Battered Fiestas, Bazaars and Brilliant Ideas


Thank you. A great response to last week’s post with some really helpful comments and e-mails. Most of them were concerned with what to charge when you’re supplying a service – thoughts on manufacturing widgets were thin on the ground…

I wrote last week about the importance of perception in pricing – and about the power of ‘9.’ Winner of the ‘first to comment’ award was Rory Ryan :

I have sent out fee quotes for €2,300, €4,450 etc. Should I switch to €2,299 and €4,449?

I suspect this might have been a little tongue-in-cheek from Rory, but it illustrates an interesting point. An eight-year-old Fiesta with 60,000 miles on the clock might well be €2,299: a quotation from one of Dublin’s leading architects is – and always should be – €2,300. Perception again. If Rory sent out a quote at €2,299 what does it say? To me it says, ‘We’re desperate for business.’

This leads neatly on to discounting. Dick Jennings made the point that many people quote a high (or very high) hourly rate so that they can then ‘discount’ and make the client/buyer feel good. I have one big objection to this strategy – it takes away a lot of trust. As Dick pointed out, it is exactly like a Middle Eastern bazaar and I’m not sure that haggling over something you’re now mentally comparing to a carpet is the best basis for a professional relationship.

So should you never discount? No, I wouldn’t say that. I will discount my consultancy rates for two reasons:

• To help an established client who’s going through a particularly tough time
• To help a new client who I think will become a very good client in the future

But equally, there are two rules that I’ve learned from long experience:

• The discount has to be for a limited period of time and you need to agree that time at the outset
• And the discount cannot be ridiculous: if you charge £100 an hour discount to £30 an hour at your peril. I’ll tell you here and now that you’ll never get back to £100 an hour with that client.

Doug Adamson wrote about how good advice and great ideas can transform businesses. Spot on, Doug. Somewhere there are the guys who came up with Compare the Meerkat, Red Bull gives you wings and at the dawn of time, A Mars a Day Helps You Work, Rest and Play. Are these gentlemen now relaxing on their private islands in the Caribbean? I doubt it. Because as we’ve repeatedly discussed on this blog, success comes from ideas plus action. The oft-quoted ratio, ‘1% inspiration and 99% perspiration’ is depressingly true. Without the concept, the animation, all the other promotional work and the millions that Dietrich Mateschitz has ploughed back into it, Red Bull gives you wings might well have stayed a nice idea on a copywriter’s notepad.

All of which reinforces the point Dick made: that it’s very difficult to measure – and therefore to charge for – ‘value-added.’ Charging by the hour may not be exciting and may not have the potential to hit the jackpot, but everyone at least knows where they stand at the outset. And there’s probably a lot less potential litigation down the road…

Adding my own experience to your insights and comments, four key pricing principles emerged from last week. I’ll develop them fully in next week’s post and hopefully include some more comments. But in brief they were:

• Perception, positioning and message are vital. If your business is about providing a top-quality product or service, then everything about your business has to say that
• Attractive as discounting and offering a loss-leader might seem, they’re fraught with danger – and in my experience, rarely work in the long run
• You must have faith in yourself: it might be hard when a few people say ‘no’ but hang in there. To quote another ad, You’re worth it.
• And be consistent. You can’t be offering a premium service one week and competing on price the next. Define your message, and stick with it.

Have a great weekend – and let’s hope it’s finally time for the key principles of lighting the barbecue…

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7 comments

  1. Matthew Rohan · May 4, 2012

    Ed,

    One of the 1st I have read. Will try and read more.

    Regards,

    Matthew

  2. Chris Wilson · May 4, 2012

    So did you state your golf handicap today as 27.9, or 28?

  3. donaldinglis · May 4, 2012

    Billing by the hour hmmmm. I avoid it if at all possible. Why because it encourages me to be as slow and inefficient as possible – surely not what people want from their accountant. Having said that a tax return for £99.99 or £100.00 – I agree £100.00 is the way to go for me.

  4. Stuart Graber · May 5, 2012

    Ed,

    In my experience the ” professional relationship” between the client and service provider needs to be honest, forthright and consistent from the start. One needs to be flexible in certain circumstances however higher fees and other rewards will follow depending on results and a continuity of great service.

  5. Sarah Shafi · May 8, 2012

    First things first. Thank you Ed for always bringing up such relevant business conundrums with real sensitivity and balance.

    Pricing has always been a challenge for me and I have made some incredible blunders along the way…which have of course been wonderfully steep and precious learning curves!

    Having sold high end luxury leather goods, that had a significantly higher price tag than anything else out on the market, to a specific industry (hairdressing), 2 things soon became very apparent. There were 2 distinct market groups and many clients exist in both of them.

    1. Many people love to be associated with the best…and they will pay for it without question if that’s what they BELIEVE. If you’re promising the best then you have to deliver not just the best product but the best BRAND EXPERIENCE. Brand loyalty is an entirely emotional relationship, it’s where our desire turns to need…and makes selling easy.

    2. Everybody loves a bargain not many how much. So, if the price tag looks like it could be rounded DOWN somehow it makes it much easier for us to justify the purchase – many of us savvy shoppers will do just that (I’m guilty :-). Notice how many of us (and wives are often the experts!!) will say something was UNDER £200 when it was in fact only £1 less @£199! The magic 9 does work…and it will carry on working because it has an emotional connection with our sense of justice and fairness.

    Here’s one thing I learned. After a few years of sticking with manufacturing in the UK (there weren’t many companies still manufacturing in the UK) I was able to negotiate my costs and subsequently cut my overall manufacturing cost by nearly 40%!

    This was great! We were hitting the recession head on and sales had fallen. I decided to give the cut in my manufacturing costs back to the client, so I lowered the price. Big mistake.

    Pretty soon I had phone calls and emails from clients asking why people could now buy exactly the same product, that they had paid a high price for, much cheaper. They felt cheated. I explained exactly what I had done which eventually seemed to be accepted and understood.

    Now here’s the interesting bit…
    Most of these upset customers were salon owners who wanted to encourage their stylists to aspire to be the best. They had positioned my product as an aspirational product (I blush) and as such wanted their stylists to see that if they wanted to own something special, they had to work for it. I had taken that away from them.

    My advice…It is all about perceived worth. End of story.

    Sorry it’s been an essay. I’m off looking after my sick girl (who’s currently blasting out Queen in the other room!). I’ll be getting that uniform of hers out methinks…

    Sarah x

  6. Sarah Shafi · May 8, 2012

    Oops! Point 2 meant to read ..
    Everybody loves a bargain ‘no matter’ how much!
    Crap proof reading – sorry 🙂

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