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Just looking back at the history of economics and commerce it teaches us that almost every single innovative change to pricing has been done by sellers, not buyers. This is a real challenge to entrepreneurial thinking as most pricing strategies are often changes in business models – more simply, how companies monetize the value they create.
NETFLIX Story
Netflix founder and CEO Reed Hastings tells the story about the inspiration behind a change in pricing: “I had a big late fee for Apollo 13. It was six weeks late, and I owed the video store $40. I had misplaced the movie. I started thinking, ‘How come movie rentals don’t work like a health club, where whether you use it a lot or a little you get the same charge?'” Subsequently, a new business model, and pricing strategy, was born with Netflix. Customers didn’t demand it, suggest it, or even agree with it in advance. They had nothing to do with it, except to vote with their dollars their approval.
Same ticket, different price, better seat
A form of value pricing called “yield management” – a pricing innovation developed approximately 20 years ago – is gradually being adopted by banks, hotels, apartment managers, retailers, live entertainment (such as sports teams, symphony orchestras, ballets, etc.), car rental companies. The process enables firms to charge customers consuming otherwise identical goods or services a different price for doing so. Robert Crandall, former Chairman and CEO of American Airlines, gave Yield Management its name and has called it “the single most important technical development in transportation management since we entered deregulation.”
Your clients don’t control your pricing strategies
You are in control of your business model and in turn your pricing strategies. Customers don’t have anything to do with it, except to confirm it by voting with their wallets. Customers don’t run your business, nor do they spend their waking hours dreaming about how you should monetize the value you create. Knowing exactly what your clients are paying you for is the essential first step.
If you are looking at ways that can help drive revenue and profit, feel free to give us a call for a casual chat on 1300 235 378.