Premium pricing … priceless?
While thinking about premium pricing, and why many business owners and decision takers shy away from this, it seemed to this Business Growth Specialist that either they aren’t even considering it, or they’re just not thinking it through properly. It never ceases to amaze me how many times people query Value Pricing, as opposed to the Cost Plus basis, or even worse “the market price” cop-out!
I then remembered an experience from many years ago, which illustrates this very well. Do you remember that iconic French car, the Citroen 2CV? Very few Brits remained neutral about them; fans adored them while the majority mocked. Those who drove them for any length of time learned of the gearbox Achilles heel. One of the gear cogs or pinions unscrewed itself from it’s intended location, under certain conditions (the consensus view was that reversing too rapidly caused this).
Please remember two points here; the majority of owners of these cars were keen to DIY maintain their pride & joy out of economic necessity, and garage service rates were about £20 to £25 per hour at the time of this story. The choice was stark when this gearbox issue arose. Allow at least one full day to strip down and rebuild the gearbox yourself, or pay a garage to spend a day doing so for you, at a cost of maybe £120 to £150. Or at least that was it, until a local specialist innovated a quick fix.
Now there’s the key. Innovation. That specialist service centre devised a process which allowed them to fix this very problem in just half an hour! They set a price of £50 for this. That’s a premium of between 4 and 5 times the ‘going rate’ for labour!
This did two things for their business; it yielded additional profit from their unique ability, but it also generated additional work because they were then perceived as the only true experts. So why would owners prepared to pay for servicing take they’re vehicles anywhere else?
Premium pricing for products is more to do with placement and reputation, but if you are a service business, what process(es) have you devised that save(s) the client/customer time and aggravation? Have you priced it/them accordingly?
Consistency demands that I apply this too. And I do have a dramatically quicker proprietary process for resolving Strategy. This not only clears certain ‘road blocks’ out of their way, but means the client business can confidently plan and implement those ideas to grow their profits much sooner. This innovation saves my client their own input time, which is often overlooked, yet is a significant cost (especially the opportunity cost, meaning what else they could achieve if not diverted unnecessarily). Thus it represents great value.
So I urge you to review your business operations, to identify where you have innovated, or could innovate, a process improvement that your clients/customers will value more highly.
To higher profits …