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

About the Author: 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. He has authored more than 20 books on human behavior, marketing, professional development, and personal accomplishment. He is frequently invited to speak on these topics as well. For more information, including the opportunity to subscribe to his free monthly e-newsletter, you can visit www.JulianSpeaks.com

© 2009 Julian Franklin Productions, Inc