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July 14, 2005
Pricing and Differentiation
Tom Evslin writes a great post on the importance of pricing, and in particular not under-pricing oneself:
I won an argument with an IBM SE on the very good grounds that I was more expensive than him; my recommendations for system changes were implemented (grumpily) and some of them worked. We got a much bigger consulting job after that which I'll probably blog about some day because it's an interesting story.
The moral for today is one that every maker of luxury goods already knows: price can create a perception of value. As a consultant, you need high perceived value or no one will give you the time of day let alone their watch. And, if you don't have the respect you need to get information or to have your recommendations tried, you can't succeed.
It's a good point. Particularly when starting out, and overheads are low, it is very tempting to sell on the basis of price. We've done so in the past and the results have been bad: the client hasn't respected our time and has given us the run-around.
If you're in this situation you're probably thinking “if I raise my prices all lose all my clients!” Particularly in fields such as web development, where there is so much competition, this is a valid concern. So what to do about it? Well let's think about why high prices work. As Tom says, it is because of the perception of value they create. Which is to say it seems to the client that your high-priced service is better than the competition's lower-priced one. There are many other ways to give the client this impression. For example, you can write articles that show the breadth and depth of your learning. As you've probably guessed, Untyping is just such as effort. Management gurus call this differentiation, and the more competitive the market the more essential it is.
So there it is. You can't charge high prices if the client thinks they'll get the same service from your lower-priced competitors. You must differentiate yourself. Paradoxically price indeed is one way to do this, but in many cases not the best way, and can be deterimental if you haven't already established a reputation in other ways.
Posted by Noel at July 14, 2005 03:57 PM