Dave Harries: Let’s talk a little bit about pricing – because I know pricing is something that can cause a lot of sleepless nights for a lot of business owners. How do you set that ideal price, that’s going to get those new customers, that’s going to be competitive in your market place and that sort of thing? Are there some principles one can follow to help with that pricing journey?
Grant Leboff: To be honest, there are so many different options and ways of looking at pricing. If you’ve got a new product or service that you’re about to launch, I think there are some obvious things that you need to do. So the first one is to say; what does competition look like? It doesn’t mean you have to price exactly the same as the competition, but you have to have an understanding of what is the market expectation?
If the market expectation for product ‘X’ is £500, if you’re going to charge a thousand, you’re going to have to justify why it’s so much better; twice the value and twice the cost of what’s existing out there in the market at the moment. So I think you have to make sure that you’re quite aware of what’s around. That’s the first point.
The second point is, then, about positioning. Having discovered that the average price is £500, are we positioning ourselves as a much nicer and cheaper version of that? So if you want a low budget airline type scenario, we’re going to take out all the frills and you can have the basic thing and get to your destination and we’re going to cut the price and, therefore, you’re going to be a lot lower.
Are you going to say you’re a premium product, in which case you might be a lot higher, but then you’ve got to explain that, or are you a me too product? Are you going into the same but you’re going to do something slightly better? Or are you just the same that you think there’s a market for you as well? So it’s just a question of understanding how you’re positioning yourself against a competitor.
Then it’s also those pricing strategies that you can use. There are things you can do. You can go in low at the beginning to get market share and call it an introductory price. So… you don’t know us, Mr. Customer – right? – in order to let you try, we’re giving everybody a 40 percent discount at the moment. So it allows you to go up later, but the point is you can go in low to try and buy market share. If people think, oh, well they’re very similar but they are charging half the price – I know it’s only for introductory, it’s only an introductory offer – but I’m going to do it anyway. So you could do that.
The other thing that you can also look at is ‘price bundling’. If you’re going up against a competitor and you don’t think the market can tolerate much more in terms of increase in price, can we ‘bundle’ in other products and services that they’re not currently doing, which are fairly low cost to us – so we’re still making a margin – but the customer will perceive as high value to them. Imagine you’re just starting a new football team and you want people to come and see your amateur club than others. If you say where there’s a free beer with your entry ticket, you might keep the entry ticket price very similar, but the fact that they get a free beer with yours and not with the others, they might say, well that’s great, we like that. You’re sort of bundling, but you’re not cutting the cost, as it were, which might give the impression of; oh, it’s going to be not as good a product – but you’re giving value in other ways.
Dave Harries: One of the issues that again, I hear a lot of small business talk about is variable pricing as well. Where they change the price depending on the customer, even though it might be quite similar product, if not exactly the same. I’m wondering, are there dangers in that sort of thing, because it might get out into the marketplace that you did it for ‘X’, for one customer and ‘X’ minus five for another customer, or is that a sensible strategy?
Grant Leboff: Well, it’s funny. A lot of businesses I know, Business to Business I’m talking about rather than Business to Consumer, tend to have a kind of fixed price. This is my price and then where the price changes, it’s because you tell me you’re not going to pay that price and we do a deal and I say please don’t tell anybody else, and of course you may, you may not. Look, that’s just sensiible and as much as – if I want the business and I can negotiate with you – Business to Business works like that. There are a couple of techniques which I think are worth businesses thinking about and aren’t used so much in B2B, more and B2C but can be. One is price discrimination and price discrimination is what it says. It’s when you discriminate against a customer based on what they look like.
So we’re all used to it. When we go to a cinema, let’s say, and there’s a different price for senior citizens than for everybody else. Now on one level, why is that fair? Why they pay less than me, but there’s a kind of narrative; well older people that are retired now, they’re not earning any money, have less money, and, therefore, it’s justifiable in a way that… imagine a different price, based on your ethnicity or your gender might not go down as well and politically wouldn’t be allowed. So what I’m saying is if you can justify that… I’ll give you an example. A small business may have a different price for people employing less than 30 people that employing more than 100 people. That might be a way of charging some of those bigger businesses that you work with a premium or make it a bit more money because you know they can afford it. As long as you can sort of have a narrative that works on that, you can do that kind of discrimination.
And the other one is price differentiation, which is basically when you’re sending the same product, but the circumstances are different. So I’ll give you an example. You may say, look, there’s always a run at Christmas. So we actually charge more at Christmas time. So you’re not actually giving a different product, but because the demand is different, you’re charging different. Cinemas again; your Friday night viewing will probably be more expensive than your Tuesday afternoon matinee. This film you’re seeing is the same and your sitting in the same seat, but people appreciate that there’s a high demand on a Friday night and not such a demand on a Tuesday afternoon. So if you can again, justify that narrative within your own context, it’s a way to maximize profit.
