Establishing Your Price Part 1:
©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 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 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 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 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
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