Most pricing is done as cost-plus or value-based. Both are good but incomplete. In my experience, those who set the prices, don’t know, forget, or leave out costs that they shouldn’t. Sometimes it is the cost of the salary of the principals. As often it’s all the costs involved in being able to provide this product or service whether you are the manufacturer or just the provider before you get customer #1. I have a client who is launching a new product and thought it had cost about $10,000. Once we did the numbers (not included opportunity cost but real numbers), it was closer to $55,000 and it was not even launched yet. ‘
Value-based pricing is better because it incorporates the costs and the value this product or service provides the customer. If all the true total costs are accounted for, then determining what the customer gets out of it, should be relatively simple. Market research, competitive analysis, and usability testing gives you a place to start.
However, a strategy that goes beyond both is a new concept, “Legacy Pricing”™. It doesn’t just look at the past or the present, but really focuses on the future. The future of the company is its legacy and it’s too often forgotten. Without a legacy, nothing goes beyond day-to-day and the value of the business is reduced even if it survives.
Using Legacy Pricing™ means using other best practices.
1. Price for your legacy customer, what I call your Platinum Profile™ customer.
The latest research suggests that about 15% of your customers account for 55-70% of your total sales. Price to keep loyal customers not for any customer and not just to get people calling or coming in the door. The platinum profile™ system lets you really know who to focus on and who to eliminate. It includes demographics, psychographics, risk tolerance, decision-making style, purchase behavior, and the “game” they play. Price for them and you won’t leave money on the table and you won’t exceed their “pricing flinch point”™. (The point at which you can see a physical reaction to the price you name.)
2. Price for positioning, now and in the future.
Don’t forget where you’re going and who you want to go with you. One of the biggest dangers of discounts, coupons, etc. is that it ruins the positioning that you have established. No longer are your products and services the best, Why do customers feel like that? Because the best products provide the extra quality and value that takes time and effort. If there’s not enough time to provide this or enough quality staff, then your customers will see you as just “one of the group”. And, worse, not worth they loyalty to you. There is one universal truth: you can’t “steal” a happy customer. Loyalty and feeling special makes them feel like they belong and they will stay.
3. Make sure the right person does the pricing and determines any exceptions. If you have to do the pricing, have someone other than you review it. If you have partners or staff or hate dealing with pricing, have all those who work with the product or service give you input. Then do your market research based on that legacy customer and re-check your numbers. See if it will support the positioning you have and the positioning you want to maintain. Finally, it’s better to still get someone not connected with your business to review what you’ve done and ask the hard questions.
If you have questions about your pricing or comments about legacy pricing™, please feel free to email me.