Establishing Your Price Part 1:
Pricing Policies
by Julian Franklin
How much should you charge for your services?
This is one of the most common and perplexing problems
for those entering the field professionally or semi-professionally and continues
to be a source of reckoning and second-guessing even for established pros.
We are going to look at two aspects of establishing your price. The
first is Pricing Policies. In another article I address Pricing Methods.
Pricing methods are the “how” while policies are the “why”. Pricing
Methods explain how to determine your fee while pricing policies explain how
and when to use pricing as a strategic tool in your business development.
Experienced marketers know that before you enter a market
you need to carefully consider your Pricing Policy, as an error in the beginning
can be very difficult or expensive to undo later on. We will see why
this can be the case as we look at some examples. Next month this issue
will be addressed again as we look into pricing methods. Once you have
determined the goals you want to achieve with your pricing, then you can more
accurately and effectively determine the best pricing method.
First, let’s review some of the more common pricing policies
and then look into some case examples from our industry. The pricing
policies we will be looking at include: Penetration Pricing, Odd-Even Pricing,
Customary Pricing, Symbolic Pricing, and Special Event Pricing. This
list is definitely not exhaustive, but rather a thorough look at the policies
most applicable to our service-based industry. I want to thank Kenneth
Frehm, a retail consultant and member of Ring 74 for his help in the details
of this series of articles.
Penetration Pricing is a lower price used when entering
new markets. The goal is for the low price to allow a business to rapidly
make inroads into the marketplace, establish themselves, and then, at a later
date, they can possibly raise their prices to reflect the value of their product
or service. The downside of this strategy is that if a client comes
to you for a cheap price, they will leave you for a cheap price. If
you can’t quickly and effectively establish value to your clients and customers
upon your introduction to the market you may be stuck at this low, introductory
price. Marking your services down is always easier and more quickly
accepted by your customers than marking them up. It’s very difficult
to justify higher pricing when you established customers are used to your
lower regular ones.
Odd-Even Pricing is a form of what is called Psychological
Pricing Policies. Psychological pricing policies can be amazingly profitable
when you understand them. There is a belief that $99 sells considerably
better than $100. Odd numbers may seem smaller having not broken the
threshold they teeter upon, or maybe it is because they seem more scientific,
as if there was considerable thought that went into the number as opposed
to just selecting $100. A classic example is the price of gasoline which
is sold by the fractions of a cent. When you see gas at $1.89 it is
actually $1.899, which is always $1.90.
Whatever the reason, testing has proven that often times
a bigger odd number will result in MORE bookings or sales than a smaller round
number. This may be the result of other factors such as Symbolic pricing
as described below. If you are charging $100 (per hour, per show, or
whatever) you may want to test and see what happens if you were to charge
$125. Not only is it an increase in your fee, but because the number
is less round, you may find it to be even MORE attractive to your customers
than the lower price. $115 is even less round that $125 and may pull
even better. $245 or $255 may be considerably more effective and attractive
than $250, even though the price difference is only 2%, just because it seems
less random, and less negotiable.
Customary Pricing is the strategy of setting a price
because that’s what the price has always been. If everyone in your
town charges the same fee for a birthday party, it may be difficult to break
out of that customary pricing policy trap. My dad loves to tell me
about when candy bars sold for 5¢. The cost of things went up,
as they always do, but no manufacturer wanted to be the first to raise the
price of their candy. So they started making the candy bars smaller!!
They did the same thing starting just a few years ago with coffee.
You can’t find a 1 lb. coffee can anymore that still contains a full pound
of coffee. Check it out the next time you are at the store. Most
contain only 12 or 14 oz. of coffee. Of course, they still sell it
in the same 1 pound can!
If you find yourself in the Customary Pricing Policy
trap you will either have to break out, suffer through it, or begin lowering
your services in order to increase your profit. I’m not a believer
in lowering service nor am I fond of suffering, and I hope you aren’t either.
Symbolic Pricing is when a marketer sets their prices
considerably higher than the market in order to make a statement about quality.
Pharmacists once reported that people would sometimes complain if a prescription
didn’t cost enough. I don’t think that would be an issue today, but
it goes to show how perceived value and assumed quality are often based on
price. There are some people who will always buy the most expensive
of whatever they are shopping for. If you can back up your price with
a quality product or service, there is no reason not to claim a symbolic price.
The downside is that you may need to learn or develop the skills to convey
that quality to a prospective customer. You must be able to justify
to your higher prices in terms of the clients perceived wants and needs.
Special Event Pricing is the lowering (or raising) of
prices to reflect unique or temporary circumstances. The most common
example of this in the U.S. would be retail stores on the day after Thanksgiving.
The idea is to lower prices in order to attract a large market share during
a specific time period. The motivation may be to increase sales, reduce
inventory (not usually applicable to our service-based business), or gain
market share, among others.
A birthday party magician may find most of his customers
want Saturday afternoon. A special event pricing policy might be to
offer 10% off for booking on a Sunday or Friday afternoons. This may
result in a greater number of overall bookings as you fill in times that might
otherwise go unused.
Many magicians use the converse during the month of December.
Someone who does company picnics and corporate strolling at one price throughout
the year, may raise their rates considerably during the month of December,
simply because demand at that time of the year is so high.
As you review these different pricing policies think
about not only what you want and need right now, but also where you plan
to take your magic business in the future and how you plan on getting there.
If you build a huge client base of price sensitive customers you won’t be
able to take them with you when you raise your rates unless you have a strategy
for educating them about being more sensitive to quality and less sensitive
to price.
It can also be difficult to raise your fees. Once
you get good and comfortable selling your show at a given price, you will
find some personal resistance to selling at the newer, higher price, even
though you know you deserve it.
Give the matter the thought it deserves and don’t be
afraid to experiment a little as you try out different strategies and tactics.
Julian Franklin is a marketing consultant, behavior modification specialist,
and author who develops creative ways to stimulate growth in your business.
For more information, including the opportunity to subscribe to his free montly
e-newsletter, you can visit www.JulianSpeaks.com