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The Importance of Pricing

By Jacqueline Drew
START Marketing Inc.
www.startmarketing.com

Over the years of consulting I've done, it always strikes me that pricing - of services and products, is one area where almost every business is completely lost.  Companies seem to set their price structures and levels based on their competition.  But there is an enormous assumption that the competition has gotten it right.  What's more, it can be tough to change pricing once you've built your whole client base around it.

Pricing is in fact a dramatic controller of at least 3 key strategic elements to your company's success:

1. Your image.  I recently bid on a job for a company who needed a corporate presentation folder.  The company didn't have a marketing plan, and I knew that doing the job would require studying the competition and finding a strategic angle, and developing a whole new way to dig out their advantages and present their services.  The client came back and said I was twice as expensive as the middle bidder. When they asked why, I was able to differentiate my price on providing strategic direction within the project. The middle bidder turned out to be a graphic design firm that offered art, without strategy.  The higher price helped me to legitimize the role I have as a strategic consultant, which is how I've been regarded by them ever since.
2. Which products and services you sell.  A client of mine sold medical equipment, and maintaining the equipment was done on an emergency response basis, and generated very little revenue to his company.  So we created maintenance packages for ongoing servicing and priced them on an annual or monthly basis.  The programs took off immediately under the new pricing method- even though the service had been there all along.  Now his business is almost all maintenance, which carries far better profit for his time than equipment sales ever did.
3. Customer behaviour.  If you're in the habit of giving periodic sales, the customer thinks they are being overcharged unless they buy on sale.  So, you are training customers not to trust your everyday price.  And if you are in a service business, and you don't price out value added services, you are telling customers they aren't worth anything, even if they really are.  Price discounting, or not pricing value-added services at all, is just training customers to do what you don't want them to do – go somewhere else.

So if pricing affects your total company image, what you sell, and the behaviour of your customers, maybe you should spend some time or money to get it right.   A price change can pay off every bit as fast as cutting expenses, and can also be a much better, more permanent solution to solidifying your success.