Business History Books » Business Consultant » Pricing and negative customer response..?
Pricing and negative customer response..?
Question:
> Hi all, > I’m a bit interested in price strategies and how to minimize the risk of
losing customer revenue or perhaps gaining more revenues by changing the price for services. > Anyone that have suggestions/ideas/experience on how to act?
Dear Kent: 1. Find out what you can about existing pricing in your market. a). You can ask your clients and your competitors’ clients what they are paying 2. Determine customer sensitivity to pricing vs features a) Interview your clients b) Interview your competitors’ clients c) Develop a price / benefit - price /feature matrix d) Estimate from external indicators the relative success / growth of your competition and your business 3. Determine the maturity of your market a). Is it saturated with competitors? (hard to jack up prices when it is, easier when it isn’t) b). Are competitors coming and going, or are there significant bars to entry, or is consolidation of competition occurring, or both? 4. Determine where your business will be in relation to the rest of the market a) We’re the best – very high quality service, very timely delivery, very understanding customer support – and we charge the big bucks b) We’re in the middle – not quite so good as the best, not quite so bad as the worst – and we charge in the middle c) We’re the bottom feeders – if you need it fast and cheap, we’re the guys to see. No, we don’t hold your hand 24 x 7, but we don’t charge for that kind of service, either. 5. Determine your flexibility and resources a) Do you really have a marketing advantage (something the other guys can’t duplicate)? b) Do the other guys have a marketing advantage? c) Game it out – what do you do if you raise prices and they drop – do you have the financial resources and the moxie to be in a price war, or (due to the above determinations) do you know that customers will stick with you despite being the price leader? d) Do you have the people and other resources to change your relative position in the market (improve quality, reduce lead times, improve customer service, etc.)? If you don’t have the experience, time, people to research these things yourself, competitive intelligence firms can assist, as can marketing research firms, as can marketing consultants. If you want to take on the conceptual side of these issues, try one of Professor Porter’s or Professor Oster’s books on Marketing and on Competitive Strategy. Good luck in your endeavors. George King g.e. king Marketing
Response:
George, Thanks! /Kent J. [ Excessively quoted material elided by moderator. -JimL ] > 1. Find out what you can about existing pricing in your market. > a). You can ask your clients and your competitors’ clients what they
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Response:
> I would appreciate any reading tips for a case study. > This must have been studied many times.
Kent, I have never lost a worthwhile customer by raising my rates. I try to keep myself in the 80th percentile for general consulting, and I double or triple my rate when I am doing something highly specialized. That is the only "case study" I know. — Mike
Response:
> Kent, I have never lost a worthwhile customer by raising my rates.
How do you know? The only supposition that one can draw from your statement is that a customer who will not pay an increased rate is not worthwhile. I don’t think I’m alone in thinking that would be nonsense. Don’t get me wrong – I’m genuinely interested in your response. I’m always keen to learn. — Derek Davidson Enterprise Blue http://www.enterpriseblue.com
Response:
> Kent, I have never lost a worthwhile customer by raising my rates. > How do you know?
I have a criteria by which I evaluate my customers. How quickly the clients pay their invoices, whether I like working with them, whether I enjoy doing the types of jobs they need done, etc. I’m also very careful about who I bring on as a customer and what kind of work I will accept — even during slow times. I suppose if I were selling two dollar widgets from a website, losing just about any paying customer would be bad. But I sell services. > The only supposition that one can draw from your > statement is that a customer who will not pay an increased rate is not > worthwhile.
That borders on silliness. I said no such thing. > I don’t think I’m alone in thinking that would be nonsense.
To the contrary, a small business, especially a service provider, that cannot tell a good customer from a bad has a serious problem on their hands. > Don’t get me wrong – I’m genuinely interested in your response. I’m > always keen to learn.
How do you identify and qualify your customers? What do you do with customers who are slow paying, or forever trying to knock down your price? If somebody is not willing to pay you what you are worth, how long will you continue to work for them? If your job sucked, would you keep it? Think about it. Mike
Response:
Mike, Thanks for your reply! I don’t want to be specific about the business. But we have a large number of customers from very small companies to large. The problem (not unusual) is that our competitors are unwilling to share with us the prices they charge from their customers. So the market price for our services is almost unknown. There is only one rule that is certain; big accounts – low prices, small accounts – high prices. One way is to experiment and see what happens with our revenues. Could be very costly! Raise your prices, lose some customers = less costs, Total result = more revenues & more profit I would appreciate any reading tips for a case study. This must have been studied many times. /Kent J. – Hide quoted text — Show quoted text -> I’m a bit interested in price strategies and how to minimize the risk of > losing customer revenue or perhaps gaining more revenues by changing the > price for services. > Kent, are you talking about gardening or consulting? > Anyone that have suggestions/ideas/experience on how to act? > This is largely a question of balls. What do you think you’re worth? If you > have the guts to charge twice what your competitors charge, if you are > offering a professional service, you can probably get it. On the other hand, > I wouldn’t pay thirty dollars to drive through your car wash when I can get > the same service down the street for fifteen. > Back to you: what is it about your car wash that is worth thirty bucks? > My specific advice: its easier to lower your prices than it is to raise > them. Raise your prices and raise them high. Weed out the bottom ranks of > your customers. See what happens and charge less if you must. > Mike
Response:
Hi all, I’m a bit interested in price strategies and how to minimize the risk of losing customer revenue or perhaps gaining more revenues by changing the price for services. Anyone that have suggestions/ideas/experience on how to act? /Kent J.
Response:
> I’m a bit interested in price strategies and how to minimize the risk of > losing customer revenue or perhaps gaining more revenues by changing the > price for services.
Kent, are you talking about gardening or consulting? > Anyone that have suggestions/ideas/experience on how to act?
This is largely a question of balls. What do you think you’re worth? If you have the guts to charge twice what your competitors charge, if you are offering a professional service, you can probably get it. On the other hand, I wouldn’t pay thirty dollars to drive through your car wash when I can get the same service down the street for fifteen. Back to you: what is it about your car wash that is worth thirty bucks? My specific advice: its easier to lower your prices than it is to raise them. Raise your prices and raise them high. Weed out the bottom ranks of your customers. See what happens and charge less if you must. Mike