Sunday, January 24, 2010

What is the “right” price for your services: Tips for Mindful Pricing


Post Summary

Pricing for intangible services, especially in healing and sacred contexts is challenging. Here is a summary of the points discussed in more detail below:

1)Your inner beliefs create your outer reality: If you are not satisfied with the outcomes in your life, inspect your beliefs about your own value to your customers, about money, and your life. The world is just a mirror of your subconscious mind. What do you see in this mirror? Self awareness is an ongoing practice and I like to mention it first as it lays the foundation for outcomes in all aspects of your life.

2)You should feel good about your price. If you undercharge, just to get customers, you will not feel motivated to give your best and if you did give your best, you will not feel good about it. Very often well-wishers, coaches, and consultant will tell you that your price is too low and you should increase it and you do. But if you do not believe from inside that this is the right price for you that is the message you will send out and people will not be attracted to your products at that price. Consider the following factors in coming up at the right price and then arrive at the price that you know is right.

a.The cost of products, including your time. See below to calculate cost of time.

b.Your pricing objectives, making sure that your current pricing strategy is in alignment with long term goals.

c.Your desired livelihood.

d.Target market and positioning.

e.Competition. If you are providing better value than your competition, should you share competitors’ prices with potential customers? See what research suggests below.

f.The most important factor in determining the right price is the value you provide to customers in terms of solutions to improve their lives. Clarity in how you are improving your customers’ lives will give you confidence in asking for the right price. Think of different needs of people that your products can meet such as saving time or enhancing convenience, comfort, security, self esteem, career, social connections, entertainment, and creativity.

g.People pay for products to improve self esteem but studies show that mindfulness brings greater well being and satisfaction than self esteem. However, the marketplace brands improving self esteem command high prices and mindfulness services are expected to be free or available at low costs. If you are a marketer of healing arts or mindfulness practices, what are your perceptions about the price and value of the services you provide?

h.Very often people are not willing to pay not because your services are not valuable but because they are not confident that will be able to use your services or have the skills to take advantage of your services. It is important then to guide your customers to assess their skills and connect then with their potential and how your services will facilitate them reaching their highest potential.

Full Post

When I taught marketing how easy it was to describe the different pricing strategies. As an exporter of high fashion garments from India, pricing was again not too difficult after considering the costs and competition. Now as a marketer of services, pricing has been an interesting challenge. I realize I am not alone in this. Many people in my workshops and consulting have expressed confusion about pricing. The problem is magnified when what is being marketed is intangible and more so if it is considered sacred or has a spiritual connotation. What price can you set for something that is perceived to be sacred and whose benefits are priceless? Consumers and marketers of healing arts are often conflicted about marketing and pricing around such services.

The purpose of this Blog post is to provide some perspectives on pricing so you can arrive at a price that feels right to you. While it is important to be aware of the different pricing strategies, in the end you have to feel right about the price you are charging or else you will not get the results or feel good about the results you do get. If you charge a price higher than you believe you should be charging, you will subconsciously and consciously send that message out and people will not buy your services. If you under charge, you may find enough customers but you will not feel motivated to give your best because you are not being appropriately remunerated and customers may feel your dissatisfaction. At the right price – when you feel that the value you are providing is being appropriately remunerated – you will feel confident and happy to offer your services and people in contact who have a need for your services will also see the value they are getting.

Before discussing the factors influencing your pricing strategy, lets consider your inner beliefs that are creating your outer reality. If you are not satisfied with the outcomes in your life, inspect your beliefs about your own value to your customers, about money, and your life. The world is just a mirror of your subconscious mind. What do you see in this mirror? Self awareness is an ongoing practice and I like to mention it first as it lays the foundation for outcomes in all aspects of your life.

Factors to consider when pricing
To arrive at the right price, there are several factors you need to consider.

1)The cost
It is quite obvious that the price you set should cover the actual costs you incur. Costs include fixed and variable expenses. With respect to tangible goods these costs can be determined easily. If you are in the services industry, expenses like rent and employees salaries can be measured but how do you determine what is the cost of your time? One way to approximate that is to take the annual salary you are capable of getting if employed and divide that by the number of hours you will be putting in annually into the service you are providing. For an example showing how to calculate this, read the article on determining cost.

2)Your objectives
It is important to consider what are your marketing goals. For example, if your goal is to make your service popular, you may be willing to charge a lower price in order to get more customers. This pricing strategy is commonly known as penetration pricing, which introduces a new product at a low price in order to build market share. The other strategy, called skimming introduces new products at a relatively high price in order to recover sunk costs in innovation before competition enters the market. Well, to charge a higher price you have to have some cool or unique factor to justify the high price.

At different stages in your business development you may have different goals and as such your pricing strategy may also evolve accordingly. But do pay attention to your long term goals to make sure that the pricing you set today is not incompatible with pricing you will need to set for your long term goals. For example, you may offer a service at a cheap price to enter the market but may find that consumers gets used to your low price and you may find it hard to justify an increase in the future. So, if you do decide to enter at a low price, make sure you have a clear strategy around that and make it clear to your customers what that is. For example, you may introduce your products at the low price calling it an “introductory offer.”

3)Your desired livelihood
Different people have different income expectations based on their desired lifestyle. Assess your income requirements based on your desired lifestyle and calculate how much you would like to charge keeping in mind the number of hours of service you can offer and the demand for your service. The calculations can be done like we did in the cost of your time example.

4)Target market and positioning

The price would also vary based on the market you are targeting and the positioning you are creating for your brand. For example, if you are targeting affluent customers, naturally, you can charge a higher price, which will include all the frills along with the core service that this market can afford. On the other hand you may decide to service the less affluent market to which you can offer just the core product at a lower price and/or work with high turnovers.
A related point is that of positioning. Positioning is the perception you want your customers to have about your brand vis a vis your competition. The key areas around which you can create a unique distinction from other brands are pricing, service, delivery channels, product attributes, and image. Any or all of these areas would impact your pricing.

5)Competition
Knowing what your competitors are offering and at what price is necessary so you can be clear about the value you can provide. When looking at competitors’ prices, make sure you gauge their service attributes, what’s unique about the solutions they provide, and their specific skills in order to understand the value they provide. Also, adjust for different areas as some cities may have higher cost of living and can ask for higher prices.

Awareness of how your services provide value to your customers will give you more confidence in marketing your services. If you do a good job of specifying how you uniquely provide value, customers looking at competing services will come to you because you are providing value like no one else.

Should you explicitly ask potential customers to check out competing prices that are higher than you?

A word of caution though, if you explicitly ask customers to look at other competition to show that you are better, studies show that this makes customers cautious of the marketers’ intentions and likely to result in risk-averse behaviors (Dholakia and Simonson 2005). Only share competitors’ prices with your customers if your customers fully trust you and your intentions. Generally, it is better for customers to compare competing services and arrive at their own conclusions. You can only support them in the process by providing information about you clearly.

6)Value to customers
This is one of the most important points in determining your price and convincing buyers to invest in your services. In exchange for the money your customers give, you are providing them a solution to make their life better. For you and your customer to be convinced that this is the right price, you have to be very clear in your mind and your communication what is the specific benefit to the customer and how is it going to improve your customer’s life. The more specific you can be about the benefits, the better.

Dan Zambonini’s article provides a good list of consumer needs that your services can meet.
• Time: Convenience, Efficiency, Immediacy
• Scarcity
• Comfort
• Esteem: Id, Desirability, Self-Image, Ego
• Belonging: Relationships, Sex, Affection
• Survival: Health, Safety, Wellbeing
• Financial Security: Wealth, Success, Career
• Entertainment: Emotion, Experiences
• Intellectual Stimulation: Creativity, Learning, Expression

This is a good list to think about ways in which your services can help your customers. Your service can help people save time and enhance convenience comfort, self esteem, social interactions, survival, financial security, entertainment, and intellectual stimulation. Two insights inspired by this list:

- Image and self esteem related products
: Products and brands command a price for enhancing our image and self esteem. In this regard I want to point out that research has shown that mindfulness is related with higher levels of well being and satisfaction than self esteem. Currently, consumers and marketers of mindfulness products feel that such products should come free or at low prices. If such products bring profound changes in consumers and businesses that can be sustained in the long run, they should command a higher price than products providing short term solutions. We need to change the perceptions in people’s minds about mindfulness and consciousness raising products. Before you set out to change your consumers’ perceptions, what are your beliefs about the work you do?

- Financial security and career: Products command a price for bringing financial security and professional advancements. The article points to research showing that higher the probability of and control we have over the desired outcome, the more we are willing to pay. This suggests that people will be more willing to pay for your services if you can show them how your services increase their probability of reaching their goals.

Very often people are not willing to pay not because your services are not valuable but because they are not confident that will be able to use your services or have the skills to take advantage of your services. It is important then to guide your customers to assess their skills and connect then with their potential and how your services will facilitate them reaching their highest potential.
Setting your own price model – loyalty and quality don’t drive higher prices. Setting a reference price and providing value help more.

I would love to hear what has guided you in determining your "right price."

References

Dholakia, Utpal M. and Itamar Simonson (2005), “The Effect of Explicit Reference Points on Consumer Choice and Online Bidding Behavior,” Marketing Science, Spring, 24: 206 - 217.

Kalyanaram, Gurumurthy and Russell S. Winer (1995), “Empirical generalizations from reference price research,’ Marketing Science, 14(3), G151–G160.

Ryan, R. M., & Brown, K. W. (2003), “Why we don't need self-esteem: On fundamental needs, contingent love, and mindfulness,” Psychological Inquiry, 14, 71-76.

2 comments:

  1. "Why I Work For Tips:" http://is.gd/7F3Dl

    And another reason: I really don't have time for all the complexity above. There are innumerable beings to save. :-)

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  2. Thank you for sharing your post. I liked it very much. And here are my thoughts:

    I like and believe in the idea of exchanges that do not leave either party in debt to each other because of unequal exchanges. And pricing needs to be based on that principle. How this principle is executed as a pricing strategy may vary. You choose to tell people “pay me what you can, when you can, until you no longer feel indebted to me.” And it seems to be working wonderfully for you. There is another woman in SLC who runs a restaurant called One World Everbody Eats – a gourmet organic restaurant – and she lets people determine the price for the portions they take and it works for her.

    I feel that each person needs to “feel” right about their price and pricing strategy and there are many ways of arriving at that. The above post was inspired by the idea of discussing different ways in which you can find your "right" price that leaves you feeling good about charging in exchange for what you have to offer.

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