Marketing Services: The Pricing Discussion

The Pricing Discussion When Marketing Services

Dr. Mike Armour

If you market services, you should reflect carefully on the ideas below. They extend the thought process which began in the feature article of the last issue. In that article I explained why marketing approaches which work well in selling goods are not necessarily the best choice for marketing services.

My basic point was this. Price is a prime concern when customers shop for goods. But when they shop for services, price is secondary. For service customers the primary concern is your ability to deliver the service professionally and in a timely manner.

I therefore suggested that the discussion of price should come much later when marketing services than it usually does when marketing goods. Indeed, in marketing a service, your goal should be to postpone a discussion of price until people have substantively decided that they want to do business with you.

Lead With Value, Not Price

The early part of your marketing message must primarily be about the extraordinary benefits which you provide, with no mention of the fee for your service. Before you ever talk about price, your objective is to have potential buyers highly enthusiastic about the value which you deliver — so enthusiastic that they are receptive to a substantial fee for what you provide.

Only when you've brought them to this perception should you bring your fee into the discussion.

Don't Become a Commodity in the Customer's Mind

The reason for postponing the pricing conversation is quite simple. Until potential customers understand the full value of what you offer, they see little or no distinction between your services and those of your competition. In their minds the two sets of services are interchangeable, which in essence means that they are viewed as commodities.

Now, buyers are not at all interested in overpaying for commodities. Thus, once customers think of your service as a commodity, they start pitting you against your competitors on price. And that's deadly for you.

By their very nature, services are labor-intensive. And in general, the labor required to deliver them is more costly than labor in retail trades. These factors have a direct bearing on how flexible you can be on price. Let me explain.

The Fee Dilemma for Services

If you are selling goods, you can sometimes increase profits by dropping prices and increasing volume. With increased volume you get better pricing from vendors. And the faster turnover cuts the cost of holding inventory. So even though you are cutting your profit margin on each item, the higher volume of sales brings more money to the bottom line.

That strategy doesn't work in most service businesses. Your hourly cost of labor is not going to drop simply because you sell more units of service. Nor does the time required to deliver the service diminish simply because you increase your sales volume.

Thus, if you ever get into a bidding war with your competitors on the price of your services (which is precisely what happens with commodities), you can easily price yourself into oblivion.

The key is to convince potential customers that what you offer is unique, that they can't find anything exactly like it with any of your competitors. Once they perceive you that way, your product is no longer a commodity in their minds.

Handling Customers Who Press Early for Price

Sometimes the process which I've just described is derailed by a potential customer who insists on thrusting the price issue into the discussion early. It happens with me, for instance, when someone responds to my web page by making a call to get more details about my leadership coaching.

If they push early for a price, I respond, "You know, every coaching engagement is unique in terms of how many sessions it will require, how long each session will be, how many months it will take. I'm not sure that I have enough information yet about your needs to suggest a specific plan of action. So why don't we put off the discussion of price until I have a bit more information, okay?"

In most instances this response will deflect the price question until a more appropriate moment. When it fails to do so and when the other party presses to know my "typical price," I respond along these lines: "Well, I don't know that there is a 'typical' price. The fee for most engagements falls between $5500 and $15,000, with the majority somewhere in the middle of that range."

Analyzing This Strategy

Notice that I've given them a rather broad range, so I still have not nailed myself down on a price. And by assuring them that the majority of engagements fall toward the middle of this range, I ease any sticker shock over the upper end of the range. Moreover, I add credibility to what I offer by letting them know that some clients find my services worth a $15,000 fee.

By using this technique, I've actually postponed the pricing discussion. This is not apparent to the would-be customer, because I seem to have quoted a price. But I've merely quoted a range. The firm pricing discussion will come later.

Having now "answered" their price question, I return to my marketing message. I emphasize the direct benefits which will be theirs from the quality of service and the value which I offer. My goal is get them saying in their minds, "I'm not sure what his exact fee is, but I really want to have him as my coach."

Even though they are not as cost-conscious as retail buyers, customers shopping for services come to the transaction with some sense of what they are willing to pay. Or they may have a specific budgeted amount in mind. Whatever that number, once the have decided that you are the person with whom they want to do business, they will usually find a way to rationalize your fee.

Lest I be misunderstood, let me conclude by saying that I'm not suggesting these marketing techniques as a way of gouging your customers. Rather, I'm simply saying that you should be convinced of the value that you offer and expect fair compensation for that service. Once potential customers understand that value, they, too, will see that your fee is appropriate.

Don't Commoditize Yourself

Far too often encore entrepreneurs approach the marketing of services using a marketing model better suited for selling goods. They think that they must compete primarily on price and that they must use their price as a selling point.

In effect, by using such a strategy, they position themselves as selling a commodity. In my judgment, that's a tragic miscalculation. It's bad enough when potential customers view our services as a commodity. It's far worse when we see them that way ourselves.

This article first appeared in Encore Entrepreneur inbox magazine on February 10, 2015.

Leave a Reply

Your email address will not be published. Required fields are marked *