PRICING FROM WORST PRACTICE TO BEST PRACTICE
by Al Hahn

The pricing of high technology services is not well understood or practiced. Having trained thousands in these techniques since 1990, I can tell you that most companies use old techniques, Worst Practice techniques, or almost no technique. Few can describe their process intelligently. Some admit that they price and reprice as infrequently as possible and then use the equivalent of a dartboard. Almost all think that service pricing dynamics are the same as product pricing. Everybody gets beat up over service prices. This leads to many common mistakes. The most common is to misunderstand service pricing elasticity. Simply put, elasticity is the theory that demand is driven by price. There is some truth to that, but service pricing in high tech is universally inelastic, while product pricing is frequently elastic. This mismatch produces grand misunderstandings between product and service marketers and causes frequent mistakes.

At Hahn Consulting, we research service buyers and can analyze their behavior. Armed with this information, we can form effective service pricing processes and strategies. Without it, mistakes are unavoidable. In the current economy, it is easy to be drawn into unnecessary price reductions. This inevitably leads to a declining ability to deliver quality service. To navigate these troubled waters, you need to be armed with the best possible information. Come to our upcoming Best Practice of Service Pricing seminar in San Diego, February 27 & 28, 2003 and get yourself some tools to fight the pricing wars.

Have you ever had a product sales person tell you that they were in danger of losing a large sale because of your ridiculously high service prices? Only three times today, right? Direct research of product buyers refutes this interpretation, however. Product buyers do not reflect that they make product purchase decisions based upon service price. It is a different story for service quality issues, however. In a sale to a new customer, service quality issues make up 10-20% of the reasons to choose a particular product. On a repeat purchase, they make up 40% of reasons. Service price accounts for under 1% of reasons why buyers choose one product over another.

Without doubt, the Best Practice of service pricing is value-based pricing. I love it for its outcome. When executed properly, the customer pays more and is happier with what they receive. This is a win-win outcome! It allows the service provider to invest more in resources to insure delivery of high quality service. It is, however, the most complex method of pricing, so it is not for every company. We can help you to determine if you are ready for value pricing, and if not, map out a plan to get there.

Do you suffer from any of the above problems? Most service providers do. Don’t let misinformation and misunderstanding push you into making pricing mistakes. They are costly and hard to undo. See me in San Diego and get some help.