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Establishing
Your Price Part
1:
Pricing Policies
©2005-2009 Julian Franklin
NOTE: This article originally ran in "The Linking Ring", the trade
journal for The
International Brotherhood of Magicians
(the largest magic fraternity in the world).
How much should you charge for your
services?
This is one of the most common and
perplexing problems for those entering the field professionally or
semi-professionally and continues to be a source of reckoning and
second-guessing even for established pros. We are going to
look at two aspects of establishing your price. The first is
Pricing Policies. In another article I address Pricing
Methods. Pricing
methods are the “how” while policies are the
“why”. Pricing Methods explain how to
determine your fee while pricing policies explain how and when to use
pricing as a strategic tool in your business development.
Experienced marketers know that before
you enter a market you need to carefully consider your Pricing Policy,
as an error in the beginning can be very difficult or expensive to undo
later on. We will see why this can be the case as we look at
some examples. Next
month this issue will be addressed again as we look into pricing
methods. Once you have determined the goals you want to
achieve with your pricing, then you can more accurately and effectively
determine the best pricing method.
First, let’s review some of
the more common pricing policies and then look into some case examples
from our industry.
The pricing policies we will be looking at include: Penetration
Pricing,
Odd-Even Pricing, Customary Pricing, Symbolic Pricing, and Special
Event
Pricing. This list is definitely not exhaustive, but rather a
thorough
look at the policies most applicable to our service-based
industry.
I want to thank Kenneth Frehm, a retail consultant and member of Ring
74
for his help in the details of this series of articles.
Penetration
Pricing
Penetration
Pricing is a lower price used
when entering new markets. The goal is for the low price to
allow a business to rapidly make inroads into the marketplace,
establish themselves, and then, at a later date, they can possibly
raise their prices to reflect the value of their product or
service. The downside of this strategy is that
if a client comes to you for a cheap price, they will leave you for a
cheap
price. If you can’t quickly and effectively
establish value to your
clients and customers upon your introduction to the market you may be
stuck
at this low, introductory price. Marking your services down
is always
easier and more quickly accepted by your customers than marking them
up.
It’s very difficult to justify higher pricing when you
established customers
are used to your lower regular ones.
Odd-Even
Pricing|
Odd-Even
Pricing is a form of what is
called Psychological Pricing Policies. Psychological pricing
policies can
be amazingly profitable when you understand them. There is a
belief
that $99 sells considerably better than $100. Odd numbers may
seem
smaller having not broken the threshold they teeter upon, or maybe it
is
because they seem more scientific, as if there was considerable thought
that
went into the number as opposed to just selecting $100. A
classic example is the price of gasoline which is sold by the fractions
of a cent.
When you see gas at $1.89 it is actually $1.899, which is always $1.90.
Whatever the reason, testing has proven
that often times a bigger odd number will result in MORE bookings or
sales than a smaller round number. This may be the result of
other factors such as Symbolic pricing as described below. If
you are charging $100 (per hour, per show, or whatever) you may want to
test and see what happens if you were to
charge $125. Not only is it an increase in your fee, but
because the
number is less round, you may find it to be even MORE attractive to
your customers
than the lower price. $115 is even less round that $125 and
may pull
even better. $245 or $255 may be considerably more effective
and attractive
than $250, even though the price difference is only 2%, just because it
seems
less random, and less negotiable.
Customary
Pricing
Customary
Pricing is the strategy of
setting a price because that’s what the price has always
been. If everyone
in your town charges the same fee for a birthday party, it may be
difficult to break out of that customary pricing policy trap.
My dad loves to tell me about when candy bars sold for
5¢. The cost of things went up, as they always do,
but no manufacturer wanted to be the first to raise the price of their
candy. So they started making the candy bars
smaller!! They did the same thing starting just a few years
ago with coffee. You can’t find a 1 lb. coffee can
anymore that still contains a full pound of coffee. Check it
out the next time you are at the store. Most contain only 12
or 14 oz. of coffee. Of course, they still sell it in the
same 1 pound can!
If you find yourself in the Customary
Pricing Policy trap you will either have to break out, suffer through
it, or begin lowering your services in order to increase your
profit. I’m not a believer
in lowering service nor am I fond of suffering, and I hope you
aren’t either.
Symbolic
Pricing
Symbolic
Pricing is when a marketer sets
their prices considerably higher than the market in order to make a
statement about quality. Pharmacists once reported that
people would sometimes complain if a prescription didn’t cost
enough. I don’t think that would be
an issue today, but it goes to show how perceived value and assumed
quality
are often based on price. There are some people who will
always buy
the most expensive of whatever they are shopping for. If you
can back
up your price with a quality product or service, there is no reason not
to
claim a symbolic price. The downside is that you may need to
learn
or develop the skills to convey that quality to a prospective
customer. You must be able to justify to your higher prices
in terms of the clients perceived wants and needs.
Special
Event Pricing
Special
Event Pricing is the lowering
(or raising) of prices to reflect unique or temporary
circumstances. The most common example of this in the U.S.
would be retail stores on the day after Thanksgiving. The
idea is to lower prices in order to attract a large market share during
a specific time period. The motivation may be to increase
sales, reduce inventory (not usually applicable to service-based
business), or gain market share, among others.
A birthday party magician may find most
of his customers want Saturday afternoon. A special event
pricing policy might be to offer 10% off for booking on a Sunday or
Friday afternoons. This may result in a greater number of
overall bookings as you fill in times that might otherwise go unused.
Many magicians use the converse during
the month of December. Someone who does company picnics and
corporate strolling
at one price throughout the year, may raise their rates considerably
during
the month of December, simply because demand at that time of the year
is
so high.
As you review these different pricing
policies think about not only what you want and need right now, but
also where you plan
to take your business in the future and how you plan on getting
there. If you build a huge client base of price sensitive
customers you won’t be able to take them with you when you
raise your rates unless you have a strategy for educating them about
being more sensitive to quality and less sensitive to price.
It can also be difficult to raise your
fees. Once you get good and comfortable selling your show at
a given price, you will find some personal resistance to selling at the
newer, higher price, even though you know you deserve it.
Give the matter the thought it deserves
and don’t
be afraid to experiment a little as you try out different strategies
and
tactics.
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For Part 2 of this article, CLICK
HERE
Julian Franklin is one of America's leading marketing consultants, a
top behavior modification specialist, and author who develops creative
ways to stimulate growth in your business. For more information you can
visit www.JulianSpeaks.com
©
2009 Julian Franklin Productions
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