What competitors charge for their version of the widgets you manufacture or advice you sell shouldn't matter very much: Basing your price on competitors' prices come perilously close to ceding control of your pricing and business strategies to outsiders.
That's Mike Moebs' opinion, which is pretty right on.
Moebs is the chief executive officer and chairman of Moebs $ervices, Inc., a Lake Bluff pricing strategy firm. His approach involves six elements - including competitors' pricing - that Moebs says smaller businesses should integrate into their pricing procedures.
At this point you should know that Moebs' reputation, which is noteworthy, is based largely on pricing strategies he has developed for banking institutions. You're not likely to find many small business references on Moebs' website.
Nonetheless, Moebs makes good sense during conversations, and he held attention at a pricing strategy presentation Monday night in Wheaton to a group of University of Chicago Graduate School of Business alumni, mostly non-bankers.
You have to pay attention and do some extrapolating, however. Moebs is fond of personalized examples that are effective but sometimes need connecting.
Moebs' pricing elements include:
- The price itself. "The price when I went to get pizza for some friends who were over was $23 (even)," Moebs says. "I remember that price" - although it would be better for the pizza parlor if he remembered the taste and enjoyment. Fractional pricing might have helped. "Fractional pricing is harder to remember," Moebs says. "$23.81. $22.91."
- Competition. Your business' combination of "friendliness, cleanliness and service" ultimately is more important than a lower price competitors may charge.
- Value, which can trump price. "Customers attach a value to things," Moebs says. "If I'm in construction and a customer tells me the sun room addition absolutely must be done by Labor Day, and if I listen, and if I'm honest and say something like 'For me to get this done by Labor Day will be a real chore... I will have to charge you more'" gives the contractor pricing flexibility. There are almost as many value considerations as there are customers, but, Moebs says, "If you learn how to sell value, you understand the psychology of pricing."
- Volume. In Moebs' elements, volume is what happens when a combination of price, value and service bring - for example - tax customers back each year to a CPA firm, often with referral business as well.
- Relationships. The fact that you can call your customers by name is part of the price-value-service process. Moebs talks fondly about the car dealer service manager "who goes the extra mile" and the Starbucks staff member who knows his name.
- Costs. Think about Moebs' loss-leader strategy of a grocer who promotes $2-a-gallon milk - and puts the milk in the back of the store so customers must walk past tempting displays of profitable items.