Transcripts
Hello and welcome to Live with the Pricing Lady.
Speaker:I am Janene, your hostess.
Speaker:This show is all about helping you build a sustainably profitable
Speaker:business, helping you to understand the tactics and strategies of pricing
Speaker:so you can create value and charge for it effectively and with confidence.
Speaker:Welcome to the show.
Speaker:Today, we're going to be talking about how flexible should your pricing be.
Speaker:Now, let me share with you one little insight before we get started, and that
Speaker:is that flexibility in pricing usually comes at the expense of complexity.
Speaker:So as we're going through this conversation today, I want you
Speaker:to think about what is the right balance between flexibility and
Speaker:complexity in your business.
Speaker:So I've broken this down into three parts.
Speaker:First of all, we're going to take a look at the advantages of flexible
Speaker:pricing, and then we'll take a look at the trade offs or the
Speaker:downsides of flexibility in pricing.
Speaker:And then I have some tips on things that you can do to better
Speaker:understand how flexible to be and how to manage that flexibility.
Speaker:Let me be clear about one thing before we go further, and that is you can have
Speaker:flexible pricing regardless of whether you're offering products, services,
Speaker:or software, or a combination thereof.
Speaker:So it's very important, as I go through this today, I want you to think about
Speaker:what's going to be suited, mostly for your business, because of course there
Speaker:are some aspects of what we're talking about that are not suitable for all.
Speaker:All right, let's take a look at those advantages.
Speaker:The first advantage is tailored solutions.
Speaker:If you have a product that you make bespoke, based on customer
Speaker:requests, or if you offer a service or software that's a tailored solution.
Speaker:Of course, if your pricing is flexible, it's much more easy to
Speaker:offer customized solutions for your customers, for your clients.
Speaker:Second of all, it's also easier to manage the budget.
Speaker:Right?
Speaker:So to hit their budget is actually what I mean, not to manage it
Speaker:necessarily, but to hit their budget.
Speaker:So if you can adjust your pricing relatively, if you have a lot of
Speaker:flexibility there, then it's easier for you to be able to meet lower
Speaker:budgets as need be and also scale up to bigger budgets, which brings me to
Speaker:the next one, which is scalability.
Speaker:Scalability is also easier when you have a high level of flexibility in your pricing.
Speaker:However, it doesn't always have to go hand in hand, and we'll take
Speaker:a look at that in a few moments.
Speaker:The next advantage is that you're more able to quickly adapt to
Speaker:changes in the marketplace.
Speaker:So if your pricing is a little more flexible, then you'll
Speaker:have a little bit more agility.
Speaker:That's not always good.
Speaker:It depends on your business and what's important.
Speaker:Is being agile an important part of what you do and how
Speaker:you do it with your customers?
Speaker:That is the question, whether or not that's something you want to do.
Speaker:Now let's take a look at some of the downsides of flexibility in pricing.
Speaker:Actually, I like to call them trade offs.
Speaker:So the first trade off is pricing almost always comes at the expense of complexity.
Speaker:Yeah.
Speaker:So it's great that you want to be flexible and you want to be able to meet lots a
Speaker:diverse group of customers needs, but that is definitely going to make things
Speaker:more complex for you and your customer.
Speaker:Doesn't mean you can't mitigate it.
Speaker:And we'll talk about mitigations in a few moments.
Speaker:Second of all, it can create confusion.
Speaker:The more flexible your pricing is, it usually will mean there are
Speaker:more options for the customers.
Speaker:And there's a certain point where you get into decision overload or this decision
Speaker:process breaks down because there are too many options for the customer.
Speaker:That's why it's good to be careful about flexibility so
Speaker:that you don't create confusion.
Speaker:Next, it can create a perception of unfairness.
Speaker:And this perception of unfairness can, quite frankly, impact your brand.
Speaker:So for example, if, you know, when we fly on a plane, we pretty much
Speaker:try not to think about the fact that the person next to us probably didn't
Speaker:pay as much as we did, or that we didn't pay as much as they did, right?
Speaker:We kind of ignore that, even though we know that very seldom
Speaker:will any two people on the plane pay the same price for a ticket.
Speaker:When you have flexible prices, that usually means you're selling
Speaker:the same offers at different price points to different customers.
Speaker:If there's a lot of transparency and they find out, that can create
Speaker:this perception of unfairness.
Speaker:And it will have an impact on your brand eventually, for sure.
Speaker:It can create unexpected, those are in air quotes there, "margin or profit erosion".
Speaker:So this comes down to, you know, if you're planning with a certain
Speaker:price before the year starts.
Speaker:And you do your math and you're like, okay, this is what it's going
Speaker:to take for me to be profitable.
Speaker:And you plan with a certain price, but then throughout the year, you're selling
Speaker:at lower prices because your pricing is flexible and you're making adjustments.
Speaker:Then chances are you're not going to hit the numbers that you thought
Speaker:we were going to hit, unless you do it a lot more volume.
Speaker:But as you know, lower prices doesn't always guarantee volume.
Speaker:So you have to be really careful about that.
Speaker:Next, it can create an administrative burden.
Speaker:So when you have lots of different prices to manage, then it's difficult
Speaker:for you in the back end of your business to be able to manage that.
Speaker:I've seen this quite often, especially with coaches.
Speaker:Where, you know, they start out with a really low price and then
Speaker:the first few customers have that.
Speaker:And then they get a little bit of confidence to raise the rates, but
Speaker:they don't raise them for the old customers, just for the new ones.
Speaker:And they keep raising them for new ones.
Speaker:And then after a year or two, they have, you know, clients
Speaker:who have all different prices.
Speaker:Because they didn't manage that, that just kind of evolved into this.
Speaker:That's also a flexibility issue.
Speaker:Or it can be that, you know, you have a product and you've
Speaker:played with different prices.
Speaker:So you have different prices for different customers as well.
Speaker:And that complexity is difficult for you to manage internal to the business.
Speaker:The last is that it can induce price wars if you're not careful.
Speaker:So if the competitors see that you're quite flexible with pricing, they
Speaker:may try to take advantage of that, put additional price pressure on you.
Speaker:If you respond to that in kind, then all of a sudden you
Speaker:find yourself in a price war.
Speaker:And price wars, do nobody any good.
Speaker:They are not good for you, they are not good for your competitors, and they are
Speaker:definitely not good for your customers.
Speaker:You may think that a price where is good war is good for customer because they get
Speaker:to pay less But in the long run they have fewer choices when it comes to purchases
Speaker:in the future and the company that they bought for May no longer be in business
Speaker:when they need extra service Yeah.
Speaker:So that's really important to keep in mind.
Speaker:So those are some of the trade offs that come from flexible pricing.
Speaker:So all of this begs the question, Oh Janene, pricing goddess, no, Oh
Speaker:Janene, Pricing Lady, what do I do?
Speaker:How flexible should your pricing be?
Speaker:Now the real answer is you need to determine the trade
Speaker:off between flexibility and complexity for your business.
Speaker:But here are some things that you can do.
Speaker:First of all, segment, segment, segment.
Speaker:Get very clear on the different product or offer segments and customer segments
Speaker:that you have and be clear about which customer segments are, or let me say
Speaker:that differently, which offers is the main offer for each customer segment.
Speaker:So too often what people will try to do is they'll try to, you know,
Speaker:every product is good for everyone or every offer is good for anyone.
Speaker:And that is really going to be difficult for you because then, you know, when you
Speaker:talk to a customer, you're like, well, you can do this or this or this or this
Speaker:or this or this or this or this, or this.
Speaker:And then all of a sudden they're under this umbrella of
Speaker:possibilities and they're confused.
Speaker:So segment, and as a result of segmenting, then you can bring certain
Speaker:offers to the table for the right customer and talk about that only.
Speaker:And then if they say, Oh, well, we'd really like this as well, then you can
Speaker:bring that next layer in if you want.
Speaker:But segmentation can help you do that.
Speaker:Second of all, you want to make sure you understand their needs.
Speaker:Yeah, and the flexibility that you offer should be based on what they value, not
Speaker:on just what is convenient for you or on all the possibilities that you have.
Speaker:So, if we put this into context for a moment, if you think about mobile phones.
Speaker:There are so many functions and features in there, if the phone
Speaker:producers had decided to make all of those functions and features also
Speaker:price variables, then it would be so difficult for us to make a decision.
Speaker:what to buy.
Speaker:Instead, what they chose to do is they said, okay, people are, it's
Speaker:important to them, the quality of their camera, it's important to them
Speaker:how much storage capacity they have.
Speaker:And it's important to them what color the phone is.
Speaker:Right.
Speaker:And so aside from brand, those are the three price Variables that we have,
Speaker:right, or features that are what they base the pricing on, how flexible it is,
Speaker:it's based on those three things alone.
Speaker:Why?
Speaker:Because those were the things that in the end were most
Speaker:important to us as consumers.
Speaker:You want to do something similar with your offer, your product,
Speaker:your service, or your software.
Speaker:When you look at flexibility, what are the most important things that In that you
Speaker:want to be flexible on, so what are your flexibility or pricing variables, right?
Speaker:But base them on what's valuable to the customer.
Speaker:That's what I'm trying to say.
Speaker:See?
Speaker:You can also be, instead of just changing the price on the same offer or
Speaker:product is you can have a varied offers.
Speaker:So specific offers for each target group are really going to help you because
Speaker:then you don't have to change the price.
Speaker:And it could just be one small difference between offer A and Offer B, but the value
Speaker:that that difference brings allows you to have a different price, which meets
Speaker:the need of a different target group.
Speaker:Varied offers are a great way to have flexibility in your pricing taking the
Speaker:risk of people feeling like they're paying different prices for the same thing.
Speaker:The next one is one that I absolutely love.
Speaker:And I have used this even before I was a pricing expert.
Speaker:I used this in very early days of my career.
Speaker:Make it modular.
Speaker:If you can make your pricing modular, this is especially good for project based
Speaker:businesses and service based businesses.
Speaker:Make it modular.
Speaker:I know, I know you want to be Customized for everyone, but you can still be
Speaker:customized and make the pricing and the structure behind your pricing modular.
Speaker:You will thank yourself and your customers will thank you as well.
Speaker:So try and make it modular, put it into building blocks.
Speaker:It makes it easier for you to explain, easier for the customer
Speaker:to understand, and then all you have to do is price the blocks.
Speaker:Yeah, that is a great one.
Speaker:Create clear tiers for yourself.
Speaker:T I E R S.
Speaker:So know when you want to offer what.
Speaker:To whom, under which circumstances, yeah, instead of just going to your
Speaker:customer and kind of laying this table of variables in front of them, right?
Speaker:This big basket of options of what they could have, listen to the
Speaker:customer and then say, you know what?
Speaker:I think this offer would be the best one for you and here's two options because
Speaker:I heard you mention this and this.
Speaker:If you have a clear understanding or these tiers set up based on the target
Speaker:customer groups and your offer, it's going to make it so much easier for you
Speaker:to have the conversations with them or for them to see that on your website.
Speaker:If that's the way the sales conversations goes as opposed to overloading them
Speaker:with too much information up front.
Speaker:Make sure that the flexible variables you use in your pricing are based on value.
Speaker:I think I alluded to that before, but it bears repeating
Speaker:again, value is where it's at.
Speaker:So be sure that everything you're doing when it comes to building flexibility in
Speaker:your pricing is leading or coming from a place of what the customer truly values.
Speaker:But also do make sure that you keep it simple for yourself.
Speaker:And then this last one, I just love this.
Speaker:I love this phrase.
Speaker:Make it appropriately transparent.
Speaker:Sometimes I find that when people build flexible pricing schemes, they
Speaker:feel like they have to share all that information with the customer.
Speaker:Now if your business, if one of your values in your business is transparency,
Speaker:then of course you're going to be more transparent than someone who doesn't
Speaker:necessarily have that as a value.
Speaker:But that does not mean that you have to or want to give them all the details.
Speaker:So, for example, if you're doing a project and you itemize everything on
Speaker:your offer, then that opens the door to have a conversation about the fact that
Speaker:the customer doesn't really want that.
Speaker:Now, that may be critical to the project.
Speaker:They may have felt like they've already done it, but until you've
Speaker:seen the level of "done", of done it, right, you don't really know.
Speaker:So if you take that out, it could risk the whole project.
Speaker:So I wouldn't itemize something like that.
Speaker:Be appropriately transparent if you need to be.
Speaker:Yeah.
Speaker:But don't be overly transparent.
Speaker:It will make it harder for you.
Speaker:And once again, it also makes it harder for the customer because you
Speaker:put more variables in there or more decisions into what they need to do
Speaker:into their decision making process.
Speaker:And that can hurt the whole process of whether or not
Speaker:they're going to buy something.
Speaker:I think I've given you quite a few things here to think about.
Speaker:There is a lot to this topic of flexibility in pricing, but I think what I
Speaker:want you to keep in mind is the following.
Speaker:First of all, Flexibility and complexity in pricing are linked.
Speaker:The more flexible you are, the more complex it usually ends up being.
Speaker:So it's up to you to decide where on that complexity, uh, flexibility,
Speaker:complex scale you want to be.
Speaker:Sorry, that was a funny play on words.
Speaker:Second of all, it should always go back to the customer and what they value.
Speaker:And third.
Speaker:Try.
Speaker:Especially if you're new in business, try to keep it simple at first.
Speaker:You can always build complexity and more advanced things into it later,
Speaker:but do try to keep it simple at first.
Speaker:You will thank yourself and your customers will thank you as well.
Speaker:That is what I wanted to share with you in this episode today.
Speaker:In our next episode, I'm super excited because we have a
Speaker:guest once again on the show.
Speaker:So we'll be bringing back the guest episodes for the rest of this year.
Speaker:I very much look forward to that.
Speaker:If you have any questions, please reach out, head on over to
Speaker:thepricinglady.com/Book-a-call, set up a call with me, and let's
Speaker:talk about what we can do to improve pricing in your business.
Speaker:I wish you a great day, all the best and enjoy pricing.