The Prickly Issue of Pricing

In this era of debate and discontent, there are a few things that almost everyone can agree one.  For example, almost anyone who travels regularly will say that traveling these days is a drag.  It’s not just the waiting and the security checks and the delays, either.  The pricing is getting a lot of people down.  In addition to paying for your ticket, you have to pay for your luggage unless you’re flying Southwest.  If you want a pillow or a snack you have to pay for that in some cases.  More legroom?  More money.  Some airlines are even starting to charge more for being allowed to leave the plane first.  All of this “nickel and diming” is wearing out a lot of constant travelers. 

We recently watched a brief presentation by Marco Bertini, Assistant Professor at the London Business School.  Called “Putting a Price on Customer Loyalty, the three-minute video appeared on Harvard Business Review’s website.  Bertini suggests that airline pricing methodologies offer a great example of how NOT to price your products or services.  If that’s a given, how can you approach pricing so that your customers will feel loyalty rather than hatred? 

Bertini offers five steps that will enable you to build customer loyalty while maintaining a price structure that’s beneficial to your company.  We thought we’d dig into each one a bit more in-depth than he did in his 3-minute talk. 

1.  Focus on Relationships: Whether or not you use social media for your business, the philosophy surrounding social media has certainly begun to infiltrate many businesses.  In other words, people no longer want to be treated like a transaction.  Even in the B2B world, relationships need to be the focus more now than ever before.  When you alter your pricing one way or the other, make sure you keep your customers or your distribution networks front and center.  How can these changes benefit them as well as your own company? 

2.  Be Proactive: As you begin to think more about your customers, you will find that you get a better feel for what they might want next.  This customer-centric approach is not only at the core of integrated marketing communications, it’s also at the heart of the Social Business concept.  As customers help influence your plans for new products and/or services, you can reciprocate with pricing structures that, again, will benefit them as well as your company.  You will also be able to change your pricing structures in advance of what you know your customers will request.  These efforts will dramatically increase customer loyalty. 

3.  Be Flexible: Bertini is pretty clear on this point. “ Rigid pricing does not work.”  A powerful way to build customer loyalty is to reward customer loyalty.  Can you offer discounted pricing or “value-adds” to long-time customers?  It’s important not to short yourself, but few things drive loyalty more than making a customer feel special and appreciated. 

4.  Be Transparent: Bertini notes that many companies that struggle with customer loyalty also are “opaque” when it comes to pricing issues.  For example, it’s not really clear to us, as customers, why airlines are suddenly charging a dollar per peanut when we used to get those for free.  Of course, we can all assume it’s because the airlines are struggling and fuel prices have gotten higher, but as customers, that doesn’t make us feel any better about the extra fees.  As you set your pricing structures or as you make changes, be transparent with your customers.  Bertini suggests that not only will this make customers feel more at ease about any changes, but it will also encourage them to be more forgiving of any mistakes. 

5.  Understand Market Standards of Fairness: It’s not a secret that your customers and prospects are finding it easier and easier to comparison shop.  Indeed, there are sites that exist solely to help people comparison shop.  It’s important to remember that you can “low-ball” pricing or go the other way and offer pricing that seems exorbitant by industry standards.  If your prices are too low, the customers you get will not likely be loyal – they’re price customers, and as soon as they find a lower price they’ll leave you.  Sales consultant S. Anthony Iannarino wrote about this in his excellent blog post, “You Will Die By That Same Sword.”  Similarly, if your pricing is too high, people will assume you are being unfair, and that does not earn loyalty either. 

Do you approach pricing from a strategic vantage point?  Are your decisions weighted as much towards your customers as towards yourself?  What have you experienced in trying to earn customer loyalty with your pricing structure?  We’d love to hear your thoughts! 

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8 comments on “The Prickly Issue of Pricing”

I absolutely love this article.  This is exactly what I am always trying to tell the retailers that I work with when discussing pricing strategy.  So many want to stick it out there at the lowest price and assume that is just going to stick.  What they don’t realize is that someone can always come out with a lower price.  You would just be adjusting your prices every day and eventually cut your profit to nothing.  Walmart has the buying power to do this, independent business owners don’t/

A customer will be more likely to come back if they get to bargain with you for what they think is a fair price.  Once you build that personal relationship, a customer will be more likely to say, let me see if they’ll give me another deal like last time.  Or even better, tell their friends, just tell them I sent you, they’ll take care of you. 

People who obsessively shop for the lowest price don’t care who they are getting it from and actually feel accomplished if they are able to acquire something off a store at a loss.  These are the folks who drive to Burger King and buy a 99 cent Whopper, then drive to the convenience to save a dollar on a soft drink without taking into consideration the cost of lost time and fuel. 

The truly savvy customer will understand that you pay for what you get and over time quality, service, and a retailer that stands behind their products are worth a little bit of extra money in that long run. 

My general strategy is to offer a fair (but not necessarily low) price on my products.  Usually, as close to MSRP as the market will bare, but with a willingness to negotiate with every customer on every item.  Customers appreciate the fact that they were able to negotiate for what they felt was a fair value, and are less likely to keep looking elsewhere for a better bargain once they have negotiated for a price they are satisfied with. 

This is why pricing is such a difficult issue.  You want to be low enough to be competitive but you don’t want to be so low that you become a commodity product if you aren’t actually in that category.  While people may have a favorite kind of toilet paper, generally they will go with what they can get for the best price.  Same for paper towels.  If your product is worth more money, don’t be afraid to say so, but it’s best not to play games with your existing and potential customers.  They usually get hip to that jive pretty quickly. 

Marjorie,
Thanks for the interesting and well-timed article.  My industry (pro audio) has historically given clients choices of ala carte items, under the philosophy that they can control their own costs by buying only what they need.  But in the past 15 years or so, clients have become so unsophisticated that such pricing seems like “nickel-and-diming” them. 

I used to hear many fliers say that they would gladly go without airline food if the carrier would reduce the price of the ticket.  Now that airlines have gone to that pricing mode, passengers complain about “extra fees.”  So much for customer focus. 

The phenomenon seems to be part of the overall cultural corrosion of consumers wanting to buy a Corvette for the price of a Chevette and hide the difference in someone elses’ bill. 

You raise a great point, Dan.  In many businesses, and this extends to the healthcare industry I think, people simply don’t understand everything they’re getting.  Do you line item everything, give them a choice, but perhaps confuse them more or do you glomp everything together only to be asked where that price came from?  It seems there isn’t a win-win situation, doesn’t it?  🙂

For the past 30+ years my IRL approach has been totally customer-centric.  I’ve always said: I’m not a taxi cab.  I don’t charge by the minute/hour.  You buy value and results, not time. 

For that reason, I really struggled with and resisted posting prices on my blogsite.  What worked well IRL just did not seem to translate online. 

In person, I’d be able to have a conversation about a person’s needs and wants.  I’d LISTEN.  And when the appropriate moment occurred (and it always did), I’d be able to say, “I could help you with that” and/or “If I can’t help you, I can direct you to someone who can.” 

I’ve put some package prices online, but I’m really considering whether or not to go back to the “contact me for information” re: pricing.  I’ve seen both, and I’m not sure what will work best.  I’m experimenting with having the price packages online, but with an emphasis on contacting me to configure a customized package. 

I’ve also seen coaches who indicate what their services are, with a CTA to find out about prices. 

My pricing decisions have always been weighted in favour of the customer.  I’ve worked within the budgets of those I WANT to work with, even if/when their budgets have been limited.  I’ve considered those decisions to be pay-it-forward. 

But when you’re online for all the world to see, that unique customization is impossible to convey as effectively as in person. 

Anyone have some thoughts or experience or suggestions on this dilemma?  Cheers!  Kaarina

I think it really depends on your business.  On the one hand if you have pricing available people will know if they will be able to work with you.  There won’t be any surprises, so the calls you get will be more qualified.  On the other hand, you may be feeding your competition an advantage by posting your pricing.  We know in the online world that a lot of people can make a REALLY big deal out of pricing if they feel it’s ridiculous (whatever that may mean).  It’s definitely a tough issue. 

Kaarina, would there be a way to do both? –  for simple or routine or easily classifiable projects, have some numbers available on the website, but also include a comment like, “Most of our work involves developing custom solutions, so let’s chat about your needs”?