Monday, December 12, 2005

Dealing with pricing

Prices are the bugbear of every sales person. The theory goes that if only we did it cheaper, then hordes of customers would fall over each other to buy our stuff. This is especially true when selling advertising space on the internet, which has a very low cost price associated with it. It’s almost pure profit, so surely we can afford to dip the prices a bit. Lower prices equal more sales, right?

It doesn’t take a brain scientist to realise that this assumption is wrong. It’s not about the price, but about the value. As I was once told as a fresh faced young sales guy in a big PC company – people don’t buy 4” drill bits, they buy 4” holes. So, it’s really just a matter of working out how much a 4” hole is worth.

So how do you work this value out?

As with all matters of perception, this can be tough. Take one of our prices. We charge for running competitions on the front page. This is because a competition is just a big advert with a prize tagged onto the bottom. So, when a PR person offers us things to give away they don’t expect to pay for the privilege, but when a nights rings up asking for a cheap way of getting exposure, they are more than happy to do a couple of passes as well as pay up. Same product, same price, different perceived value.

You could argue that in this case we should split the offering up – so competitions are free and front page adverts are paid. That way you get the best of both worlds. We don't have the flexibility to do that at the moment, so that means (like a lot of sales people) that we have to work with what we have. In the case of our competitions that means avoiding wasting time speaking to PR people about it. They don’t have a budget they will never buy. Like Zamo in Grange Hill, we should just say no.

What are the other steps to success in pricing? Simply, we need to believe the price is right.

  • Market to the people who get the most value from the product.
  • Don’t worry about the customers who don’t value the product, as long as there are some who do.
  • Discounts for the sake of it show the customer that you don’t value the product and make them less likely to buy (This doesn’t include properly planned special offers).
  • The price must be right compared to the competition. If it’s not the cheapest, it must be the best. Being in the middle is fatal.