After Products, let’s talk about Price — another of the 4 Ps of Marketing. The Price factor has been dramatically changed by digital technologies so there’s quite a bit to cover.
I think Price is pretty self-explanatory. It’s what you decided to charge for your product or service. On some rare occasions, you won’t have a choice, you have to charge what government or industry dictates, but usually Price is something you or your company decides. What you charge should be a balance between what you feel your customers are willing to spend and what you need to pay your bills and strive. In other words, you want to charge more than it costs to make or deliver.
If what you sell is a service, the hard part is figuring out what your time is worth. Actually the first step is figuring out exactly what you are selling (see previous post). Consultants usually bill hours, but you can charge for results and bill commission too or you can charge a flat rate every week or month. After you’ve determined that, you need to figure out your rate. Christopher S. Penn has a great post on setting your consultant billing rate.
That choice is directly related to the Positioning you want. What’s the average your competition charges? Do you want to charge more than that? If so, what will make the extra cost make sense to your customers? Do you want to charge less than average? If so, how will you drive down your costs and how will you still give value to your customers? Are you going to charge the average price? If so, you’ll need to rely on the other Ps to distinguish yourself from the competition. Or you can ignore competition and charge what you feel you need to charge.
The trap of price
When we’re talking about services, as a personal preference, I usually prefer finding a way to charge above average by delivering more. Low-cost is a downward scale. There’s always someone willing to go cheaper. And the worst thing you can do is cut on your service quality (physical products can be a different story). When a customer buys a service, they expect something. If they go for something cheaper, and as a cost-cutting measure, you deliver less than they expect. They’ll be disappointed. Every time. And you’ll lose customers. We don’t have the same relationship with services than we do with products.
Where are we today?
Price got turned on its head because of the Internet and mobile phones. In a world where I can search Google for “Social Media Consultant” or ask my Friends, Followers and Connections, or scan a bar-code in a store with my smart-phone and buy the same product for cheaper online, Price takes on a whole new meaning. Price used to be straightforward. Customers wanted something cheap, they went to Walmart. They wanted something high-end, they went down 5th Avenue. That’s no longer the case. If I want cheap, I can go to Google or a shopping app on my phone. I want something high-end, I can use iGet.it. Every business these days is in some form of Price competition. Whether you offer a service or a product, you have to keep that in mind. You’re no longer competing with your direct peers, you’re competing against the world.
Let’s look at a quick example. I live in Montreal. If I do a quick search for “Social Media Consultant Montreal” on Google, I get just under 5,000,000 results. Not to mention the AdWords results. If you’re in that space, that’s your competition. Of course, there aren’t 5,000,000 consultants in Montreal, but you get the idea. If I’m shopping price around, the first page of results gives me 4 consultants, a couple agencies and a link to a LinkedIn search for the same query (which opens a whole other can of worms). That’s already 6 people I can reach out to for price inquiries.
What does it mean for you?
Obviously for you that means price takes on whole other meaning too. Of course some industries have been duking it out on price for years and this is nothing new. For others, it’s a whole new ball game. Just ask Best Buy or Blockbuster.
If we’re just looking at Price and ignoring the other Ps for a moment, the first place to start is to figure out your costs and your competition. Then, you need to figure out where you want to live on that competition spectrum. Then you need to whip out your calculator or Excel spreadsheet and crunch the numbers (see Christopher S. Penn’s article mentioned above).
Naturally, Price doesn’t operate in a vacuum. The other Ps mix in here. If your Product is low quality, you can’t ask for high Prices. If your Promotion isn’t done well, your Pricing will be affected. We’ll look at how each P influences each other after covering Promotion and Place.
I think the thing to remember here is you’re no longer living in a predictable space. For one, thanks to Google, social networks and mobile phones you’re competing against the world. And two, you really need to understand what it is exactly you’re selling. Is it design or is it conversions? Is it a wool scarf or is it fashion or warmth? Is it training or is it budget-filler?
Makes sense? Any questions?
(Photo credit: JD Hancock)