Pricing Speaks Volumes

Your pricing speaks volumes. The questions is: what is your pricing communicating?

Congruent pricing

When you price is congruent with the value you’re touting, anyone who sees your price knows that you:

• Know the value of your offering.
• Have a clear picture of who your ideal customer is and why they’re willing to pay your price.
• Understand that your offering isn’t right for everyone as evidenced by the fact that you’re not willing to discount to gain a customer.

In other words, people trust the value of your offering, whether it’s right for them or not.

Incongruent pricing

Many companies tout their offerings as being superior to their competitors offerings, yet charge a price lower than those of their competitors. Anyone observing this dichotomy is left with a dilemma: Which do I trust the claims of superiority or the price?

When confused, potential buyers always revert to price. In other words, they will doubt your claims of superiority. If they’re price buyers, they may buy, although they’ll probably still push for an even better deal. Why wouldn’t they? You’ve already demonstrated a willingness to lower your price to get their business.

Value buyers often walk away because their primary interest is value, not price. They’re willing to pay for quality, dependability and friendly, helpful service. One bit of evidence for this is the fact that companies who raise their prices solidify the perception value and experience revenue increases greater than their price increases. Here are a couple of examples.

The owner of a business publication raised his prices 5% and revenues went up 8%. Kraft, shortly after the 2008 recession raised prices by 7% and had revenues increase by 11.4%.

Incongruent pricing communicates less value than touted, a lack of confidence in your offering or that you’re hungry for business.

Discount pricing

We have to distinguish between one-time discounts and frequent discounting. If there is a customer you’d like to get and you offer them a one-time lower price to get them to try your offering…with the understanding that all subsequent orders will be at your regular price…is a legitimate reason to discount.

Unfortunately, too many companies offer discounts on a somewhat regular basis. In doing so, they train their customers to wait for discounts to buy. In many instances these customers will buy in sufficient quantities to be able to wait for the next discount to buy again. This results in overwhelmed production processes at various time during the year and it says: The true value of our offering is the discounted price.

An even more mind-boggling practice is discounting during peak selling season. I recall an exceptionally cold, windy day in November when I went to the grocery store. As I entered the store, having felt the bone-chilling cold, I thought I bet oatmeal is on sale. Sure enough, the store was discounting all of Quaker’s oatmeal products.

These stores do the same at Thanksgiving with turkeys, cranberry sauce and stuffing mix. And, again, at Christmas with liquor. To think that customers are going to four or five stores to get the best deal at each is folly. People place greater value on their time than that.

Carpet-cleaning companies offer discounts just before holidays like Easer, Thanksgiving and Christmas. Why would you do that? These are times people are inclined to buy these services.

Discounting sends messages that:

• Your offering isn’t worth what you’re asking.
• You’re hungry for business.
• You’re struggling to keep your business alive.

Since the vast majority of people are value buyers, doing business with companies delivering these messages isn’t very appealing.

Rewards pricing

Offering rewards to “frequent” buyers is another form of discounting. The intent with rewards programs is to increase existing customers’ frequency of use of your offerings. That typically doesn’t happen.

People don’t visit a restaurant more frequently because of a reward program. They go when they’re in the mood for that type of food. Evidence of this is that many of the restaurants I visit that employ rewards programs either shortly thereafter reduce portion sizes or add another rewards program. If their initial rewards program was increasing frequency of use, there would be no need for smaller portions or additional rewards.

Just like with discounting, rewards programs are really saying: Our offering isn’t worth what we’re charging…even though our customers have demonstrated a willingness to pay the non-reward price.

Dynamic pricing

Many pricing consultants disagree with me on this, but I think dynamic pricing is a mistake. Dynamic pricing takes many forms, but the general concept is that you charge more for peak times and less for off-peak times.

Baseball teams have higher prices for games against long-time rivals than for games against teams who aren’t likely to make the playoffs. Taxis and similar services could charge higher prices during rush hours and lower prices during the times between rush hours.

The reasons why I’m not a proponent of dynamic pricing is:

• It confuses the market. Unless the rationale is communicated each time a prospect inquires, which rarely happens, the customer doesn’t understand why their paying more or getting a discount.
• It trains customers to move to the lower-price alternative. As stated earlier, confusion often leads to customers choosing the low-price alternative.
• It is difficult to revert to congruent pricing after having trained customers to choose low-price alternatives.

Hidden price increases

Some companies have adopted the pricing strategy of holding the price, but surreptitiously reducing the quantity. This practice basically says to customers: You’re too stupid to realize you’re paying more than you were previously.

Underestimating the intelligence of the buying public is a mistake. This dishonest, insulting behavior sends a message of disdain to your customer base…customers often penalize companies by shifting to brands that are more honest in their pricing.

Your pricing is speaking volumes. The questions are: What are your communicating? Is that really what you want to communicate? If not, you can use the insights above to help you revamp your pricing in a way to build trust and confidence in your offerings and, in doing so, generate more revenues with a loyal, appreciative customer base.

If you’ve found this post helpful, please share it with your friends. It’s a great way to let them know how much you care.

If you’d like the leaders in your organization to learn how to use the numbers more effectively and dramatically improve the productivity of your workforce, contact me to learn more about these resources:

Resources

Making the EXCEPTIONAL Normal program helps you identify and nurture emerging leaders who elevate all around them to higher levels of performance and greater job enjoyment.

Financial Awareness & Strategy program where employees learn to identify opportunities to improve financial results and prioritize these opportunities on the basis of which produces the greatest impact with the least effort. Greater financial awareness = Better decisions.