How can I improve my pricing strategy?Posted on: December 20, 2013
Pricing strategy was one of the key themes for my research, knowledge development and consultancy work during 2013 and there are many resources on this web site and in the blog that should provide help. I also recently presented conference papers on the subject focusing on solicitors providing private client and family law services.
I suppose the fundamental issue for those in the professions is to stop thinking about price in terms of the cost (billable hours) of the service and to focus on the value as perceived by clients.
Pricing is a complex subject and draws on skills from a variety of disciplines such as marketing, finance, psychology and economics.
As the Internet has grown and the excess supply of professional services has had an impact, more and more services have become commoditised. And in commodity markets, the lowest price wins. Therefore you have a number of strategic options:
- Differentiate your products and services so that they command a premium price. Many firms invest in building their brands so that there is a perceived different to support their pricing aims. Other firms have been innovative in developing new products and services where there are no comparable competitive offers.
- Increase the efficiency in how you provide your products and services – using different business models, technology, less qualified or experienced staff – so that you maintain your margins whilst reducing your price so that you become one of the price leaders.
- Develop a niche so that you can tailor your products and services to meet the specific needs of a particular segment of the market where your specialist knowledge is valued and maintain your premium positioning.
- Become smarter at developing service packages and propositions and adopt radically different pricing options that provide more value and choice to clients whilst making direct comparisons with competitors more difficult
In effect, most firms will use a blend of these approaches. In my work with firms, I use the following process for examining and developing pricing strategies:
- Analyse historic services, revenue and costs
- Consider competitors and alternatives
- Identify suitable segments
- Develop a benefit matrix
- Prepare a demand curve
- Develop different product/service propositions and price them differently
- Consider offering something for free
- Develop a price communication plan
- Offer multiple prices (anchoring effect) in written quotes
- Prepare to deal with competitive offers
- Consider different payment options
- Consider ongoing benefits and incentives