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.
• 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]