Pricing Strategy Masterclass
This activity requires you to view two videos, the first one in its entirety, and small extracts from the second.
Business owners would do well to develop an interest in behavioural economics, and to get you started down that path I encourage you to view the Ted Talk video below. It is entertaining, engaging and very informative. The video runs for 18 minutes, find the time to watch it in one sitting. – It’s not working it’s entertainment – promise.
The next video is very long, but I want you to watch only a few minutes of it.
It was Ron Baker who convinced me to work with my clients on their pricing strategy. I was lucky enough to meet him on several occasions on his regular visits to Australia. He is an American CPA author and keynote speaker. I was first attracted to him because of his enormous depth of knowledge on pricing, however, he is even more famous for being one of the first to suggest accounting firms, in fact, all businesses, should dispense with time tracking and stop billing by the hour. On this matter, I disagree with his thoughts, but this is not the forum for that argument.
I mention it here as much of the second video is devoted to the topic of value pricing, and it is not what I want to talk about, however, the video does contain incredibly valuable information about the subjective and contextual nature of pricing. This is really really important, and something you need to reinforce with clients whenever possible.
So, with apologies to Ron, I highlight below those parts of the video I do want you to pay particular attention to.
Start viewing at the 19m 20s mark of the presentation where Baker introduces the first of 2 laws of Pricing. The First Law of Pricing: All VAlue is Subjective; you can follow the video through until 23m mark, then skip forward to 48m where the idea of customers having a range of prices they are prepared to pay for a product or service is introduced. If that is true, and I expect you will be convinced it is after watching the video, what does it mean for your business if you currently offer a one price fits all product or service? It means, you are leaving profit on the table in some transactions, and missing out on sales (profitable sales) in other transactions. What I want to teach you is how to work with pricing strategies that will allow you to capture more value from your customers.
This is what Baker refers to as The Second Law of Pricing: All Prices are Contextual meaning what we are prepared to pay for something is determined by what we compare it to. Stay with the presentation to about the 51m mark, and note the connection back to the first video in this lesson.
And finally, if you still have time, head to the 53m mark for an interesting discussion about framing and anchoring.