Often, in their quest to a fat bottom line, companies ignore what customers want! That can be explained by the myopic focus on the short term results of the executives and the disconnect between top managers and customers. In many corporations there are so many hierarchical levels that the reality is often distorted by each level so that the top executives only see a rosy picture.
Here are a few examples of such terrible pricing actions taken by well known corporations. All the following companies failed to see the damage their actions would do to their brands and stock value.
In an infamous move, in 2011, Netflix raised prices by 60% for the clients who rented DVD and streamed video. Soon after, almost one million users out of 15 millions online cancelled their service! As a result, Netflix Stock dropped by 70%The CEO and Founder Reed Hastings apologized publicly stating that he “messed up.”
Marks and Spencer charged £2.00 extra for their large bras, which triggered a massive outcry. The company had to reverse the price move and even more, offer a 25% off all bras they sold.
Bank of America implemented a $5 monthly fee for debit card holders and customers were so upset that the bank had to revert the move. Unfortunately for Bank of America, the customers had enough and many closed their accounts.
Profit Per Transaction vs. Lifetime Value of the Customer
Sadly, many businesses see the clients as walking wallets! As such, they focus on maximizing the profit per transaction and fail to see the lifetime value of the client (the amount of money the customer will spend buying the company products.)
Instead of thinking win-win, many corporations try to squeeze every penny they can so that they “don’t leave money on the table.” If the clients have to purchase the products, the after taste is so bitter that they never return. As it is way easier to sell to an existing customer than to a potential one, unpopular pricing measures do a lot of damage through customer defection or churn.
Small businesses are generally better than their massive counterparts dominating the corporate world. Why? To start with, the small business owners take the clients’ pulse every day! They can feel when a move won’t work and stop it in its infancy.
Generally, small business owners focus more on relationships and not on profit per transaction
How Important are Prices?
Very! Twitter data describing activity around the iPad 3 launches shows that the highest number of tweets were recorded when the new iPad price was made public, not when the device was officially launched.
Once again, in case you missed it, prices are super important for consumers! In fact, many customer buy only because they like the price, not necessarily because they need that product. Still not convinced? Just remember the stampede like images during the early hours of Black Friday. Why is Black Friday so popular? It’s elementary: Pricing!
Ikea is outselling their competitors because their prices are 30-50% lower than those of competitors.
Social Media Can Build or Break a Company
While in the past price changes were not visible beyond the store, nowadays they spread at the speed of light. The new media exacerbates the consumers negative image of the brand so businesses need to be very careful.
On the other hand, think how many wedding photographers you know who thrive through proper use of social media. Those young artists make a good living without even having a website!
You Are a Trusted Advisor, not a Wedding Professional
The most important thing that will help you get more business is the realization that in the eyes of the brides. you are a trusted advisor, not a wedding photographer, videographer, planner, DJ or officiant.
The bride wants her big day to be perfect and will hire those who are able to help her achieve her dream! Even if your packages are slightly more expensive, if you project the image of an expert in your field, the couples will definitely hire you. After all, peace of mind is worth a lot more than a few extra hundred dollars.
Anticipate, Don’t Only React!
Often wedding professionals mimic competitors’ prices without giving the process too much thought. Sadly, that is a bad strategy.
For example, a pricing tactic that often backfires is charging the couples a percentage of the wedding budget. It is often employed by wedding planners and it is very difficult to justify. If the planner charges 10% of the wedding budget, why a bride who is spending $80,000 on her wedding pays $8,000 on planning fees while the bride who has a $40,000 budget pays only $4,000 for the same services?
If the planner wants to charge a higher fee, it should think what services are valued by the couples. Read this article for more details about this value-based pricing strategy.
Don’t Worry, Be…Flexible!
Many professionals try to get their packages right. The fact is…it is impossible to package a service to fit every bride’s needs. Let’s think about a wedding photographer’s packages. A bride might want more time, another one the engagement photos while another might like to have a post wedding photo shoot. If you offer two options: your way or the highway, chances are you will lose many potential couples.
Be Transparent When it Comes to Pricing
If we had a dollar for every bride who said she will avoid vendors who don’t list their prices, we would make a very good living…Or if we had a dollar for every wedding vendor who does not have a clear pricing and packaging page that outlines the services offered and their prices.
The KISS Principle (Keep It Stupid Simple Principle) was implemented by the US Navy in the 60s. According to it, all the processes, products and designs should be kept as simple as possible and unnecessary complications should be avoided at all costs.
Keeping the prices simple is crucial! According to Harvard Business Review studies, there is a direct link between the customer satisfaction and the simplicity of prices.
The Fairness Principle
When consumers think your prices are fair, they will buy more from the same company. If the price is perceived as unfair, the couples simply take their business somewhere else.
Wedding photographers would be advised to avoid charges such as: travel fees, extra charges for starting the day early or our favorite, charging for the time spent flying to and from destination weddings. After all, you can edit some photos during your flight and don’t need to invoice the client…if you want her business.
The wedding photography market is so competitive and it has become so difficult to differentiate that often pricing becomes the main differentiator and not the quality of images. The most successful professionals are not those who capture the best moments of the wedding day, but also the heart of the couples by offering them stellar customer service and charging them only for what they WANT. Eliminate items that don’t offer value and you focus on your unique value proposition.
Unique Value Proposition
You should always ask yourself: why would a couple hire me and not my competitors? What makes me different, what can I improve and what things I do best?
We would like to thank Calin, a Toronto wedding photographer (www.bycalin.com) for his contribution to this article.
Pricing to Create Shared Value, by Marco Bertini and John T. Gourville, Harvard Business Review June 2012
Pricing Videos For You
Here are some pricing related videos you might like.