- Tech & Gadgets
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Published 31 May 2012 03:45, Updated 31 May 2012 03:51
In my time of working in and studying business, one of the constant dilemmas for any business owner has been price setting.
Whether it is the operation of an airline and pricing tickets or running a services business and valuing the rate per hour of the provider, there is always going to be the predicament of making sure that the price is right.
Comparable products generally will have their price point set by the state of the competition.
Plasma TVs are a great example, as the large retailers have had to drastically reduce their prices merely to compete with the new online retailers that sell a pretty similar product with a long-term warranty much more cheaply (particularly because they don’t have the large retailers’ overheads for retail space and labour costs to sell the product).
But what about services? What is the real value of an hour of someone’s time?
The strange thing is that in accounting and financial services, the customer does not believe that rate per hour is the best measurement.
After all, the slower the service provider is, the more he or she will get paid.
Nowadays with competition heating up more and the customer being able to quickly and easily assess the price of the competition, the traditional methods of pricing for accountants and lawyers and other service providers have started to get completely “on the nose” of the customer for the very reason that the slower the provider is in getting the result, the more the customer has to pay.
In the 1990s, I can recall making the move to offer our services to our clients and customers at fixed prices.
I based this on my experience with dealing with a law firm at the time which sent me a bill for 17.9 hours of its time; I couldn’t help but question the process.
Did a lawyer or lawyers really spend 17.9 hours on my job? Was there a lunch break that was charged to our account? Were the lawyers working on it properly focused during their work on my account?
Naturally I paid the bill but actually thought that if I had been quoted a fixed price to do the job, then I would have had my expectations in alignment immediately.
I would have certainty around the costs that I would pay and I wouldn’t have to worry about thinking whether they really worked hard for that 17.9 hours.
The truth be known, if I have accepted the engagement at a fixed price, it really wouldn’t bother me whether the law firm did the job in two hours or 18, so long as quality of the job was up to high standards.
So we began doing our work substantially in the fixed price arena in the ’90s and haven’t looked back.
Recently, I attended a conference where two of the speakers were Ben Cohen and Jerry Greenfield of Ben & Jerry’s ice-cream fame.
This massive business was developed by two best friends in the United States and is now recognised all over the world.
I got the chance to discuss pricing with Ben and Jerry and one of their revelations was that their company really started to take off as soon as they accepted that they were in the super premium segment of ice cream, which is only 10 per cent of the total ice cream market, and that the value of their product was also super premium and that they deserved to price it accordingly.
On the basis that long after the price is forgotten, the quality will be remembered, most great brands can price their product more on demand for their product than on the competitors’ supply of a product.
This holds true, of course, only if the brand can truly differentiate from and outshine its competition.
The last word on pricing though, is that the ultimate judge of quality must always be through the eyes of the customer, because good businesses want their customers to come back for more.
So getting the price right is about making sure that price always stays underneath value.
Next week: The founder of Freelancer.com, Matt Barrie