Many people make mistakes when it comes to pricing and you can lose a lot of money on the wrong thinking, writes Christer B Jansson in this article. He also offers two clear tips on how you can think about pricing.
When I started my own business and offered my first assignment, I was up against a larger consulting company. I got the order and I thought it was because of my price, which turned out to be almost only a third of the well-known company. So I asked a little later in the assignment, when the relationship had deepened, why they chose me. They said I was willing to tailor a solution to their needs while the big company already had a ready-made course. I asked if I had doubled my quote would you still have chosen me and the answer was yes.
So I needed to learn to set the right price and believe in myself and my skills.
Below is a fairly simple model to understand which is the first choice I think you should make before moving on to setting the right price. But we’re starting to talk about submarines and parachute techniques so you don’t make the same rookie mistake I did..
We will look at two different ways of thinking and their advantages and disadvantages. We call it submarine technique and parachute technique. It won’t cover everything and that’s not the important thing, but that you understand the mindset and that it can help you start right.
Submarine technique
This principle is based on the fact that you need to get money quickly for whatever reason. This means that you set such a low price that this alone makes the service or product attractive to try. Then over time you raise the prices slowly to see when the sales level off, you have finally found the value from the customer’s perspective for what you are selling.
Advantages: You get money quickly, you get customers, feedback from customers that allows you to adapt and develop your product or service in the meantime. In addition, you will slowly increase profitability.
Disadvantage: Once the submarine has reached the surface, you cannot raise the price any more, but to increase profitability you need to look at the cost picture and build alternative services/products that complement your basic offer.
The parachute technique
You start here with a high price and skim the market for the “early adopters” who can imagine paying the high price. Then you slowly lower the prices with increased sales as a result until you see no increased sales when you lower the price.
Advantage: The submarine technology and the parachute technology never meet, creating a higher margin for your offer than you would have received with the submarine technology. Which creates a higher profitability and gives you margins if price competition arises.
Disadvantage: You need to be able to afford it as you probably won’t get that many customers in the beginning as there are only a few who can imagine paying the price in the beginning. It takes longer for it to become a bestseller in your business. As it takes longer, you also give possible competitors time to act and depending on how difficult it is to copy your offer, this route can become expensive and you have competitors taking your market.
If you google pricing, you will find many models to use. It may be a good idea to look at several models once you have chosen a submarine or parachute to see what they provide for additional information before making a decision. The model above can be combined well with most other models is my opinion. As I said, pricing is a complex subject with many nuances and ways of thinking.
By: Christer B Jansson, CEO and founder of Confident Approach
