Last month, Tania Cavaiuolo of See Marketing & Communications provided insight into two pricing-related challenges commonly experienced by business owners.
This month she takes a look at putting your prices up, and how to move away from charging an hourly rate. Two more very common scenarios!
Q: If I put my prices up to what I think our product is worth, will I lose sales due to assumptions from my market?
A: This is such a good question. The answer is that there is always a tipping point, the question is how do figure it out?
In marketing, we talk about price elasticity. It refers to the extent to which you can stretch (increase) the price before you see a drop in sale. Factors that affect this include whether your product or service is considered essential or discretionary (doctor versus artisan cookies or cosmetics), the value (massage versus new website), availability and appeal of ‘good enough alternates’, perceptions of how much it ‘should’ cost, and your brand strength.
Small businesses lack the sales volume to properly test how sensitive the market might be to price increases. Plus, often a small drop in sales could be significant from an income viewpoint. But here is a simple way you can get an idea of how increasing your prices might affect you.
Pick a product or service and decide on two possible higher price points you could potentially sell it for. Identify a group of people you can test it with, and ask them how likely they are to buy the product at each of those price points. In this way, you can build an understanding of the thoughts they had when evaluating the options. You can do something similar for new products, but rather than giving a price, ask them how much they would pay.
Focus groups are great for research of this kind and I run these for clients across the marketing mix, which can include pricing. But you can do this yourself as simply as putting up a quick Q&A for family and friends on Facebook, or asking your business support network.
If you decide to do this, keep it really simple with minimal and descriptions. You want to make the ‘exposure’ to ‘decision-making’ path as short as possible to mimic real life, particularly if you’re selling a product.
Q: I want to move away from the pricing per hour model but when it comes to fixing a website, I really don't know how long it's going to take me.
A: There’s no getting around it – hourly rates for ‘how long is a piece of string’ needs is tricky.
I recently upgraded the memory on my laptop because I try not to unnecessarily contribute to landfill and my laptop was good apart from running a little slow. What they estimated to be a $500 job turned into $1900. Ouch! And was the first time I’d used them. Obviously, I could have bought a new laptop for that. Despite the fact they were very good at communicating with me along the way, and that I know anything IT can suck you into a vortex of chaos, it stung.
I think trying to determine a package for a service such as fixing a website can only be case by case and I wouldn’t sit this within a retainer type arrangement unless the value of that retainer is high.
One option could be to introduce a diagnostic service, allowing you to narrow down the issue so you can provide an estimate for the time required to fix it. It’s a model we’re familiar with when servicing our cars. We book a service (standard service, diagnostic) and they call us with anything to flag maintenance that’s out of the ordinary (estimate for fixing diagnosed problems).
There’s something else that I think is really important. And that is being watchful of ‘learning time’. If in providing the service we need to research to solve a problem or provide an advice, and it something a client might reasonably expect us to know or know how to do, that’s learning. Personally, I always write this time off as I don’t expect clients to pay for this and usually, I can apply this to future work.
Back to my IT experience. I will probably use them again because they are nice people, attempted to communicate and it was probably just bad luck. That said, I do suspect a degree of learning time. I’m therefore a bit wary, and feel in no hurry to invest in future IT upgrades possibly to my detriment.
Tania’s final tip on pricing:
Central to pricing is remembering that ‘price’ is intrinsically linked to the subjective construct of ‘value’. Shifts in societal norms, personal priorities and experiences across our lifetimes all affect how we individually perceive value. And of course, in tough times, we value things differently. We only need to look to the COVID toilet paper hoarding phenomena to see evidence of that.
Tania Cavaiuolo is a Certified Practising Marketer and communications practitioner, who has led digital transformation and national campaigns including the most successful World’s Greatest Shave in its twenty-something-year history.
Tania founded See Marketing & Communications in 2016 to help organisations to be seen more clearly through strategic advice and tactical support.
She’s since advanced the interests of organisations including Carbon Neutral Adelaide, CSIRO, COTA Insurance, Department of Premier & Cabinet, Cancer Council Animal Welfare League and Bordeaux-based global network, Great Wine Capitals.
Approachable and insightful, Tania helps to clarify her client’s thinking so they can stride confidently forward and clients love her ability to communicate their value to the world in ways they love.
Tania enjoys her role as mentor within the UniSA Business School and she supports the empowerment of vulnerable women as a member of the Women's Legal Service SA Board.