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Blog posts tagged pricing

Do you know how much your customers are willing to pay?

August 22, 2013 by Mark Stiving

Do you know how much your customers are willing to pay?/a man opening his wallet{{}}Value Based Pricing means charging what your customers are willing to pay (WTP).

The other day I was describing this to a successful, self-employed businesswoman and she kept asking, “How do I know what my customers are willing to pay?”.

I mentioned how she should put herself in her customers’ shoes, compare her offering to the competition. She said, “I don’t always know who else my customer is considering, and I certainly don’t know what he thinks about our offers.”

I told her she could use win/loss data to narrow down the possibilities. “I don’t have that many data points. Will this be significant?”

I described how she could use conjoint analysis to determine what types of customers are willing to pay for which features. “But that doesn’t tell me about the customer I’m talking to right now.”

I suggested she learn from her customers during the sales cycle. “Sure, but they aren’t going to tell me the most they are willing to pay, even if they know it.”

An Aha! moment

Finally, I conceded with an Aha! of my own. We will never know how much a specific customer is willing to pay in a specific situation. We can’t read his mind and he’s not going to volunteer that information. If we can’t know his true willingness to pay, what good is value based pricing?

Think of value based pricing as an attitude. We know we won’t always be right, but we are doing our best to estimate what our customers are willing to pay and charging as close to that as possible.

We can use experience (and statistics if possible) to guide our estimating methods. For example, if we continually lose, then we are estimating too high and need to lower our pricing. If we always win, we are pricing too low and need to estimate higher.

When you go to buy a car from a dealership, the salesman is looking you over, trying to determine how price sensitive you are. In other words, he is estimating your willingness to pay. He’s looking at the car you arrived in. He studies your clothes and your jewellery. Once you give him your address he will look up the value of your house. He can never know exactly what you will pay, but he can make estimates based on observable criteria.

Willingness to pay

This is what Value Based Pricing really is, estimating willingness to pay. If you know which competitor your customer is considering, that can help you know how much to charge. If you know which market segment your customer is in, you will price more appropriately. The more you know about this customer and this situation, the better.

This lack of precision is probably one reason companies like and use cost plus pricing. They know their costs (at least they think they do). If you always charge two times your cost, then there is no uncertainty. In fact, no thought is needed.

However, if you want to be more profitable, if you want to capture more of the value you create, then adopt value based pricing. Value based pricing enables more powerful pricing strategies, like price segmentation and product portfolio pricing. It has the power to focus the entire company on creating more value. Value Based Pricing may not be precise, but it is powerful.

Adopt the attitude.

Mark Stiving is a pricing strategist, runs Pragmatic Pricing, and is the author of Impact Pricing: Your Blueprint for Driving Profits.

Posted in Marketing strategy | Tagged pricing, price | 0 comments

Make them ask

November 08, 2012 by Mark Stiving

Make them ask/blackboard menu{{}}Last week, I received an email from McCormick and Schmick’s Seafood restaurant offering a good price on a three-course tasting meal, no coupon needed. My wife and I like M&S, so we decided to take advantage of this deal.  We made reservations, showed up at the appropriate time, and were seated at a table.

We scoured the menu for the three-course meal special but couldn’t find it anywhere. Had I misread the email? When we asked the server, she left and returned with a separate menu.

They made us ask for the special deal. As a pricing guy, I loved it!

Here are two lessons in this story.

First, every discount should have an objective. In this case M&S sent the email with low pricing to attract customers to their restaurant. Of course they would prefer people come and buy off the regular priced menu, but they wanted to attract additional customers with a price deal. They were willing to accept lower margins for these incremental customers.

Second, don’t give your best prices to customers who don’t “deserve” them. M&S diners who came in without knowing about the deal expected to pay regular prices, so there was no reason to give them the special deal. Asking for the discount is how you proved you deserved it.

Know why you are discounting

How about your business? When you offer a discount on something, do you know exactly what you hope to accomplish? Besides attracting new customers, you may be trying to influence their choice of products, or you may be trying to increase consumption. Just know why you’re offering the discount.

Once you know why you’re discounting you can determine who should get the lower prices. You want the best prices to go to the right people, but not to everybody. Find ways to target your discounts.

As a final thought, when I had to ask for the special menu I was surprised. The uniqueness of the experience is what grabbed my attention. However, if you think about it, this is really very similar to requiring a coupon, only without the coupon. Pretty interesting. You may want to add this tactic to your grab bag of pricing ideas for attracting new customers.

Mark Stiving is a pricing strategist, runs Pragmatic Pricing, and is the author of Impact Pricing: Your Blueprint for Driving Profits.

Why you are not paid what you are worth

May 23, 2011 by Robert Craven

If you are not getting paid what YOU think you are worth then I suspect that there are a number of possible reasons.

The top two most obvious reasons are:

  • Customers don’t think you are worth it
  • You are not asking for the right fee/price

If the answer is “customers don’t think you are worth it” then this is because of one of the following reasons:

a) They don’t know you’re worth it (the obvious answer)

b) You’ve not proved that you are worth it

In either case, the answer is because of your lousy marketing.

More often than not (especially for professional service firms), the issue is not one of competitive price. Normally the customer is not comparing your service with another competitor on price. Often he is not comparing your service with another competitor at all.

A third possibility to answer why “customers don’t think you are worth it” would be:

c) You are not worth as much as you believe you should be.

And if the answer is the second response to my original question — “you are not asking for the right fee” — then you need to sort out the basic problem which was that “customers don’t think you are worth it”, and then ask for the right fee.


Robert Craven is an expert contributor to Marketing Donut. He runs The Directors' Centre and is the author of business best-sellers Kick-Start Your Business and Bright Marketing.

You were the most expensive... but we'll go with you anyway

November 08, 2010 by Fiona Humberstone

How often do your clients say that to you? In a competitive marketplace, it’s so tempting to feel like you need to compete on price. After all, if you’re the cheapest, clients will flock to you won’t they?

Take a look at your marketing literature: your website, your latest leaflets or flyers. What’s the main message? I met with a prospective client recently and the message that was coming across loud and clear was “we’re cheap”. This lady runs a successful business, her team work hard and they’re making a profit. But I can’t help thinking that they could be making an easier profit, attracting easier clients and making a larger profit if they just thought about repositioning themselves.

Most businesses have a Unique Selling Point (USP) that extends beyond how much they charge. The trouble is, they rarely communicate that USP effectively. The downside to this? You’ll end up attracting customers who only want to work with you because you’re cheap. They won’t value what you do, they probably won’t want to spend what you want to charge, and they’ll just recommend more people like them. It’s a vicious circle.

Moving your marketing away from being “the cheapest” takes a bit of bravery. Putting your prices up takes even more courage. But trust me, if you can do it effectively you’ll start attracting the sort of clients who really value what you do, and they are the people who will be with you for the long term.

If you run a service-based business you’ll also buy yourself enough time to do the quality of work you really want to be doing. And if you can communicate the benefits of the value you’re offering effectively, you’ll finally hear those magic words: “you were the most expensive, but we want to work with you anyway.”

Fiona Humberstone is an expert contributor to Marketing Donut and runs her own creative consultancy.


Some Marketing Advice Can Be Downright Dangerous!

April 01, 2009 by Dee Blick

I recently attended a talk by a business consultant where the advice he gave on the subject of price was flawed. He suggested that the audience (a mixed gathering of local small businesses) increase their prices by 12.5%.

I work with a number of small businesses, and, in the current challenging economic climate, we’re reviewing their prices and their marketing messages. The big question that influences their price strategy is:

"How is the current economic climate impacting on my different target audiences?"

By way of illustration, one of my clients has just opened a plumbers’ merchants, so we're targeting local plumbers. Although our marketing messages (value, product quality, free delivery, opening hours etc) are important, some very simple research (picking up the phone and talking to plumbers!) revealed that in the current economic climate, lowest price rules in many cases.

So, we have managed to pull plumbers into the merchants by offering a few key lines at the lowest possible prices (this has meant a price reduction on these lines). Once there, they do buy other items - but it was the lowest price that ultimately motivated them to come in.

Contrast this with another client that sells innovative motor after-care products. You pour a bottle of their magic mixture into a cracked radiator and - hey presto! - it’s fixed for good. The client has increased his prices by 15% without a murmur of customer protest.

In the current climate, people are looking to keep their cars on the road for longer and so are interested in low-cost repair solutions that work.

What I'm getting at is that making very general statements on pivotal marketing issues for everyone to follow like sheep can sometimes do more harm than good.

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