Getting your price: Where marketing and margins meet

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logic imageThe lowest price is not usually the best, unless you are on the purchasing side of commodity services. Yet far too many construction businesses think in terms of the “low bid wins the job” mentality — and so compete in public “cattle call’ competitions, hoping they don’t screw up on their quote, or maybe desperately thinking that, if we come in low and win, somehow things will work out.

Of course, the picture is somewhat more complicated than that, for the low price might be a loss-leader, where you know the resulting job will be profitable. (In the case of ICI construction, the money is often made from change orders and creative contractors know how to read the plans and specifications, see the obvious gaps, and know where changes will be inevitably profitable.)

Nevertheless, there are strategies to obtain higher prices, some less warm and fuzzy than others, but all quite effective.

Dissociate the purchasing and paying decision-making responsibility

This occurs in the circumstances where an individual has the full authority to pay for the service, but someone else pays. Think business class airline fares, and luxury hotel “executive suites.” The traveller (within travel policy guidelines, of course) makes the decision — and doesn’t pay. As an individual, unless he lives at the financial level where blowing $1,000 or $3,000 for a slightly bigger seat and a meal served on china plates is a meaningless expense, the traveller wouldn’t think of paying for the extras. But it isn’t his money

Your reputation: Brand trust

Undoubtedly, if you’ve earned a reputation for exceptional quality and service (not just the cliches, but the real thing), you’ll enjoy some higher pricing capacity, if only because you will attract clients who both return and refer you, and they are prepared to pay a premium for the quality you provide. Just don’t fall into the trap of thinking you offer “great service and great quality” — the only people who can truly say that are your clients. So collect your well-earned testimonials.

Understanding client value perceptions

In the publishing business, we’re facing rather serious challenges from new technologies and media. Advertisers have many choices, and they are increasingly wary of spending top dollar for their message. Yet, we’ve discovered that online publications framed in a “print-style” magazine format (with discrete pages, and page-turning software) can generate advertising returns far higher than conventional website banner advertisements. The reason, in part, is the advertisers expect to pay more for traditional box-style advertisements, and they perceive the value of the add-ons from the online media (direct hyperlinks and possible video embeds) much more than they would if they advertised with a conventional online or textual ad.  So don’t underestimate how people view things, in setting your prices.

Scarcity and crisis

Yes, when there is a natural disaster and electricity is unavailable, the value of a battery or power generator (and fuel to run it) could go through the roof. Of course, if you try to exploit this opportunity, you risk alienating your current and potential future clients.  Far more effectively, you could use the crisis to generate some positive good-will through resourceful philanthropy. Yet the law of supply and demand doesn’t go away, regardless.

Differentiation

finally, one of the basic marketing rules applies to pricing. If you are “me too,” if you are one of many, if people can look down a list and see the same old, same old, over and over again, you may find have an uphill battle in seeking a higher price. Build enough uniqueness into your offer, and you defy comparison — and so can make more money.

Don’t underestimate the importance of good pricing. Clearly a low price below your actual operating and marketing costs (and overhead) will generally lead to business disaster, unless you know well where you can command higher prices later in the relationship cycle. As well, remember the power of additional pricing once you break-through above fixed costs.  A modest price increase when costs remain stable will do wonderful things for your profit, and may still make sense, even if you lose some “cheap” customers.

Do you have some thoughts or observations about pricing.  Please feel free to comment.

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