling, not desperate: more a meeting of minds.
Don’t take the easy route of email every time, not only is it a very competitive spam-heavy channel, it’s dull and there might be a better way of standing apart. Think about your audience. As individuals with different tastes and interests, we should apply more thought to how we approach cold targets. Emails do work for some, direct contact with others, printed colourful material or even cakes can have the desired memorable effect.
Approach prospects with insightful relevant information, whether industry-led or a new case study you feel will be of interest. Also be persistent — contact every eight weeks is just about right.
Offer to drop by or meet at an event. Invite them to visit you to get a feel for the culture of your business. Challenge them to trial you to see what they’re missing.
Get involved in industry events to showcase your expertise and approach. Blog regularly and ensure your targets can find you easily — just as you research them, they will undoubtedly want to check you out thoroughly before welcoming you in.