Issue link: http://psai.uberflip.com/i/1398793
PSAI Association Insight, August 4, 2021 I 21 Katharine hit the nail on the head here, and this quote goes to the core of why we are presenting this article to PSAI members. Pricing is the most critical component in maximizing your revenue. Harvard studies have found that a 1% improvement in your pricing can add up to 11% to your profits. With suboptimal pricing, you're missing profits in every transaction that you make, not to mention the deals that you completely miss out on. Pricing is also a big factor in your branding and reputation. Prices that are too high can come off as arrogant, while prices that are too low can call the quality of your product or service into question. Would you eat a $3 steak or buy a $20 canoe? If you are not giving serious thought to your pricing, then I hope this article will convince you to take a deep dive into your pricing assumptions, costs, strategic positioning, and other factors to make sure you are getting it right. "The best things in life are free. The second-best things are very, very expensive." — Coco Chanel Coco here may be exaggerating a little bit, but her underlying message rings true. After all, who doesn't love free stuff? This kind of thinking provides the foundation for the freemium model: Everyone loves free stuff, so let's give the product away for free to attract users and then figure out a way how to get these users to pay. There are a couple problems with this thinking as an overarching approach to pricing. First, since you're giving your product away for free, you're implying that your customers will find no value from it (otherwise, you could charge something, and they would be willing to pay). Second, and more importantly, you're leaving money on the table because you're not collecting revenue from customers who were originally willing to pay for your product but are now using it for free. (When was the last time you had a customer volunteer to pay you?). Freemium kills pricing strategies and is not worth it. This generally goes for two-for-ones or rent nine portable units and get one free. Does anyone ever make a decision to get an extra unit because it is free? Probably not. They either need it or they don't. If they don't, you're just making more work for yourself. If they do, they should pay for it. On the flip side, when you pay a lot for something, there is the perception of value. Nobody is surprised if their $1 pen dries up or blots. If you have a $200 pen, you expect it to write like a dream. The same is true of portable sanitation equipment. Only with our equipment, the cheaper and less valued it is, the more likely you'll see user abuse and vandalism. It becomes a vicious cycle of decreased perception of value leading to decreased actual value as the equipment is destroyed. "Pricing is actually pretty simple...Customers will not pay literally a penny more than the true value of the product." — Ron Johnson This quote makes it sound like any thought into pricing is a ludicrous waste of time because it should be so easy. First, here is a little background on the quote-giver Ron Johnson. In the fall of 2011, Johnson was appointed not just CEO of JC Penney, but as the savior responsible for breathing new life into one of the biggest names in American retail. Seventeen months—and many, many mistakes— later, he was out of a job. The Value of Proper Pricing (continued from page 20) (continued on page 22)