Posted by: Bob Bly
August 5, 2008
Issue #474

The Price is Right

Ask most experienced direct marketers "What’s the best price to charge for my product," and the answer will be: whatever the market will bear.

In direct marketing, we can test prices and quickly see which is the most profitable - generating the highest return on our marketing dollars (ROMD). And, surprisingly, tests show that higher prices sometimes generate more orders than lower prices. In one classic example, a publisher was offering a service teaching presentation skills to business executives. When they tested $197 vs. $297 in their advertising, $297 was the winner.

Most direct marketers conclude that if the higher price wins, they should go with that. But while this is a sensible strategy in most instances, are there any situations in which charging a too-high price may come back to bite you … even if your price tests show the higher price to be the winner?

I can think of several.

The first is when pricing professional services.

GD, a pricing expert, once told me that the ideal price level for professional services is in the middle of the top third - NOT "the most you can get."

Let’s say the hourly rates for service providers in your industry range from $100 at the bottom to $400 at the top.

You don’t want to be in the lower third of the price range, charging $100 to $200 an hour, because prospects equate a bargain price with inferior quality.

Pricing in the middle range, at $200 to $300 an hour, isn’t bad. But it makes you one of the herd - a commodity.

The top range is an hourly rate between $300 and $400. So by following GD’s advice, you would set your hourly rate at $350, smack dab in the middle of the upper third. This is high enough that you are perceived as a top professional in your field, but not so high that you are always the most expensive provider of your service.

You see, if you are the highest-priced provider in your field, not only will new prospects hesitate before hiring you. "Every time you give your current clients an estimate, they will strongly consider bidding the job out for competitive quotes rather than just signing your agreement," said GD. "One day, they will try someone else, find they get equivalent service for a lower price, and you will never hear from them again."

Another problem with charging outrageously high prices is that it creates ill will between buyer and seller. The buyer feels ripped off, and complains loudly about things he might otherwise let pass. Also, if you charge a premium price and you fail to deliver the premium results you promised, that client will never hire you again … and will badmouth you to others.

Here’s another sign that your prices are too high: a spike in your refund rate.

So how do you put a logical limit on your pricing?

My friend, information marketing guru Fred Gleeck, has a simple rule. "I don’t sell a product unless I truly believe the content is worth at least 10 times the price I am charging," he says.

Then there is an ethical question: Given our free market society, is it okay for a drug company to charge a price for a proprietary medication that only the wealthiest patients can afford - especially when doing so effectively sentences poor people with the disease to death?

Fortunately, most of us don’t market products that people absolutely can’t live without … though some of us price our products as if that were the case. However, no matter what your pricing is - high, low, or in between - rest assured that some folks will complain about it.

Is there a way to prevent consumers from protesting against your high prices? Yes. By offering them options for getting your information cheaper. Like this:

• The premium consulting service. A high level of personal service rendered by you or another top specialist and priced accordingly … in the thousands of dollars.
• The mid-range coaching service. The customer does most of the work, but you offer advice, support, and encouragement through weekly telephone calls, online help, or some other mechanism.
• Information products. You sell a manual, DVD, or audio learning system that teaches people how to solve a problem themselves. It’s reasonably priced (in the hundreds of dollars), and involves little or no service or support on your part.
• A book. A how-to e-book or traditionally published book on your topic … selling for anywhere between $10 and $50.
• Free content. How-to information delivered via your blog, podcasts, free Webinars, e-newsletters, special reports, or content-rich websites.

By giving your customers several ways to get your information inexpensively, it will be impossible for them to complain that you are too expensive or unfairly priced. You simply point out that if they can’t afford your high-end products and services, they can avail themselves of your expertise through your e-book, e-newsletter, or free online content.

You’ll be able to sleep at night, confident that people won’t be thinking of you as a greedy opportunist and besmirching your reputation.

Or at least not doing so loudly.

Robert W. Bly
Guest Contributor
THE TOTAL PACKAGE

Looking for resources related to this article? Try some of these.

Looking for more guest articles? Check these out.

Looking for past issues of The Total Package? Click here for our archives.

Want to share or reprint this article? Feel free. Just give us full attribution and a link to our Home Page when you do.

Attribution Statement: This article was first published in The Total Package. To sign-up to receive your own FREE subscription to The Total Package and claim four FREE money making e-books go to www.makepeacetotalpackage.com.

Related posts

• When Copywriting Formulas Come Up Short Here’s What To Do …
• For Men and Women Who Still Dream
• 11 Startling Forecasts for 2006
• Deeper Into The Heart of Great Sales Storytelling And Mythmaking …
• The Total Hijack

---

7 Comments »

1. Comment by Marilena Paolucci — August 5, 2008 @ 10:45 am

   Thanks Bob for this great bit of advice on pricing structures. I’m a big fan of your eBooks and have bought several. Very useful information!

   Best,
   Marilena Paolucci

2. Comment by Scott Stroud — August 5, 2008 @ 11:27 am

   Bob - great information, particularly for a newbie like me!  The ‘tier’ you describe to protect your premium price is a brilliant strategy that I intend to follow.  Thanks, again.  Scott

3. Comment by Victoria Ipri — August 5, 2008 @ 12:29 pm

   Bob,
   As a long time follower of your superior advice, (and owner of many of your books!), I get that special ‘privileged’ feeling every time I finish reading your tips and tricks for success.

   I use the tiered system you outline, albeit a bit differently, and it works beautifully. For anyone reading this post, I highly recommend it. It definitely allows customers to feel they are getting the same great advice as customers who are able to spend mucg more. Your customer then becomes your friend and is more willing to buy from you in the future when their circumstances change.

   I’ve successfully combined my copywriting skills with SEO to help my customers succeed and, of course, I succeed too in doing so. I offer a free SEO analysis for website owners to help them understand why their website may not be doing as well as it could. Then I offer several packages of services to solve their problems, depending on their budget. Sometimes copywriting is the main issue; sometimes it isn’t.

   So thanks once again Bob, for pointing out the obvious: Give customers what they want, not what we think they want. Great lesson!

4. Comment by Marcelino Latorre — August 5, 2008 @ 12:41 pm

   Thank you Mr. Bly for your time, this article was very helpful.-Marcelino Latorre

5. Comment by Dr. Mike — August 5, 2008 @ 10:54 pm

   Thanks for the valuable information B2… I believe that your approach and rationale for your pricing is extremely accurate.
   I now have a new source of logic to help me with pricing my own products/services.

   Dr. Mike 

6. Comment by Jeremy Reeves — August 6, 2008 @ 9:58 am

   Thanks Bob!

   I’ve heard that before but I like the way you wrapped everything together - it made it much "stickier" than the last time I heard about giving multiple price ranges for customers.

   Great post!

   Jeremy Reeves
   http://www.GetClientsIn20.com

7. Comment by Susan Connors — August 9, 2008 @ 7:26 pm

   Thank you Bob again for being a lifeline.

   Starting a new enterprise is always tricky..your tier system is like a beacon of a lighthouse to a ship on a stormy night.

   Sue in Aus