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Martin Wales

[March 4, 2002]

Customer Catcherâ„¢

By Martin Wales

What Are You Worth?
How To Get The "Best" Money You Can For Your Products Or Services

How much am I worth? How much are my clients willing to pay for my products and services? These are questions that you may be asking yourself. I frequently hear them as a consultant. Whether you are an independent consultant or a manufacturer, these questions are extremely important in determining your success and your profitability.

The pricing you choose does more than directly affect your bottom line. It also creates the perception of the value of your product. Pricing should be part of your marketing strategy. (Think for a moment how you would perceive your favorite luxury sports car if it were half the price.) Pricing leads to your positioning in the market in the eyes of your prospects and against your competition.

I want you to think about the following questions beyond the simple economics and consider the marketing perception you create when establishing your pricing strategies. What do your prospects think the moment they see your asking price? How do you or your sales people handle negotiations, once you have set your price "in stone"? (Ha ha.) Is your pricing helping or hindering a successful sales cycle?

The Simple Math
If you manufacture a product or publish software, it is a little easier to create a baseline price from which to start. Many companies follow a business model of adding profit margins once they have calculated the total cost involved in bringing the product to market. These costs involve administration, R&D, marketing, and the cost of sales and supporting a distribution network. Mark up the product by the amount of profit you want to earn off each unit, and you've found a price.

First To Market
Being first to market can be good and bad. The good news is that your customers have less competitive noise to sway them from your product, and less data for comparative shopping with your competitors. The bad news is that prospective customers are generally nervous about buying "bleeding" edge technology. So, establish where your company sits along this line to determine whether you're just updating a model with additional innovations or improvements, or are bringing a new invention to life.

Supply And Demand
Supply and demand is the grandfather of all pricing models. You experience it every time you buy gas or groceries. This is more than traditional pricing; it is damn near Stone Age economics. The more the population desires your product or service, and the lower the supply, the more you can charge. The more competitors are offering the same thing, the greater the pressure for a lower price. This is especially true for items that are considered commodities. Think of Intel's memory chips, for example.

The greatest danger in supply and demand pricing is in times when there is an abundant supply. Customers remember when prices were higher and supply was less. They may perceive the supplier as having been "gouging" and taking advantage of them. Play nice when you're in a high-demand position, because your customers will inevitably have their turn.

"Oh, You're One Of Those"
In general, it is better not to fall into what I call the "commodity chasm." When this happens, the marketplace has too much power in controlling your pricing. As a technology company, you must continually add value and continually educate your clients about the value you deliver in solutions. It is all about eliminating their pain, not how your gadgets work or how you consult. Think results, not process. People will pay a dentist anything to stop the pain of a toothache without stopping to ask what brand of drugs he's using.

Respect Yourself
I have stated before that many companies underestimate their accomplishments. As a manufacturer, remember and recognize all that you have had to do and endure just to get to a prototype. If you are a knowledge broker or service provider, consider the investment made in education to have the ability to deliver your consulting. At a minimum, you have to make this back. Again, you have to continually communicate this type of information to your prospects and customers in your marketing. Don't forget to take these costs into account.

Yes, it is a fabricated verb just for you. By bringing depth via description and education to your services, you can ask for more in compensation. Make a list of every detail required in the delivery of your service to let your customers know exactly what is involved. How many people at what level of education? How many years of combined experience? The most meaningful question you want in your prospects mind is, "What would it cost them to do it themselves?" The conclusion being, "Too much."

Be Fair And Stubborn
Once you have committed to your pricing and it has proven to be fair market value, you do not want to get the reputation of being the "price dropper" at the negotiating table. Once you are, you're jumping off that cliff into the commodity chasm I spoke of earlier. Stand your ground rather than accept a lower valuation of your service by the prospect. Their confidence in asking for a lower price is a direct reflection of your own confidence in your asking price. You must commit and remain confident in your pricing. If it is fair, you can walk away. How many headaches do your "cheap" clients cause you now? Don't get more of them. This doesn't mean some negotiation isn't going to occur. Just don't forget you're entitled to a fair profit.

You're A Winner!
When you or your products gain recognition in your industry or market niche, that third-party recognition adds value to what you do. Therefore, apply for those awards you see others winning. Why not you? In my experience, I have found that half the battle is just filling out the darn forms. There is a ton of brass being awarded. If you're not at the top of your game technology-wise then think of alternative awards in other areas of your business. Your business process could snag you Entrepreneur of the Year. Your involvement in the community could garner you needed recognition too, as a top "Business in the Community." Get creative and improve your presence.

The Value Of Publicity
My favorite strategy for adding perceived value -- and therefore gaining the ability to increase your prices -- is often the most affordable. You need to implement an effective public relations campaign and maintain regular contact with the industry press. Your prospects respect the people and companies that are publicly recognized by the media. Once you get coverage in the media don't think that your prospects have read it, heard it, or seen it. Take it to them. I repeat, show your prospects your media hits and awards, or most of them won't be aware of it. You should also send press mentions to your customers to add to their confidence in having made the right investment. This will also keep you at the top of their mind so they refer you to others.

In Closing...
When establishing your pricing strategies, think beyond the economics to the emotions created by your pricing model. Remember that people buy on emotion (even your technology) and rationalize their decision with the facts you present, including your price.

Make your money back. Get what you deserve for delivering your product or service. Commit to higher quality and better customer service to back it up. What message are you sending with those numbers on the price tag? Commodity or value? It's a testament to your success to get the price you've earned while keeping clients happy with the value they're receiving from your products or services.

Martin Wales, The Customer Catcherâ„¢, is a business development specialist helping companies win and keep more business through better customer relationships. He is a technology-marketing specialist, speaker, and facilitator. Using your company's existing resources, Wales is able to create maximum results with minimum risk. Contact him at martin@customercatcher.com.

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