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I love pricing. I also love going to Las Vegas, especially when it’s to attend a pricing conference. True, that’s not the reason most people visit, but then most people aren’t as passionate about pricing as I am.
On this particular trip, it wasn’t the conference but a chance encounter on the Vegas strip that reinforced for me the three pricing lessons that are the foundation for any successful pricing strategy.
I was en route from the airport to my hotel when my cab got stuck on a side street. The barrier was road construction. As I sat stalled in traffic, the meter ticked up 20 cents at a time. After much frustration, I asked the driver to pull over, and got out to hike the two miles to my hotel.
Related: Mastering the Art of Pricing: What the Textbooks Don’t Teach You
There was a beautiful woman at the next corner, heading in the same direction. We started chatting as we walked toward the strip. I told her about my cab ride and she said that she was going to meet friends.
After a few minutes, I asked, “So, what do you do?”
She looked me up and down, then replied, “Anything you want.”
As a naïve Midwesterner, I was shocked. But once I regained my composure, the next words out of my mouth were, “I’m a pricing expert. Can I ask you some questions?”
She said “yes,” so I asked what she charged.
“I charge $500,” she replied. I asked if she ever negotiated lower prices, and she answered, “If they don’t want to pay that, I give them the names of some other providers who would provide services.”
Pricing lesson #1 — know your value.
For many business owners this is often one of the toughest lessons to learn, but it’s also one of the most important. Know your value — based on experience, results you’ve provided clients, how much the competition charges, your unique value proposition — and price your product or services accordingly. Too many companies undervalue their products.
Then I asked her, “Do you ever charge more?”
“Absolutely,” she said. “If some guy walks up in a fancy suit, nice watch, good shoes, I’m starting at $800.”
Related: Make Sure the Pricing Is Right With These Tips
Pricing lesson #2 — segment your market.
Segmented pricing is an often-underutilized opportunity than can tremendously expand your business. Price segmentation includes pricing by region, time, buying patterns, a job’s turn-around time and specific customer needs. Companies need to look for customers with different degrees of willingness to pay, then find a way to charge those customers different prices.
As we continued walking down the strip, she answered her phone. Based on her side of the conversation only, it was clear she was talking with a familiar client. “Would you like me to get one of my friends and come over?” she asked the person on the other end.
Not one to miss an opportunity, I was ready with my own question when she completed her cal. “How much does it cost when you and a friend provide services?” I inquired.
“Oh, that starts at $2,000,” she said.
Pricing lesson #3 — have a product portfolio.
Having a product portfolio means offering multiple versions of your product and/or a range of complementary goods or services that enhance the original product. You can create a product portfolio to capture more revenue from your market.
This woman had multiple options available for clients to select from, and the collaboration with a friend gave her a premium package to offer.
Related: Four Rules for Pricing Products
Up to this point in our talk, she had been completely open. However, I had one question I hesitated asking. But we had arrived at my hotel, and I decided to go for broke: “If you don’t want to answer this question, that’s fine … but how much did you make last year?”
“I worked almost every day and I made a little over $1 million,” she responded.
Now, you might not approve of what she does for a living, but if you want to maximize your income, may I suggest you learn these three pricing lessons this lady of the evening illustrated: Know your value, segment your market and build a product portfolio. These lessons apply to most business structures — whether product- or service-based — and across multiple industries.
And, as my new acquaintance could attest, their application helps lead to great success.