Pricing psychology and strategy: Can we apply the science within the AEC markeplace

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pricing
Why is "low price wins the job" so prevalent in the construction industry, and what can you do to escape the trap?
pricing blog
This worthy blog posting provides a review of some of the research on pricing — you may be surprised how you can radically boost your margins and sometimes sell more for more, with the right strategies.

I’m sure that many contractors, subtrades and professional services would like to be able to adapt pricing psychology to their business/practice, rather than bill by the hour or (worse) compete on price for fixed bid projects. Commodity/competitive pricing seems to be the bane of this industry — you can’t get very creative when you’ve fighting for work in open competitions, where low price wins and you are in a race to the bottom.

Yet, there are lots of oddities and intriguing possibilities when you can offer choices and selections in your offerings. Here, the way you structure your options (in some cases, creating a deliberate choice no one in their right mind would select), can induce potential clients to pay more than they would with a more straightforward choice. More impressively, if you create a super-high price option, like a luxury brand, you may be surprised to find some clients with the cash and who want the perceived “best” will pay that price (and in effect perceptually raise the value and price-point for your other offers.)

The lessons learned from this research may be that if you are presenting proposals (and it is allowed within the RFP or bidding terms — obviously you should remain compliant with the rules), then you may wish to create a package of “good”, “better” and “best”  and “best value” choices.  Even more surprisingly, setting the “best value” to be essentially the same price as the “better” but a bit better than the “good” will cause quite a few more people to buy the “better” choice than the “good” one (while you’ll still sell some at the top-end best level.)

Here’s a worthy blog posting, Pricing experiments that you might not know, but can learn from, that outlines and links to some of this pricing research.  If you have any capacity to create pricing choices, consider the variables — you may be impressed by how much your margins rise even as your sales increase.

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