Learn why setting the best price often involves more than just raising and lowering costs from pricing strategist Rafi Mohammed, who presented during an Annual Meeting Game Changer session this week.
Pricing is a powerful tool for any organization, and the key to better pricing is to offer your customers—or members—choices, says Rafi Mohammed, founder of business consulting firm Culture of Profit, author of The 1% Windfall, and one of Monday’s featured Game Changer speakers at the 2014 ASAE Annual Meeting and Exposition.
Quick example: Video streaming and rental company Netflix whose stock fell almost $200 over the course of a few months after increasing the prices of its streaming service several years ago to cover the cost of higher licensing fees. If the company had taken Mohammed’s advice and, instead of unilaterally raising costs for existing customers, had offered those customers the choice of upgrading to a premium, higher-priced package offering newer films, it could have skipped the financial headache.
“By offering customers choices it makes these types of price increases easier,” Mohammed says. “And what I’ve found time and time again is that it’s shocking how many people will take the highest price option.”
Choice is one of the tenets of Mohammed’s framework for creating a comprehensive pricing strategy, which begins with setting a value-based price.
How do you set such a price?
“Step one is to determine the next best alternative,” Mohammed says. “Is it another association? Is it LinkedIn? Or is it that there isn’t a next best alternative?” Price has little to do with cost, and everything to do with where else a member can go for a better product or service, he adds.
Second, create a value statement that defines how does your association compares to the next-best alternative as well as the value that you’re offering members. Despite how trivial that idea may sound, Mohammed says, “very few companies can articulate their value.”
Step three: Take the time to explain the value you just defined. Strive to put the value of your product into dollars, Mohammed says. “Not only do you have to know the value of what you’re offering, but you have to effectively communicate it to your members.”
Finally, determine the right price that reflects your product’s value. For example, if you offer a better program or service than the next best alternative, you can set a premium price. If, on the other hand, your product does not match up to the competition, consider offering a discounted price.
“The beauty of pricing is that you can make changes on Sunday evening and start making more money on Monday morning,” Mohammed says.