Situation: The Company struggles with differential pricing. They want to be fair to clients but feel that a one-price policy limits growth. What tiered pricing models work, and how are they rationalized?
Advice from the CEOs:
- Differential pricing by client demand.
- For high value services, you must have a compelling value proposition.
- Research comparative premium pricing for similar value propositions and set prices accordingly.
- For price sensitive clients, offer two alternatives:
- Senior staff services at one price or associate services under supervision for a lower price. Let the client choose between price and quality.
- For high value services, you must have a compelling value proposition.
- Differential pricing by market risk.
- Early stage clients want high service but may not be able to pay bills. This justifies a premium price, as you are not assured of collecting for services. The differential is a risk premium that covers non-payment risk.
- Well-established clients are less risky, and support lower pricing due to a lower risk of non-payment and are assigned a lower risk premium.
- Differential pricing for bundled vs. non- bundled services.
- If a client purchases individual services, then there is a set cost for each service.
- However, if a client wants to purchase a bundle of services, then it is reasonable to discount the bundle. You are not necessarily charging less for the bundle, because you have now received additional business at a lower acquisition cost. Your “discount” reflects the savings that you have enjoyed in reduced marketing and sales cost.
Key Words: Pricing, Pricing Models, Fairness, Value Proposition, Service Pricing, Market Risk, Bundled Services, Risk Premium [like]