June 6, 2011

Leadership Limerick: Putting a Price on Value

Every Monday, I offer a leadership limerick, highlighting an idea or strategy about effective leadership in limerick form. Searching for leadership limerick will identify previous posts.

Everywhere around you can see
Offers for things that are free

But while it may seem very nice
To find zero as the price

It makes you wonder what the value will be

Give something to get something.  Debates about the merits of free admission or giving away some content or product to entice individuals into membership or subsequent purchases are likely to occur forever.  Chris Anderson addresses the topic quite nicely in his book, Free, the preceding thinking for which can be found in this WIRED magazine article.   Some professional associations have attempted the freemium model in which a base level of membership and benefits is provided for free with more valuable programs and services available at higher-priced levels of affiliation.

In The Art of Pricing, author Rafi Mohammed, suggest eight pricing strategies: the nine and zero effect, payments to promote satisfaction, prestige pricing, anchor pricing, quantity suggestive pricing, larger vs. small losses, stuffing the bundle to convey value, and everyone loves a bargain.  Pricing is such a critical consideration there is an organization, The Professional Pricing Society,  devoted exclusively to its practice.

You shouldn't just play around with price.  Whatever you opt to charge for an individual program or service, make sure that:
  1. it is part of a comprehensive strategic approach to value and pricing, one informed by data and not just individuals' opinions;
  2. you have clear metrics in place for determining whether or not the pricing strategy is successful;
  3. it is based on an understanding of what your competitors charge and their position in the marketplace; and
  4. it reflects the overall brand qualities and value propositions you want people to associate with your organization and its efforts. 
In my own work,  I regularly am asked to write or speak for free in exchange for exposure or asked to reduce fees to meet an individual organization's budget constraints.  Groups making such an offer are in a stronger negotiating position if they can prove such exposure has led to subsequent engagements.  I've never had any organization follow up with me to learn what business I may have received as a result of this free trade we did for exposure.

In those few cases when I choose to vary the normal investment required for my professional services, I always invoice the fee normally associated with the services provided and then subtract the reduction as a charge against my annual pro bono contributions.  It's a small attempt to ensure the value (and what I charge for it) remains as the anchor associated with my work.

As Marco Bertini and Luc Wathieu note in their May 2010 Harvard Business Review article entitled "How to Stop Customers from Fixating on Price," there is indeed a cost to be associated with free.
"The constant undercutting to capture customers sometimes spurs efficiency gains, but more often it damages brand equity and erodes profit margins. To make matters worse, customers in these markets develop low expectations and grow disengaged: They fixate on price and lose interest in marketing communications and all but the most radical innovations."
Remember, too much discounting of individual offerings can potentially cause members or customers to discount the quality of what you are offering or the value of your organization overall.  If what you do is truly of value, you'd be wise to count the potential negative consequences if you seem to diss it in your pricing strategies.

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