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Pricing Products and Services: Are you charging enough?

charging enoughHow are you pricing your products and services? Are you charging enough?

As a marketer I strongly feel that the correct pricing strategy can make or break your business.

Marcus Sheridan is always saying that a business should publish their pricing. I have to say I agree.

From my own experience pricing can make or break a product or service. Here are some examples:

Product pricing perception: Low prices equal poor quality?

In my first marketing job in Dubai I was responsible for a cosmetics brand called Mikyajy.

At the time they stocked BeYu,a great mid-range German make-up brand.  BeYu was a high quality product at an incredibly affordable price. Only problem, it wasn’t selling.

We gathered in the boardroom to discuss a strategy to increase sales of the products. It was my first time in the boardroom and I was actually more interested in the coffee when I suggested that it was “too cheap“.

Heads turned. I had no idea that it hadn’t occurred to them that perhaps that was the problem. We raised the prices by 65% and within 2 weeks the products flew off the shelves and stores across the region were begging for more stock.

Consumers saw the low price tag as a reflection of poor quality. Raise the price and suddenly it sold.

Service pricing perception: Low prices target the wrong market

One of my first clients when I started my own marketing consultancy in Dubai was Mountain Extreme, an eco-tourism company that took corporate suits into the wilderness to find themselves. Only problem was that some of the signature packages like the Majlis Al Jinn Experience – a breakthrough event which involved abseiling 200m into the world’s second largest sky cave, wasn’t doing too well. Why?

You’ve guess it! It wasn’t priced high enough. There were other issues too. It was a full package involving training sessions and the breakthrough event.

The price point was attracting the wrong clients. There was some suspicion as to how great the event was because it just wasn’t expensive enough.

So how much did I raise the price by? Well, let’s say it cost 5 times as much as it originally did and it was always over subscribed.

Packaging is everything

So, I’ve discussed pricing. With Mountain Extreme there was another important factor; the packaging!

The packaging wasn’t quite right. It didn’t have the “Wow” factor.  I broke the event into 3 parts; 2 separate training sessions (each one in itself was an experience) and the trip itself.

A price tag was attached to each part. Suddenly a market for part 1 (the training session) was born.  It became an event in itself.

Whether it’s a product or a service how you package and price it will make all the difference.

Your pricing and packaging determines who you are speaking to. 

Are you charging enough?

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25 Responses to Pricing Products and Services: Are you charging enough?

  1. I will always remember the story Martha Stewart told of selling her pies in a mall (?) and how nobody bought them until she raised the prices. I’m bothered by the $1.99 ebooks etc. How can so much original content be worth so little even if the process to make it available has become so simple? It’s psychological for me. If it’s free or cheap I’m not as invested, unless a connection is made and worked on vigorously BECAUSE of the free product.

    • I remember that story and it’s so true. It’s an important lesson for us all. Pricing IS everything.

      I am a strong believer in that you shouldn’t ever give away your trade for free. You can go back on it. How can you give a discount on free?

      Thanks for stopping by and reminding me of the Martha Stewart story!

  2. Hi Ameena!

    If you have a non-commodity product, price sensitivity is less of an issue.

    I know this from our B&B. We are the most expensive B&B in our region – by a lot, not a little. There are many B&B’s here in the 90-120 euro a night price range – that are empty. We charge 180 a night and are at about 85% occupancy for the season. The 15% is the time we consciously block out to maintain our sanity.

    First of all, we have a different skill set than the Italian-owned B&Bs, we speak multiple languages and come from corporate backgrounds so we know what kind of expectations our guests arrive with. We break our backs providing good service, so there’s a lot of added value. We also understand internet marketing and social media – well, at least to the point where we can fill the rooms, which, in reality, is not rocket science.

    We were priced at 160 a night from 2004 to 2010, when we raised our price to 180. It was a huge risk in light of the economy, but in order for us to comfortably provide the product we do, that was the income we needed. We only have three rooms. Raising prices didn’t hurt our booking rate, it improved it. We could book ten rooms three months of the season without blinking-if we had the rooms.

    If you are convinced your product is 100% price sensitive, then you can always be vulnerable to market shifts and downturns. But if you pack value into your product and work for the benefit of your customer, price becomes much less of an issue.

    I have attempted to drive this idea home to other B&B’s (that’s right, my competitors!) but there is so much fear attached to raising prices that they end up not taking on the whole concept of value and service.

    • Hi Diana,

      This is so true, if your product is price sensitive there will always be someone cheaper. Always. Made in China anyone?

      We are planning a trip to Piedmont soon, you will be an obligatory stop.

    • Hi Diana!

      I remember when I put the prices up on my holiday apartments – I was scared no one would book at that rate – I was so wrong.

      The next season I was booked up well in advance of the year before. The best part was my clients were much nicer and complained a lot less which reinforces the fact that pricing affects WHO your customers are.

      Thanks for sharing!

  3. Even though this closely relates to products, it also works in a service business. A few years ago, we couldn’t get clients to work with my team for anything…even though some were more qualified than I was at some of the things that needed to be done. So we raised my hourly rate. Now, when a client insists on working with me, they know they’re paying for highly strategic work and not tactical execution. It really does work.

    • Hey Gini – yes, as I said the same works with services. If you can provide a list of USP’s, benefits and a description of the service it can be sold in the same way as a product. It’s that simple.

      It’s fascinating how the mind works even when you are in the industry – if it costs a bit more than it’s probably better … however, like any rule there are always exceptions!

  4. Tim:

    What about digital products, like streaming films or the ebooks that were mentioned? The examples provided above seem to mainly work with either experiences or tangible goods, but with online products – where things tend to slide towards being free – do you think this strategy still applies?

    • Hi Tim,

      Why would those products be any different? What could be more intangible than a service? You can’t take something home in a bag. You can’t review it at your own leisure. Once you’ve experienced something the end result is highly personal and unique to the individual. So back to your question … how does it work with online products? PACKAGING.

      Yes, many give ebooks away for free – should they? What are their motivations for doing so? Usually email capture so they can sell them something else. Does that mean you should give an ebook away for free? NO.

      If your product fulfils a need in the market and contains content that is of value there is no reason you shouldn’t charge. Just because it’s online doesn’t mean you can’t apply brick and mortar tactics to making money.

  5. I always go around and around with myself about prices and pricing structures. It can be hard to determine them when I’m relatively new to the playing field as a business owner. I also have two markets – my local one, which is behind the times and the pricing structures, as well as the market that could exist outside my local one.

    • As a new business it’s often hard to work out what to charge – it’s often through trial and error that you find the sweet spot. The best way to get started is to look at what your competition is doing and work out if you would happy charging the same. There is always the risk of selling yourself short especially when starting out which can result in you talking to the wrong market.

      Since you say your local market is behind the times perhaps you should be focussing on the larger market. Often the local market will wake up and be impressed by your efforts.

      Thanks for stopping by and sharing!

  6. Ameena, the timing of your post is perfect for me, as part of my 30-day challenge goal (courtesy of John:) is to tweak my blogsite to indicate pricing on my services.

    In my offline world of business over the past 25+ years, I did not have to do this. I worked face-to-face, structuring customer-centric packages around the needs and wants of the client. Each working relationship was specifically tailored to the client.

    However, based on my online experience and the wisdom and counsel of others who’ve been online far longer than I, I now know that creating options, with specific pricing, will definitely benefit my business. And since I’m no longer a starry-eyed neophyte in business, I know the value of my expertise, experience and wisdom, so under-valuing what I have to offer will not be an option. That doesn’t mean I won’t customize: quite the contrary. But by providing some options and benchmark pricing, I will draw those who are interested and prepared to pay the price, and avoid the “tire kickers”.

    Thanks for providing an additional boost to my already forward momentum on the pricing front. Cheers! Kaarina

    • Thanks Kaarina – I agree – now with the online world pricing is even more important than before. I know from my own behaviour I scour numerous sites before making my decision to buy.

      I admit for what we do there is obviously the human element that comes into play vs. a product like shoes for example. Obviously is someone likes you and wants to work with you price shouldn’t be a big issue. However, sometimes we run the risk of creating an illusion of being “too expensive” (it’s always nice to be perceived in that way but could that be turning away your clients?)

      I have to admit that those who do publish their prices have often surprised me … the surprise ranges from YOU charge HOW much? To WOW you are seriously affordable and I want to work with you.

      Would love to know how publishing your prices works for you :)

  7. First of all, let me just say it’s awesome that JF was your ‘client’ Ameena. It’s like a modern day ‘Pretty Woman’ or something ;-)

    OK, sorry, had to do it. Seriously though, this is a subject that isn’t understood nearly enough, nor talked about enough, because our solution to every business problem is to lower prices….and boy is that a dumb way to make profits.

    On a personal level, I’m getting ready to bump my hourly rates with clients. Why? Because I have more than what I want/need, and I can get more…oh, and I’m dang worth it!!

    Thanks for being awesome Ameena!

    Marcus

    • It’s all about your value in the market.
      I wish people could understand that. The more work we do on ourselves the more we increase this value to the market.

      I will have to disagree with your hourly rate raise. You aren’t raising your price per hour, you are raising your VALUE TO THE CLIENT.
      Time isn’t a factor here. What if you can deliver that value in 20min? Are you going to lower your prices? Nop, actually you will raise them again because your value just went up.

      Oh and yep you are worth it buddy, awesome to see your amazing development online and off :)

    • Hey hey hey Marcus … trust you to pick up on the “client” thing. Naughty! Guess you got me back for all the Dirty Dancing comments :) (Whoa, what’s this conversation going to do to my keywords?!)

      Yes, you are worth it – selling yourself short leads to unenjoyable projects and clients and a touch of resentment – never good.

      Here is to being “worth it”!

      Cheers Marcus!

  8. Good article Ameena, very interesting and thought provoking.

    We recently took the step of going from a “free” service to a “paid for” service as as you say, we were attracting the wrong sort of client and de-valuing our work. So far it’s paying off.

  9. pea:

    I love this post and have had such similar experiences trying to get creatives to know and be proud of their potential financial value.

    A lot of it seems to come down to the relationship people have with money. They attribute to it the wrong kind of power. It can indeed be used powerfully but it is still merely a commodity. But people seem to think they lose their soul somehow asking for the correct amount for their labours.
    Either that or they neglect to give that side of their company the necessary research required to make a decent judgement call. Nervously pitching their worth too low makes buyers suspicious. Truth is, either you want to do business or you don’t. If you do, do it properly. Take it seriously and people will take you seriously.

  10. I’ve heard this idea more than a couple times, but it just clicked for me. If publishing low prices implies low quality, publishing NO prices implies NO products.

    That’s got to change. Thanks for the nudge in the right direction, Ameena. :)

    • Brian, thank you so much for your comment. You have made my day!!!!!

      You are spot on … no prices = nothing to sell or worse an cloak of ambiguity which means you have NO control over what potential customers are thinking.

      Please let me know how it works for you when you do publish prices.

      Thanks again for coming over! :)

  11. I absolutely agree Ameena. What I’ve been thinking about lately is taking pricing to the next level. I’m working at a university in Norway, and I’ve been discussing with some co-workers about raising the standards of the students that attend, and that the only way to do this (or the easiest way) might be to raise the level of grades they need in order to apply. We’ll get less students (at least in from the start), but then, the students that will apply and attend will be the “right” students and it might make it a trend.. so instead of just allowing everybody, as long as there’s capacity, why not just a certain amount (raising the price)?

  12. Good post Ameena – I’m late to the party on this one, but had it opened in my browser for about 3 days :S – I need to think on this one; selling directly from China, people know you get what you pay for, but for some reason, importers in their lust and greed for more margins and cheaper prices constantly…and I mean CONSTANTLY are shooting themselves in the foot. They negotiate the price down until the factory has little margin, receive junk and then cry about it.

    Going to meditate on this and further increase the awareness of the value added service that we provide. Also liked the idea of breaking services up into parts and then becoming services on their own. Hope you 3 are well in Provence!

  13. Arnissia:

    Awwwwwwsome! just the reality check I needed been stuck on this pricing issue for weeks Clarity!

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