Another way of looking at pricing

[fp2161]

which one?

[Rich]

Another way of looking at pricing
« on: September 29, 2007, 09:44:12 PM »    
I just finished a book written on pricing methods. The book is "The Art of Pricing" by Rafi Mohammed. The author builds a strong case for a pricing method I've used for years, but goes much further by breaking it down into the many strategies he feels (and gives real-life examples for) will enable anyone in any business to reap more profits.
The basic theory is that every service or product should be priced to reflect what the customer's percived value of it is and that since different customers place different values on the same product, each should be paying according to how they value the product or service.
Has anyone read this book? If not, I would recommend it and would enjoy participating in a discussion on it. Maybe there are other books you've read on the subject, but I think value pricing could provide a new angle on the pricing game and prove helpful for anyone in the reupholstery business.
Thanks,
Rich

That's the one I started this thread with.
Rich

[fp2161]

no, I did not... The ideas expressed in it seem somewhat classic though, and plenty if books speak about price or customer value: I can't read it all!!!

[Rich]

Well, if you won't read the book, then at least go back over the prior posts in this thread as I think your concerns about will-nilly pricing may have been answered there already.
Rich

[fp2161]

what you are calling willy-nilly pricing only works if you do not have any (or only very little) perceived competition-it has been said before, but in less explicit terms. When you do you have to price the way I told you in (3).

[Rich]

I think everyone would probably agree that with little or no competition, prices tend to rise. Competition helps to keep things regulated. But, what I mean by willy-nilly pricing is when no records are kept and each customer pays a different price depending on the mood of the business owner. If one expects any word of mouth advertisement, this will come back to haunt them sooner or later. But when a customer understands that the price is higher for a good reason (as in my example of squeezing in a rush job), then it seems fair so no one should feel cheated. The book illustrates again and again instances when a business can charge more for the exact same service for different customers. One example is when a restaurant lowers the price for those who are willing to come in during slow times. The customer gets a price reduction and the business earns more income during a time when they would normally not expect to. But, not everyone wants to or can make it during that time, so they understand and are comfortable with the fact that they will pay full price.
Rich

[fp2161]

I think everyone would probably agree that with little or no competition, prices tend to rise. Competition helps to keep things regulated.

to say the truth, when you have no competition, theory says that you will tend to set your production at a level when the cost of your last good or service produced is equal to the cost of your average good produced. You will then be able to price it so that people can still pay for it.

But, what I mean by willy-nilly pricing is when no records are kept and each customer pays a different price depending on the mood of the business owner. If one expects any word of mouth advertisement, this will come back to haunt them sooner or later. But when a customer understands that the price is higher for a good reason (as in my example of squeezing in a rush job), then it seems fair so no one should feel cheated.

This is called a discriminant oligopoly policy.It clearly works better when you have no or very little competition: i.e. why should a customer understand that you need to overcharge for a job because you are too busy to do it if another upholsterer can do it for less? It can also work if you enter an agreement with competition in order to set your pricing policy together (but it is illegal)

The book illustrates again and again instances when a business can charge more for the exact same service for different customers. One example is when a restaurant lowers the price for those who are willing to come in during slow times. The customer gets a price reduction and the business earns more income during a time when they would normally not expect to. But, not everyone wants to or can make it during that time, so they understand and are comfortable with the fact that they will pay full price.
Rich

this is a fine example of a discriminant policy, but (1)I doubt that you can apply it to upholstering, and (2) I do not see anything that new in there.

[mike802]

I will start right off my saying I have not read the book, but I would like to.  I think pricing is very sensitive to your location. The guy selling umbrellas on a street corner in NY NY can get away with raising prices during a rain storm IMO because of the sheer volume of potential customers who pass by every day.   Here in Vermont that guy sees more potential customers in one day than I see all year.  I think there is a term for it, its called profiteering, and in some cases it may be illegal.  In my area I have to be very careful to have consistent pricing, because just about everyone knows each other, or is related to each other and people talk.  I can get away with wholesale pricing to business who bring me volume work, people understand that.  I can also charge extra for a rush job, once I had a trucker stop after hours, he needed a huge tarp sewn that went over his trailer.  He gladly paid extra, much extra to have it fixed right then and there. I also think most people understand that also, he had the option to go somewhere else, but wanted it done "now".  There are a lot of good examples in this thread, but I have always believed that honest pricing, for an honest job is the best policy, you may be able to make a little more in the short run with creative pricing, but for long term growth and your reputation, honesty is still the best policy.  To many MBA's focus on the short term bottom line these days and ignore the long term consequences of their decisions and policy's. IMO that is one and only one of the reasons this countries economy is in the toilet.

[fp2161]

I can only agree with you.
If your way of manufacturing chesterfields is as safe as your way of thinking, I should maybe have ordered one from ya. ;)