Home | Blog | Software | Reviews and Features | Forum | Help | Donate | About us
topbanner_forum
  *

avatar image

Welcome, Guest. Please login or register.
Did you miss your activation email?

Login with username, password and session length
  • December 02, 2016, 11:59:10 AM
  • Proudly celebrating 10 years online.
  • Donate now to become a lifetime supporting member of the site and get a non-expiring license key for all of our programs.
  • donate

Author Topic: Pricing Strategies for Products and Services  (Read 2526 times)

40hz

  • Supporting Member
  • Joined in 2007
  • **
  • Posts: 11,768
    • View Profile
    • Donate to Member
Pricing Strategies for Products and Services
« on: December 22, 2012, 06:41:06 AM »
Probably the hardest part of going into business and/or running a business is setting prices for your products and services.

And although price setting is still more of an art than a science, there are some "best practices" and strategies that can help you get as close to the optimal yield as possible. Tracking them down, and vetting them, can take time however.

Fortunately, Six Revisions recently posted an article by Ruben Gamez that summarizes seven very good and workable strategies you can begin thinking about and implementing immediately. And while the article is primarily directed at the sales of services, most of it applies equally well to products. I'd even go so far as to say that some of the strategies discussed could be effectively applied to salary negotiations if you're not in business for yourself.

Worth a read!

Quote
7 Pricing Strategies Based on Research Studies
Nov 19 2012 by Ruben Gamez


For any freelancer, how much to charge clients is one of the hardest things to get right. If you set the price for your services too low, you could be leaving a lot of money on the table and get stuck working with clients that don’t see the true value of your work.

When it comes to pricing, most of us are either guessing or copying what others are doing.

Luckily, we can rely on some research studies to help us price our services better by applying the psychological principles derived from the studies that we’ll discuss below.

Here are seven pricing tips based on research studies...

Read the full article here.

Happy pricing! :Thmbsup:

 8)




TaoPhoenix

  • Supporting Member
  • Joined in 2011
  • **
  • Posts: 4,550
    • View Profile
    • Donate to Member
Re: Pricing Strategies for Products and Services
« Reply #1 on: December 22, 2012, 07:46:32 AM »
Hmm.

I've been on the buying side a few times for my commissioned widgets. Because they are designed for personal use and anyone else liking them is just gravy, I've come up with a few principles of my own.

1. I specialize in low risk widgets, just to get some stuff done. As soon as an idea begins to slide out of the range of the coding snacks here, I start thinking about commissioning stuff. As a strange take on the "Outsourcing is Evil" dept, yeah, upon threat of being stoned, I'll admit I look on oDesk which has a lot of low-fee workers.

2. Since it's just me, I can let certain bugs slide for a while and think about touching them up later. It's shades of that "worse-is-better" article posted elsewhere. I-As-Client need time to thrash out features I had no idea would matter. My PDF batch saver is a funny example. It's supposed to be so insanely simple, that's why I asked it as a snack. But since that didn't pan out, I began commissioning it as a mini-app. It turned out that I need some slightly clever file-naming heuristics which I had sorta gotten wrong in my initial spec.

3. So if I-As-Client think my spec is going to move around a little, sometimes it's interesting to do the thrashing with a less skilled contractor with a lower rate per hour, so that what is basically R&D-ish stuff doesn't break the bank. Then I sometimes traded it off to a higher end worker with a mostly defined proof of concept and say "go polish this up." I've heard back sometimes that low grade worker code is bad, but even if the new worker has to completely rip the code in half, the value was in me saving time playing all Pointy-Headed-Boss trying to figure out WTH I needed.

Yay Pricing fun!   ;D

40hz

  • Supporting Member
  • Joined in 2007
  • **
  • Posts: 11,768
    • View Profile
    • Donate to Member
Re: Pricing Strategies for Products and Services
« Reply #2 on: December 22, 2012, 09:15:27 AM »
@Tao - I've sat on both sides of the table too. And I must admit I always found it a lot easier to buy than it ever was for me to sell something.   ;D

TaoPhoenix

  • Supporting Member
  • Joined in 2011
  • **
  • Posts: 4,550
    • View Profile
    • Donate to Member
Re: Pricing Strategies for Products and Services
« Reply #3 on: December 22, 2012, 09:38:39 AM »
@Tao - I've sat on both sides of the table too. And I must admit I always found it a lot easier to buy than it ever was for me to sell something.   ;D

It's been tricky to buy, when I go to oDesk I am sorta ready to spend money, it then just comes down to "optimizing the hire". This last time I purposely lowballed because the app was so simple I figured it didn't need a whole lot of firepower thrown at it, aka "almost anyone" could do it, so it was better to save $600 even if I had to burn a few extra hours bug checking use cases that a senior A+ dev might have thought of.

But until I ran out of funds, I do keep an eye on the complexity vs proposed ability of who I hired and I had a better dev last time.

Paul Keith

  • Member
  • Joined in 2008
  • **
  • Posts: 1,982
    • View Profile
    • Donate to Member
Re: Pricing Strategies for Products and Services
« Reply #4 on: December 22, 2012, 10:43:37 AM »
I can't say I have enough experience (in fact I'm extremely extremely inexperienced on this subject) but the list is incomplete at best and at worst it's cute but it's wrong.

I don't know where exactly I got the notes for this but I believe I started with this link but I really don't know who was it that said it:

http://hbr.org/2012/...-solution-sales/ar/1

The notes I have, had this written:

Quote
We seem to be trying to fix highly complex problems at the same level at which they were created.

In established procurement lines, where the level of knowledge transfer is low, Transactional salespeople with thrive.
    
In established procurement environments where knowledge transfer is low but integration complex, Solution salespeople will thrive.
    
In environments where the level of knowledge transfer is high, but the solution not integrated, Advisory salespeople will thrive.
    
In environments where knowledge transfer is high and the problem not clear (let alone the solution) Insight/Challenger salespeople will thrive.

At the level they were created is the key I think.

Pricing is bonkers because the customer started with some sort of minimum median line for your work. Over time this became an industry to itself with no consideration for long term i.e. if you pay for a service provider you liked/trusted with higher than normal prices then the chance of them being able to better improve their services increases compared to if you both agree on just getting the job.

As far as customers, you can't really expect them to care for this. Not all of them is looking out for you.

As a price strategizing advice though, I can't provide a better alternative advice but if you're going to do lies like this:

Quote
For example, instead of offering a generic "website redesign" service, customize the service to the the customer’s needs (e.g., "a website redesign to increase online leads.") That one small change will make sure that your solution is incomparable and will make it harder for customers to reference the low price anchor.

Aren't you and the customer better off for providing actual optimized "cult feel" good types of values than throwing out white lies in order to nab a client similar but obviously not up to scale of Apple?

One is morally distasteful but at least you're providing some key unintentional attributes to your client in the form of either transaction security, insight to what they don't realize, challenges and education to their old way of thinking, advises... these are big fluffy words too but at least it shifts things away from silly crap marketing urban myths of:

Be the Starbucks, not the Dunkin’ Donuts.

If everyone can get away by being a Starbucks, wouldn't you think everyone would build Starbucks?

But if you want to provide the same solutions as Starbucks, you (the provider) have to change your product not just your brand or the perception of: your brand from the outside. It's not always price=food or price=jobs or price=business. There's price=strategy. That word that denotes that even if the word small did something to your sign, there's still the person inside or the service out there or the menu and toolbars for crying out loud even website designs don't just change the webpage title and make the skin look like Starbucks' as the basis of their pricing strategy even if that could help sell them to their clients!

I guess this topic just holds a special hate for me. When Starbucks penetrated the vain office workers demo of our country, it could have lead to better services but instead the copycats and the fans followed the same product template but none of the same pricing strategies so when Starbucks stopped innovating , so did most places and we just end up with a bunch of places now having free wi-fi. Worse, the lies. The lies of why to sell to these cash spending people and the how. It...worsened the already worse view of treating and selling to people as if they were idiots and pawns.

It just creates an industry of the wrong set of contexts that get to be the right set of contexts because of the monopolizing effect of industry expectations which are good for the insular pricing strategy "of those in the know" but horrible for actual pricing strategies or elevating both customers and service providers to the next level of price and value. It also changes the wrong way to be outliers and leads to more corporate style firm mindset in situations that shouldn't have and can't excel with the same tricks used by corporations.

P.S. I've also been reading a forum topic on how hard it is for novelists/scriptwriters because of how Hollywood works and reading this just made me lose it.

« Last Edit: December 22, 2012, 10:59:02 AM by Paul Keith »

40hz

  • Supporting Member
  • Joined in 2007
  • **
  • Posts: 11,768
    • View Profile
    • Donate to Member
Re: Pricing Strategies for Products and Services
« Reply #5 on: December 22, 2012, 12:21:11 PM »
I can't say I have enough experience (in fact I'm extremely extremely inexperienced on this subject) but the list is incomplete at best and at worst it's cute but it's wrong.

Interesting...

I've got about 30 years direct experience with this sort of thing and I've found most of what was suggested in the article to be quite valid.

As far as incomplete goes, there is not - nor will there likely ever be - a definitive final academically correct and complete business theory for anything. Because management (despite its desire to be scientific) is at least as much of an art as it is a science. And the environment within which most businesses operate is constantly changing.

Which is why it's important to take all business advice within the context in which it's given. To wit, a suggestion and "food for thought" rather than received wisdom.

Fortunately, most people who are running a business (or freelancing) already realize that. So the predictable disclaimers and cautionary notes can usually be safely dispensed with when management topics are presented to business owners. They already know what's been suggested is not intended to be swallowed whole and without question.

 8)


TaoPhoenix

  • Supporting Member
  • Joined in 2011
  • **
  • Posts: 4,550
    • View Profile
    • Donate to Member
Re: Pricing Strategies for Products and Services
« Reply #6 on: December 22, 2012, 01:51:33 PM »

It also matters hugely in what context Pricing is being discussed. In the Web Services market it has been about 5-7 years of "start free, then sneak in monetization after everyone is hooked". That's not even the "try once" joke about drugs, that's "it's free for years until we decide to do X when you can't easily leave."

Paul Keith

  • Member
  • Joined in 2008
  • **
  • Posts: 1,982
    • View Profile
    • Donate to Member
Re: Pricing Strategies for Products and Services
« Reply #7 on: December 22, 2012, 02:48:50 PM »
I can't debunk it but all I can say as a food for thought counter is that 30 years is not enough.

30 years ago, this idea of white was popular in marketing concepts. People love white teeth. People love white clothes. Flash forward today, the ad theory has changed but only for developed countries. The same white teeth is still being designed and revolved around in less well off countries and not for lack of sales reasons.

When I say incomplete, I mean it as a science and I don't mean it as a science.

As a science, the words incomplete mean "progressing". Not stuck. This sticks that's why it can stay for years and corrupt people.

Advises like put the word small in front of fees is the equivalent of saying put a facebook icon in  your webpage and we're done. I've just done your web design.

It doesn't come off that way because it's anchoring research studies to sleight of mind and weaken your own standards if it were a subject of your niche.

In short, even though I don't know if the author intended it to be that way, there's more to learn from how the author structured the article than what he wrote though both are minimal and leaky even given leeway for a blog article.

For example, solution selling has come and gone as an art, not an art, a tired old cliche, a model that still works for a lot of big companies. It's been there and done that and yet, even though it doesn't claim to be a science, it's still less of a dead-end than bringing up the rustiest and leakies and long term inhumane routes of corrupt selling 101 to it's reader.

Hate it, like it, find it it's all smokes and mirrors, It's still being replaced and it's being replaced by new food for thoughts that question the old way of thinking without debunking it. These advises don't even register as blatantly stupid and dangerous examples even though they've come and gone.

It's not always the question or what's been swallowed. The context issue is also a red herring. The author already said it was research studies. He threw the context down and ran away with it. It's his responsibility to elevate or deflate the common false interpretation and tired applications of those studies and raise the bar to something that actually counts as a suggestion or food for thought.

As an example,

He doesn't even address what would happen if everyone added the words 'small' in their fees.

Worse,

That's even older than the "start free then sneak in monetization" strategy!
That's even older than a 2 for 1 sales strategy!

It's not even old in a golden rule or food for thought way, it's not even strategy!

He took a research on dvds and twisted the context into a fee-based analogy and twisted it into what amounts to telling the customer it's cheap with no follow-up on how to execute or what font to put it in or....or...I could go right now into Facebook's unregistered page and his own mis-applied twist of an analogy would be worth something of actual value than his actual words and can anyone really say there's something oh so food for thought about staring at Facebook's sign-up page?

What's worse had he actually tried to form a legitimate article and combined his 7 Pricing Strategies, he would have found the obvious flaws of his statements if he had a small inkling of what those results' notability were about. Instead it's an article that hopes that by adding research studies and repeating the results, readers will forget the fact that everyone has tried adding adjectives into their sales before. I could get a better strategy from a fruit vendor without them even trying to give me 1 pricing strategy. I could be a kid with bad charisma and I could stumble on the strategy of making my services sound cheap.

And I think if this were really food for thought, we'd have moved on to the thought. Instead in order to have any thought in the discussion, the readers must go away from the food or put more weight into the packaging than the food's tastes. A real food for thought thugs as back into the subject. Even talking about Apple or Pricing Strategies or that Blog Article tugs us back into those terms. None of the examples tugs us back in as we're talking. We're all trying to avoid what the writer was actually saying and honing in on these keywords so that it could seem that the writer actually gave some thought to what he wrote and it wasn't just a regurgitated copy-paste of those research studies with some horrible and bad follow-ups that are so silly, describing what's wrong with it is as silly as describing what's right about it.

« Last Edit: December 22, 2012, 02:56:48 PM by Paul Keith »

TaoPhoenix

  • Supporting Member
  • Joined in 2011
  • **
  • Posts: 4,550
    • View Profile
    • Donate to Member
Re: Pricing Strategies for Products and Services
« Reply #8 on: December 22, 2012, 03:32:28 PM »
Totally off topic, but lemme just say laterally that Paul K. is in the top 25 list for consistently posts the longest replies I have ever seen on the web. That's one reason I hang here besides the software stuff.

40hz

  • Supporting Member
  • Joined in 2007
  • **
  • Posts: 11,768
    • View Profile
    • Donate to Member
Re: Pricing Strategies for Products and Services
« Reply #9 on: December 22, 2012, 03:32:51 PM »
Paul you lost me once again. What I meant was I've been involved in pricing decisions (both as a business buyer and a seller) for over 30 years. I've run a few businesses. Started a couple. And served as CFO for three more. So most of what I "know" (or more correctly believe to be currently valid assumptions) is based on my own real world use and refinement. And since the environment and contexts of business keep changing, they're all subject to ongoing refinement, modification, adoption and dismissal. And FWIW, pricing strategies aren't always based on logical considerations since buying patterns seldom are. Especially when it comes to consumer purchases.

If some of that (e.g. "snob pricing" etc.) offends you, there's little to be done for it. Many people gladly pay more for something just to feel an affiliation with the image the product presents. That bugs me too. But if I were selling a product that depended on that for its success, you could be sure I'd take that into consideration - or find another business to be in if I couldn't.

I guess the best I can say in response to your previous comment is that this isn't an academic exercise for those of us who have to make pricing decisions. It's a day to day reality as well as a necessity. If that screws up something like a good intellectual discussion on the subject, so be it. It wasn't my intent to get into a long conversation about the topic of pricing. Or to act as an advocate for what the article's author was saying. It was only to share an article that, based my own personal experience, I felt was worth reading and thinking about if you were in business for yourself.

Hope that clarifies. :)

40hz

  • Supporting Member
  • Joined in 2007
  • **
  • Posts: 11,768
    • View Profile
    • Donate to Member
Re: Pricing Strategies for Products and Services
« Reply #10 on: December 22, 2012, 03:33:28 PM »
Totally off topic, but lemme just say laterally that Paul K. is in the top 25 list for consistently posts the longest replies I have ever seen on the web. That's one reason I hang here besides the software stuff.

Me too! I love his stuff. :Thmbsup:

Paul Keith

  • Member
  • Joined in 2008
  • **
  • Posts: 1,982
    • View Profile
    • Donate to Member
Re: Pricing Strategies for Products and Services
« Reply #11 on: December 22, 2012, 05:55:40 PM »
Quote from: 40hz
Paul you lost me once again. What I meant was I've been involved in pricing decisions (both as a business buyer and a seller) for over 30 years. I've run a few businesses. Started a couple. And served as CFO for three more. So most of what I "know" (or more correctly believe to be currently valid assumptions) is based on my own real world use and refinement. And since the environment and contexts of business keep changing, they're all subject to ongoing refinement, modification, adoption and dismissal. And FWIW, pricing strategies aren't always based on logical considerations since buying patterns seldom are. Especially when it comes to consumer purchases.

Way to make it tough for me to post a long reply guys.  :P

That's what I got from your post too except the CFO part.

It's why I used the white analogy. Logical and illogical the white clothes and white teeth was both.

On the logical side, the idea was that people wanted clean clothes to be so clean, they're white.

On the illogical side, modifications for these are through things like a famous celebrity telling a poor person to change brands instead.

Refinement side, certain things like talking toothbrushes were used to make a toothbrush look appealing.

Adoption side, you now have some mall doctor ad that scans the tooth, says it's dirty, hands the person a toothpaste and told them to wash their teeth and come back and the scan says clean.

Dismissal side, you have ads that sell the whiteness of the person but without stating it and instead using pretty people to kiss each other and so on and so forth.

The idea can be rotated all ways. It can be said to still be working. There's nothing finished about it as an art nor did business stop using it...the flaw was that no one had realized that it ended up creating a culture where every or almost every major visible ad still sell these whiteness that it literally blinds them to the fact that they're too focused on the white but each one of them is telling the customers the same forms of ad and it lead to many unintended consequences that are obvious such as stale ads and worse, there are many nuance of the same ad that keep repeating and the model lacked any foresight for the product.

For example, now I can't speak for what's really up with the ad producers here but anecdotally it's gotten so bad that a brand that sells dental floss doesn't have many TV ads for their new product but they waste everyone's time talking about talking toothbrushes with an old redesigned special toothbrush. Worse, the new ad with the talking toothbrush model is less interesting than when the years gone by earlier toothbrush was still showing. No competitor seems smart enough to realize that the doctor could be doing a PSA or that the product can be something other than generation and generation of stale. There's not even an attempt at an education ad. The same for detergents. It took ages before someone moved from the white clothes plus established character into a serial ad.

That's what 's happening here (in your statement) and that's what's so bad about articles like these. *You* think the article is saying something like snob pricing but it's not. *You* think my post is about snob pricing or local considerations when it's not.

The article is not even saying anything remotely close to these and if you drag a random passerby who doesn't know about snob prices and let them read the article then hand a definition of say...snob prices to them, they won't get the connection.

That's how bad it corrupts. You don't even feel fine defending or not defending it as if I was somehow attacking you and we aren't two users who have talked long enough that we don't need to defend our opinions to each other. You forget even that.  :P

If you don't believe me, here's my ultimate proof:

You say:

Many people gladly pay more for something just to feel an affiliation with the image the product presents.

Snob pricing in Google results to:

Quote
The snob effect is a phenomenon often observed in the field of microeconomics that refers to the situation where the demand for a certain good for individuals of a higher income level is inversely related to the demand for the good by individuals of a lower income level.[1] The "snob effect" contrasts most other microeconomic models, in that the demand curve can have a positive slope, rather than the typical negatively sloped demand curve of normal goods.

...but where in the article did any research study say this? Remove the article from the research study part. Where did it imply anything like this?

Speaking of snob prices, for a long time...and it still holds somewhat of an effect here but Dunkin Donuts IS the Starbucks of Donuts in a poor country. I didn't bring any local consideration until this sentence.

That's how bad these things twist it. It rips the context out. It changes the food for thought. There's nothing wrong with snob prices if you are talking about coffee brands. There's something wrong IF what you get from a study is making apples and oranges comparison but replacing them with donuts and coffee. That's when you know it's already extremely sloppy. If what the article wrote was what you wrote, then there's less of an issue to be made about the actual article. If the article convinces you to write an entirely separate example but you feel it was saying the same thing then that's like the Apple effect of delusion only Apple actually provides a product. That effect is a problem especially the pay-off. The article is not only handing out advises but it's bringing down the research studies with it and it's making people who already know other things about pricing strategies to misread attributes of what it's really saying and replacing it what they think the article is saying. Guess who's the most punished? The reader who actually needs the advise, considers it but can't even google snob prices or other people effects unless they read some forum or comment thread. Then later on, it's the customers of that reader and the copycats of that reader that create another obfuscation level such as force everyone to traditionally accept that the words "small" must be added to any fee because that is what works.

« Last Edit: December 22, 2012, 06:12:01 PM by Paul Keith »

40hz

  • Supporting Member
  • Joined in 2007
  • **
  • Posts: 11,768
    • View Profile
    • Donate to Member
Re: Pricing Strategies for Products and Services
« Reply #12 on: December 22, 2012, 11:09:12 PM »
I think I'm still lost here. :)