At the start of 2013 I identified two main themes for my consultancy (and content strategy) – pricing and project management. They are, of course, linked. Earlier in the year I did some research into the pricing of family law services and have been interested to see that lots of other folk are now writing on the subject. It was also interesting to see that some firms have started to recruit pricing professionals.
Pricing (which spans finance, marketing, economics and psychology) is a challenging subject – even more so in the professions. As I’m speaking on the subject at various events throughout September and October, I thought I’d mention some books that might be of interest and help if you are grappling with the subject.
“Professional’s Guide to Value Pricing” (Ronald J Baker) was recommended to me by a brilliant entrepreneur-accountant decades ago and focuses on the legal and accounting professions. It’s not an easy read but it’s worth it.
“Priceless – the hidden psychology of value” by William Poundstone is more general (ie not focused on the professions), quite detailed and, as you would imagine, contains references to various psychology experiments about pricing. It takes time explaining each principle and I wouldn’t recommend it to the casual reader.
“The psychology of price – how to use price to increase demand, profit and customer satisfaction” by Leigh Caldwell is shorter and more accessible. Whilst some will find the chocolate tea pot case study that runs through it helpful, I am sure that others will find it hard to relate to the complexity of professional services. The contents and some of the highlights include:
- Pricing as positioning – create an association with a more expensive product
- Cost based calculations – know the margins, but don’t let it dictate the price
- Reading the customer’s mind – value modelling is a brilliant tool and should really get more attention in the professions
- Segmentation – I’ve written extensively on this core marketing idea on many occasions and as I mentioned recently, niches seem to finally caught mainstream attention although we’ve been doing it for years in the professions
- New launches, belief and fairness – there are always people more expensive than you and cheaper than you in the market
- Memory and expectations, trials and reframing – make it harder to do straight price comparison by differentiating. Change service propositions rather than simply increase prices
- Anchoring – a really important psychological principle that you would do well to understand when preparing pitches and tenders.
- Competition – niches and positive pricing PR are useful ideas here
- Decoys – remember that people don’t like extremes and will often opt for the “middle road”
- Paying tomorrow for what you get today – the opportunities presented by different payment options
- The tea party – interesting ideas on the peer effect, endowment, reciprocity and social marketing
- Bundling – personally, I think this offers great opportunities for professional services and their clients
- Free offers – tricky to use in the professions, but still possible and powerful if you can
- Upselling – we know this a little better as cross-selling
- Absorption and value pricing – some good ideas for partnering
- Other people’s money – how decisions within organisations are more rational than personal purchases and the debate between whether to advertise prices or not
- Managing the pricing environment – some interesting points to consider in price communications
- The psychology of giving – donations to charity work better than money off
- Ethics and law of pricing – mention of the OFT’s Advertising of Pricing
Early on, the book also describes the seven principals of pricing which you should commit to memory and apply at all times:
1. Pricing should be based on the value to the customer, not the cost to you
2. Prices should be tangible, so your customers can see what they get for what they pay
3. Prices should be comparable – on terms that you control
4. If you want to change your prices, you must reframe the service or products
5. Price differentiation is the key enabler of profit
6. Pricing communication shapes the client’s perception of value
7. You must be prepared to lose some sales in order to increase profits
I’ve got various professions based examples (e.g. benefits matrices for accountants and lawyers), a 12 step pricing development process and pricing ideas so let me know if you’d like an informal chat about the topic sometime.
Some previous key pricing blogs: