Recently I was shopping for a gym membership and found a facility that offers annual memberships for $369. I was a little worried about the commitment as I am not a very motivated gym user. And then a light bulb went on. If I visited every day of the year, it will be just $1 a day… if I visited every other day, it will be $2 a day. Now I had no problems committing to that.

The best part of the realization was that it instilled a commitment in me, as now I know if I do not go at least every other day, “the price goes up.” If you are wondering, over the last two months, I have been visiting the gym four to five times a week, keeping the cost under $2 a visit.

Why does the gym not communicate its pricing in a way that is relevant to its customers?
When they promote their price as $369 a year or $31 a month, they are communicating how they will collect the membership dues.

Instead, if they connected their price to member usage and benefit, it becomes more relevant. In my case, figuring out the way to keep the price under $2 a visit, gets me to the gym more often. And if I go to the gym more often, the chances of me renewing at the end of the year is simply higher.

In the B2B space too, businesses often fall in the trap of communicating price based on how they see it and how they will invoice, instead of pricing it from the point of view of their clients. I was partnering with a client who was close to sealing a deal of offering a world class interactive reporting of sales and inventory data at $150 a month. Their end-client had two thousand stores and did the math and realized that they were signing a $3.6 Million annual contract. That level contract takes a higher level of diligence and falls in the capital investment evaluation. As the discussion was stalling, I said: “For now forget the $3.6 Million contract. What happens if I provide a person who will work for you in each of your stores and deliver the same reporting; and at a cost of $5 a day or 41 cents an hour for a 12-hour shift? And that is all you will pay.” Of course, the client jumped at the idea and said, “where do we sign?”. The next question was what is most convenient for you to pay, daily $5 to each person in each store or monthly $150 to each person in each store or $30,000 per month for all 2000 people? At that point, it became all about “how to price and make it most convenient for the client to pay” and we left with a signed contract.

The result was a big win that was achieved by pricing it from the client POV and not how we would charge; and it was achieved without offering a price reduction.

To make your pricing be a true asset, ask yourself the following questions. Is your pricing based on:
  1. How it is convenient to you?
  2. From the point of view of your customers or clients?
  3. To showcase your clients the true value of the services you offer?

If your answers are NO, YES and ABSOLUTELY YES, you are on an amazing track.
If your answers are not these, then please reach out to me and it would be fun to have a conversation on how to make pricing a true asset for your organization.

 

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