There are numerous factors involved in setting prices: costs (obviously), value, supply and demand, competition, scarcity, branding, etc.
And whichever method you use to determine the final price – cost plus, marginal, market-based, value – what you end up with speaks volumes about your business.
Not just in terms of how profitable you are, or where you stand in relation to your competition, but how you are perceived by your customers and prospects. Are you seen as cheap, average, expensive, fair? And is this perception what you were aiming for? Does your audience think about price at all in relation to your product?
Removing price from the equation
It is a sound business goal to take price out of the equation in terms of the customer buying decision, but for most of us, this goal seems a long way off.
In the current economic climate, this seems especially difficult and it leaves us having to worry about price more than we want to. What will our customers pay? Should we start higher so that they can negotiate us down? How can we position ourselves – what value can we add – to reduce the importance of the price?
When it doesn’t work
It seems important to me at the moment for two reasons.
The first is an experience I had last weekend. We went to see Top Hat at the Bristol Hippodrome. We love the theatre and happily pay ticket prices because we feel they represent good value.
When going to see a play/show/concert, as a customer you have to cover the cost of putting on the show as well as the cost of the existence of the venue to facilitate the production. Top Hat was brilliant and we had no qualms about the ticket price.
Don’t get me wrong, it is an expensive hobby and we cannot afford to go as often as we would like, but we feel the exchange is fair.
However, it was a different story when we went to the bar. The receipt is sitting on the desk as I write this and just looking at it gets me agitated. All the prices were top end, but the piece de resistance was a medium glass of house wine (175ml, so four to a bottle) at £5.70.
Now the Hippodrome is a wonderful place and requires a great deal of upkeep and I know I am going to pay a lot for a drink or bag of sweets. This price, however, just seemed wrong: disproportionate and not relative to the actual product – the wine was not that great.
Value for money
Given that I have paid £80.00 for a bottle of wine in a restaurant before now (admittedly, not often), I don’t think I can be called stingy. But on those occasions it was for a reason – a celebration, I valued the wine I had chosen and the taste and experience matched the expectation.
The purchase at the Hippodrome was a shock, however, and it resonated. The upshot is that we will never buy drinks at the Hippodrome again. In future we will probably bring our own water and sweets (and maybe a hip flask).
It doesn’t really matter whether or not the Hippodrome can justify the price. What matters is that it doesn’t feel right to me.
The damage done
So what is the hippodrome’s strategy? Are they banking on a captive audience? Is that the price they need to charge in order to maintain the facility of serving drinks?
One bar was closed – I have no idea what the import of this is.
On the stairs going in (and in the snack bar behind the stalls) they were selling small glasses of wine for £4.00, in plastic, pre-packaged with peel-off lids. I did not need to think twice – I instinctively rejected this.
Are these things related? Will they phase out the bars completely to save wages? Are they trying to drive sales to the plastic? Have they asked their customers about any of this?
What are we supposed to think and how will it affect their reputation? We surely can’t be the only ones put off – there were certainly less people at the bars than I would normally expect.
What about my business?
The second reason is that, as far as my business is concerned, I am working in a price sensitive sector with a lot of competition. Our clients and prospects are, rightly, concerned about every cost and the value they get from any cost they do commit to.
My job is to show them that what I offer has value enough that price is not seen as a barrier. Of course a classic marketing conundrum and I am sure I am not the only business struggling with it at the moment.
Are our prices fair?
Well, naturally I think so. But is ‘fair’ enough? Even if a prospect accepts your price as fair, a competitors’ price that undercuts yours, for the same service, is even fairer.
Whatever the scenario, I always try to take prospects with me on the journey of what we provide and what we charge, what relationship we want with our clients and what we are trying to achieve for our business and for theirs.
They can choose to buy into that or not. If not, maybe I haven’t explained it very well, or we are not a good fit or they got a better offer. I can only hope, however, that they at least think we are fair.
What about you? Are your prices fair? How do you ensure your customers think so?
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