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Cut Price?

Cut Price?

A little confession. I sat down to write a piece about closing strategies when I came across a great little vlog by David Barnett that led me to consider the whole issue of pricing. It’s a major challenge for many new – and established – businesses. What follows is an exploration of drivers to margin and isn’t a view of how to price in a high volume, low margin business. Maybe I’ll return to that subject later.

I first met David and his wife Nicole in their hairdressing salon in Healdsburg, deep in Sonoma wine country. I watched his salon grow over about seven years based on a very clearly defined service ethic rather than a “rent a chair” salon philosophy. When David moved his family back to his Welsh birthplace in 2016 he realised an ambition that he had been working towards for a couple of years, of moving into education and business coaching within his profession. His irregular vlogs on Facebook under his BrushEd brand make for interesting watching because he focuses on service and quality as drivers to revenue. Check him out for some really insightful commentary (search for @davidbarnetthair).

In this particular vlog David addressed the question of charging what you’re worth. He talks about when he opened up in Healdsburg and that he deliberately didn’t check competitive pricing at all but defined his price solely on the service he wanted to provide. And as the business grew he increased his prices still further, bucking conventional wisdom that you price to your local market. He had clientele travelling for over an hour to reach him, confirming his opinion that quality draws the right clients every time.

David also mentioned in his vlog a restaurant in Menai Bridge on Anglesey (Sosban & The Old Butchers) who set up a fine dining experience in a town with no such tradition. Amongst the hotel restaurant and pub fare of the town their £75 per plate dining experience looked like a major miscalculation, yet they are completely booked some 6 months in advance. There is no choice on the menu as such, merely a running order for your culinary experience that day. Like David’s salon, its about trust and destination.

I was also reminded of an anecdote quoted in Daniel Preistley’s book Key Person of Influence where he talks about a client of his who was a personal trainer, frustrated with not identifying a growth strategy for his business which is clearly limited by how many people he could physically train in a day. After looking at his client list Daniel’s suggestion was to dramatically raise his prices and refocus on the celebrity scene who were already clients and providing strong endorsements. The logic was to attract the clients you want rather than pricing for the mass market you can see. Like David’s and Sosban’s approach it worked really well in delivering the kind of rewards for the excellent experiences they are able to provide.

My personal experience resonates with these points. I was once product managing a range a products which included a high end performance product that wasn’t popular with the general sales channel yet did appeal to systems sellers, who even at this high price were making great business. So I kept the price high and the specialist channel were loyal as they had a product they could own that no-one else was selling. The volumes and prices were the highest in Europe and a gnome noticed. Instead of learning from my experience I instead came under pressure to “harmonise pricing”. I warned the consequences would be a reduction in revenues and not an increase in volume but the memo was very clear. Over the next four weeks, and in response to additional pressure from the general sales channel we dropped the price by almost 60% representing a huge margin hit. The specialist channel abandoned us, the general channel didn’t find the product any more appealing than before so didn’t promote it. The result was massive lost revenues and the alienation of key partners. Know your channel and price to it.

So, how do we price? Clearly the start point is the revenue needed to cover fixed and variable costs plus a profit margin. That beggars the question, what costs and how much margin? Many product managers talk about premium pricing and you’ll see that quoted a lot, but what is premium pricing? Is there really a magical market segment that will simply pay more regardless of the product? If it exists at all then it doesn’t do so sustainably. The margin comes from developing a product that meets a service and aspiration desire that has little to do with need and everything to do with desire. Premium product reaches high up into the Maslow Triangle of Needs and still has to enhance the buyers experience.

If you are hungry you clearly have many options to dine. No-one has to go to a Michelin 3 star restaurant and you wouldn’t be able to get a table at short notice even if you did. A three star Michelin restaurant is an experience that is both epicurean and theatre – food as performance art. A good cocktail bar provides exquisitely matched ingredients perfectly presented through an expression of care in an atmosphere that isn’t driven primarily by intoxication. The price reflects the care and the atmosphere that it engenders. Experiences require planning, time to unfold, are always an opportunity to delight, but they need careful and passionate crafting.

There are cynical pricing strategies that are based not on quality but scarcity, and there are many startups targeting a mythical “high net worth individual” whom they expect to spend without consideration to value. The smart players, like David and Sosban, price for the product they want to deliver and not for the market they assume they will serve. Your persona-driven marketing won’t help you if your persona is convenient and not a reflection of who you really want to provide an amazing experience to.

In closing I’ll return to hairdressing for a moment, at the risk of seeming obsessed. I live in a town with some 30 (!) hairdressing establishments. One has a reputation for being expensive but I was interested in their positioning so I gave them a try. Unlike other salons they don’t price for treatments (£xx for a cut, £yy for colour, etc) but they price on time alone. That means that you get the uninterrupted attention of your stylist who is relaxed, unhurried and not rushing between multiple clients at various stages of treatment. There are no concerns that materials are applied for too long or that a junior will be finishing your styling – in fact they don’t have any juniors! Not even at the reception desk, which is manned by middle-aged and immaculately groomed men who aren’t obsessed with their phones and can make eye contact and operate the appointments system. It is a relaxing and calm place which gives a premium experience for a reasonable price. Not an experience for a premium price. The emphasis is on the client and that is where the attention is focused. no noisy or unpleasant treatments in the general spaces but calm and time and endless patience. I shall return.

What positively unexpected experiences have you had that easily justified a premium positioning?

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