The Dark Art of Pricing

This book will teach any business owner how to effectively price their products and services in order to make a profit, whether they're in retail, manufacturing, distribution, renovation, or custom building.
With few exceptions, most businesses use an outdated approach to pricing their goods and services. Whether they sell manufactured items, wholesale or retail or even provide financing, the conventional wisdom surrounding pricing was created in the late sixties and early seventies – a time when profit was evil. The conventional wisdom is built upon following the lemmings, built on fear that customers will leave you if you charge too much, built on ideas that you can buy market share by being the low cost provider, built on notions that need to be swept away. What is that conventional wisdom that stifles innovation in pricing? It has many faces like strict adherence to a notional margin number; like cost plus pricing; like customers buy on price considerations only. Successful companies are finding ways to break that mold. Just look at the banks. They have done a terrific job of convincing us that the interest rate is the sole criterion for choosing a lender. But I can tell you that there are other considerations like the term, amortisation period, balloon payments, fees and renewals.The point of this book is to convince you to take an innovative look at your pricing strategy. You have been to sales training, correct? And you have paid attention to doing the job right, the first time? Well sales and marketing are the promise to the customer. Operations is the delivery of that promise. But pricing makes or breaks a bottom line. What would happen if you could be the price leader and charge 25% more than your competitors? I know… Your first thought is that all your customers will head for the nearest exit. If that is your issue then you need to invest in your branding. Apple conducted an experiment that showed that if they raised their prices, only 20% of their customers would leave. Burberry, maker of luxury overcoats did the same and doubled their prices deliberately in order to lose 20% of their customers. But what if you could keep your pricing more or less the same and double your bottom line tomorrow by innovative use of pricing strategies?
Preface xv Introduction: Why Is Pricing Important? xvii 1 The Quick Fix 1 2 How to Present Your New Prices (Or, How to Sell Your Dream Price) 3 1. Prepare for Sticker Shock 3 2. Deal with Objections You Know about Early and Head-on 4 3. Keep Your Price to the End 4 4. Start with a Big Ask 4 5. Frame Your Price 5 6. The Power of Ten 5 7. Paint a Picture in Vivid Primary Colors 6 8. Make the Customer Open, If You Can 6 9. Make the Buyer Work Hard 8 10. Sandwich Your Price between the Benefits 8 11. Try to Make Your Price Nonnegotiable 9 12. The Cost Penalties of Not Buying 9 vi The Dark Art of Pricing 13. Don’t Squeeze Too Hard Against the Weaknesses 9 14. Let the Customer Win Something 9 15. Laugh Your Way to Your DREAM Price 9 16. Don’t Email 10 17. Price in Ranges 10 18. Be Persistent 10 3 Pricing for Start-ups (and Beyond) 13 1. Provide What the Market Wants; Don’t Start by Finding a Market after You Have Made the Product 14 2. Customer-Driven Pricing 14 3. It Is Not about Sales, It Is about Profits 16 4. Customer Loyalty and Its Role in Your Pricing 17 5. Choice and Niche Markets: A Profit Opportunity 20 6. Price in Threes (a.k.a., Good, Better, Best Pricing) 21 7. Decision Fatigue: Analysis Paralysis and Its Role in Pricing 22 8. Bad Customers Drive out Good Customers 26 9. Wrapping It All Together 28 4 Positioning for Price (The Role of the Unique Selling Proposition) 29 1. How Do You Use a Unique Selling Proposition? 29 2. Step 1: Dissect Why You Originally Decided to Sell Your Widgets or Services 30 3. Step 2: Unearth Those Customer Benefits 32 4. Step 3: Analyze Your Customer 33 5. Step 4: Examine the Customer Cost Variables 34 6. Step 5: Use the Power of Ten 35 7. Step 6: Make the Customer’s Choice Easy 36 8. Step 7: Exploit Perceived Value 37 9. Step 8: Who and When Is Your Customer? 37 10. Step 9: Think Like a Customer 38 11. Using your USP to Position for Price 39 5 Value Pricing 43 1. What Is Value Pricing Exactly? 44 2. Applying Value Pricing: Pricing on Purpose 46 Contents vii 3. Value Pricing Is Tip Pricing 46 4. Value Pricing Is Tip Pricing: Accounting 48 5. Value Pricing for Distributors 49 6. Pricing for Value 49 6 Pricing and Branding 51 7 Pricing Strategies Based on Customer Behavior(s) 55 1. Reference Pricing 55 2. Proportional Price Evaluations 57 3. Perceived Fairness 58 4. Price Dripping 59 5. Gain-Loss Framing 60 6. Gender Differences in Pricing 60 7. Prospect Theory 61 8. Using Customer Behaviors to Benefit Your Profits 62 8 The Failure of Conventional Pricing 65 1. WAG, SWAG, and STICK Methods 65 2. Cost-Based Pricing 67 3. Margin Pricing 68 4. Risk and Return 69 5. Don’t Be Afraid to Charge What You Are Worth and Change How You Do Things 72 9 Successful Pricing Strategies 75 1. Price Optimization 75 2. Seven Questions for Price Optimization 76 3. Optimizing Pricing for Limited-Time and/or Limited-Inventory Offers 76 4. Activity-Based Costing (ABC) and Activity-Based Pricing (ABP) 77 5. Dynamic Pricing (Surge Pricing) 80 6. Data and How It Gets Used to Generate Profits 82 7. Price Skimming: Lessons in Pricing from Apple 83 8. Pocket Price Banding 84 9. Bundling and Unbundling 85 10. What Now? 87 viii The Dark Art of Pricing 10 Retail Pricing 89 1. The Most Effective Pricing Strategies 90 2. Discounting and Sales 91 3. Steps in Promotional Discount Pricing 92 4. Going from Analysis to Action: Implementing a Price Increase 92 5. Price Lining 96 6. Odd Pricing 97 11 Pricing Conclusions and Steps to Profit 101 1. Sell Your Price and Reap the Benefits 101 2. Stop Discounting: It Kills Profits 101 3. Cut Your Price Waterfall Costs 102 4. Spend Time Developing Your USP and Branding 102 5. Pay Obsessive Attention to Customer Service and Quality 102 6. Develop a System to Review Your Prices and Apply Frequently 102 7. Build, Track, and Analyze Your Data 102 8. Keep Going 104 12 How to Price: A Workbook Approach 105 1. Step 1: Make a Decision to Position Your Company 105 2. Step 2: Pick a Niche Market 106 3. Step 3: Put Value First and State It 106 4. Step 4: Frame Your Price around Your Competitors’ Prices 106 5. Step 5: Create Your Dream Price 107 6. Step 6: Collect Data 107 7. Step 7: Be Aware of Your Marketing Environment 110 8. Step 8: Don’t Be Afraid to Experiment 111 13 True-Life Business Scenarios 113 1. Pocket Price Banding: Castle Battery Company Case 113 2. GENERIC Truck and Diesel Ltd. “Re-setting the Clock” 117 Download Kit 123 Contents ix Checklists 1 Optimized Pricing 77 2 Steps to Running Promotional Discount Pricing 93 Worksheets 1 Sell Your Price 12 2 Find the Minimum Viable Price 23 3 Develop Your Three Prices 24 4 Develop Your Unique Selling Proposition 40 5 Figure out Your Value 47 6 Position Your Price 73 7 Seven Questions for Price Optimization 78 8 Retail: How to Have a Sale 98 9 The Price Waterfall (or How Profits Drain away) 103 10 Strategic Considerations 109