The Art of Pricing: Boosting Profits and Winning Customers

Imagine unlocking the secret to pricing your products just right – that sweet spot where your profits soar and your customers feel they're getting an incredible deal. That's precisely what we're helping you achieve in our enlightening discussion with the Price Whisperer.

We cover why it's paramount to offer different pricing for various customer segments and the pitfalls you need to dodge while setting prices. Get to grips with the art of ensuring enough profitability while growing your business and how to hit that perfect balance between competitive pricing and optimal profit. 

But we don't stop there! We plunge into the heart of pricing strategies and the crucial role of knowing your customer base. The Price Whisperer hands out some precious tips for finding potential customers in places you wouldn't usually think of – your neighborhood Starbucks, perhaps, or LinkedIn if you're into B2B services. And what about competing with big, well-established brands? It's a daunting prospect, but we've got you covered. Learn how to set yourself apart with premium pricing and carve a unique niche for yourself in a crowded marketplace. No matter your industry, this episode is a must-listen-to boost your pricing proficiency and profitability!

Chapters

• 0:00 The Importance of Pricing for Profitability
• 15:17 Pricing Strategies and Customer Understanding

Transcript

Speaker 1: 0:00

Welcome to the Elevate Media Podcast with your host, Chris Anderson. In this show, Chris and his guests will share their knowledge and experience on how to go from zero to successful entrepreneur. They have built their businesses from scratch and are now ready to give back to those who are just starting. Let's get ready to learn, grow and elevate our businesses. And now your host, Chris Anderson.

Speaker 2: 0:25

Alright, welcome back to another recording of the Elevate Media Podcast. I am Chris Anderson, your host, and today we're going to be diving into a topic that really anyone can benefit from, but especially if you're early on or starting out on your journey, that might come up in your thoughts or conversation is how do I price my thing and how do I price it correctly, and so we brought on the price whisperer today on the show. He's going to break that down for us, help us get some actual tips on how to price our product services better to make more profit. So we have, let me say this, right hair chauffeurs on the show today. Pear, welcome to the Elevate Media Podcast.

Speaker 3: 1:03

Well, thank you so much. It's a pleasure to be here.

Speaker 2: 1:07

Absolutely. We're looking forward to this. So the price whisperer? Where did that nickname come from?

Speaker 3: 1:14

Well, it really came from. I was bought up in networking group here in Los Angeles where I live, and one guy I used to be called the pricing guy, right, and because everybody knew what I was doing, and it's something that is very unusual, and all the folks that I've ever met almost all the folks that I've ever met says that how did you get into this? And I've never heard about somebody that's an expert in pricing and so forth. So, anyway, in that networking group there's another guy that called himself the pitch whisperer right, so he helps companies and entrepreneurs to really refine their pitch. And he came up with the price whisperer and since then I was the price whisperer in that group and because I got this wacky name that nobody can say, really, although you did it very well, thank you, and certainly people can't spell to it. It makes perfect sense in my native Sweden, but that's not where we are. So I decided to adopt it, right? And you do a Google search for the price whisperer and you get a million hits.

Speaker 2: 2:50

So with that, so out of everything, out of all the possible topics within business and helping entrepreneurs, why pricing?

Speaker 3: 2:59

The background is that I ran companies a couple of companies in Europe, and then I've been running several companies here in the States too, and in all of those we did experiments with pricing only because it was an interest area. And some experiments worked really very well, like next quarter revenues are up 25% or so. Others were complete duds, and what I had learned in business school about pricing was so academic and theoretical that it was really useless information. So eventually I decided I was too old and too opinionated to be a hard gun and I developed a process that makes every pricing experiment a success.

Speaker 2: 3:44

So with that? So when people are looking to price their products or their coaching, you hear both sides of the camp low ticket offer and just scale it up to a lot of people high ticket offer, so you have to have less coming in. Where do you sit with that? Is there another route? Or how do people figure that out, that decision?

Speaker 3: 4:04

Well, the right answer is that you need both. Whether you sell a product or a service, you do want to have sort of a good, better, best offering to your clients, because that means that you can capture volume with a good product and you can capture profits with the best product. That's a mistake that many entrepreneurs do, that they have this is my offering and that's it. They only have one product or one service. And another mistake that many entrepreneurs do is try to look at a competitor and set the same price. And that's often the first step into the commoditization death spiral. And because you set the price the same and then suddenly you have the same features or you promote the same features, you have the same value statement and so forth, and suddenly you're a commodity and a commodity is sold on price only, meaning that the low price will get the business. And the low price means that you eventually have no profits.

Speaker 2: 5:48

Yeah, but so how do you go about doing that? How do you make sure that you are pricing competitively to make a profit, like, how do you kind of find that sweet spot?

Speaker 3: 6:01

Well, first of all, you need to decide who are your customers right and figure out which of the various customer categories out there or call them personas, or call them avatars, whatever but which of these customer segments would support higher prices and more profitable prices than others, and then understand what would make them buy right. Because this is also another one of these very odd mistakes that a lot of companies do, even large companies and well-established companies. They look at revenue, not at profit, and without profits, eventually your company will die right, and this is such a. Any executive knows this right. And then they say, yeah, profits are good. And then in the next 15 minutes they go and say slash our prices and start the price war.

Speaker 3: 7:28

And if you look at some of these, some companies can be unprofitable for a very long time because they have investors that support them for a long time, but most companies cannot. I mean, you look at Amazon. They were unprofitable for whatever 15 years, same with Uber, for example. But look at Amazon today. They have a profit margin of what being? 1% roughly. They turn over a lot of cash, but they don't make a lot of profits.

Speaker 2: 8:06

Why is it important to make sure you have enough profit when you're growing your business for those listening?

Speaker 3: 8:12

Well, because profit is something that you put back in the company, certainly when you're in the growth phase, and what that means is that you can develop more products, where you can develop more versions of the products, simply because you have the resource, you can define more services, you can spend more money on your marketing and your whole market development, marketing and sales and so forth. You can even hire better people because they are often more expensive, and so that's why profits are so important. And if you look at it, any company has a resulting profits that comes from only three variables it is the cost total cost of the operation, it is the sales volume, or whatever you sell, and it is the price of whatever you sell. And of these three, pricing has the highest leverage on profitability. Why is that? Because it affects the top line, right. And in fact, for the average company, pricing is three times as effective in driving increases in profits than sales volume would be, and it's twice as effective in driving profitability compared to cost reduction, right.

Speaker 3: 10:09

And once you know that and in fact for the average company, I do something I call the 1% challenge and imagine that you can change one of these three variables 1% right For the average company and obviously there's no average company but for the average company a 1% increase in price or a 1% decrease in discounting because that's the same thing leads to an 11.3% increase in profits. You know Now, when you have that in mind, suddenly the salespeople if you sell through salespeople are not allowed to discount 25% anymore. Suddenly, suddenly they have to close the deal with only 10% discount. And in some cases you send out coupons right. Suddenly the coupon is 10% discount, not 20% discount, right and so forth. And when you start looking at your organizations through that 1%, everything is changing right. And why I'm calling this the 1% challenge is simply because have you ever failed to change anything 1%?

Speaker 2: 11:46

No, yeah, that's not much.

Speaker 3: 11:49

No, you know.

Speaker 2: 11:51

Yeah.

Speaker 3: 11:52

So, and that's why companies who focus their operations on profitability and focus their operations on looking at the companies through a lens of profit, and so forth, typically end up as the market leaders. Yeah, for the reason that they have more resources than competitors.

Speaker 2: 12:18

Yeah, yeah. So when we're looking at that, when we're looking at our business, our numbers, you know what's a good percentage for profit margins from your perspective for businesses.

Speaker 3: 12:34

Oh the there's no silver bullet. Yeah, I mean, more is better right, right For sure.

Speaker 2: 12:42

And I guess what's a safe, what's a safe percentage, would you say A company's you know doing well if they have this percentage of profit?

Speaker 3: 12:49

The average company, the average, when we're back into average, the average company has a resulting pre-tax profit of about 10%, okay, and but I mean I just mentioned Amazon with the profits of 1%, roughly Right, and imagine if they could increase their prices with 1%. They suddenly have profits of 2%, and I mean we're talking billions of dollars, right, and imagine then what they could put into even more market development and so forth. I mean we have Walmart that is actually coming up as a strong competitor to Amazon, right, yeah, so so.

Speaker 2: 13:41

But if you're a smaller company you know that 1% I guess it still could make an impact over time. Absolutely.

Speaker 3: 13:50

I mean, you mentioned coaching here, yeah, and I mean, imagine that you well, really imagine that if you're a one-man band kind of consultant or coach, maybe you have revenues of I don't know pick a number 15,000 months, right, and you don't want to do 1%, right, you want to do 10%, right, right, and suddenly you make another 1500 bucks. Now, what do you do with the 1500 bucks? Maybe, maybe put more ads out, Maybe you do more SEO stuff, you spend it on Google ads, right? Yeah, so it's. And maybe you take the time and the effort to really understand who the particular customer category is that do support higher prices and understand what they specifically are looking for in terms of messages and so forth, and then maybe you can increase another 10% and suddenly you make 3 grand more than you did, right.

Speaker 2: 15:17

Yeah, so when people are look, is there a Cadence to how often these? You know, maybe soliparners or small businesses should look at their prices and change you know, increase those prices. Is there a good cadence for that, or?

Speaker 3: 15:38

It depends on what business you're in, and because every market, every market, evolves right, right, and there's new competitors coming in, there may be technology coming in, there may be companies that disappears, you know, and so forth, and because of that it really depends on how quickly that marketplace that a company is in is evolving right, and you know, and sometimes companies do things that sounds very odd, you know, like at a conversation with a new restaurant chain the other day and actually not a restaurant but a burger chain, right, and they had this wonderfully smart idea of putting their very first burger restaurant in between a Chipotle's and a McDonald's, you know why, not a couple of blocks away, and this, of course, was a spectacular failure right.

Speaker 3: 17:05

And so sometimes you know, common sense is not always common right, which actually was something that this was coined by Voltaire back in 1642, I think Common sense is not so common, but you're great, of course.

Speaker 2: 17:24

Yes. So if you're to start you know all over and build a business you know one what business would you focus on and kind of where would you put your prices Then? Today's my life, if you're starting right now, if you had the you know, the want, the need to do that, where would you start and kind of where would you lay your prices, do you think?

Speaker 3: 17:47

Well, oddly enough, a couple of well, maybe 10 years ago, I did start another business on the side and it's a, and it was a failure, right, but that was in the high end audio industry and it's something that I personally love because it's music and it's high tech, right, there is no business there, which is the problem, right? Well, there's a very small business and what we found was that this is a. This is very odd. This is a business where the buyers of this high end audio gear don't really care about business, right, sorry, don't really care about music. They're just buying.

Speaker 3: 18:44

To compare A with B, you know, and with C, you know, and, and, and. And. I mean you had these, these guys, we were exhibiting, you know, they had these guys coming because it's almost totally a male dominated industry. We have these guys coming in and listening and say, oh, this sounds so natural. Well, maybe it did, but they've never actually heard a live audience or they never heard a live performance, and live meaning unamplified, right, okay, yep, or if they did, it was 40 years ago, right, how could? What? Where's the anyway? So it was a failure because we didn't have enough money to build a brand, because what we found was that these folks, they, they, you know, in that particular industry, the, the, the differences between different products and different speakers and amplifiers are so small that that you really you cannot. You cannot hear it, to be honest. Right, they think you can hear it, but it actually comes from the brand value. Yeah, you know.

Speaker 2: 20:09

Yeah. So like, how do you compete with if you're in an industry that is like full of bigger brands, well-known brands, is there a way to still compete and price well? Or should you maybe look in less saturated or not saturated, but less markets with branded?

Speaker 3: 20:27

It's all about differentiation. It's all about. It's all about understanding customers and understanding the customer category that that will support more profitable prices than than other customer categories. Understanding the, the, the sort of go-to-market strategy that that particular, that particular customer category cares most about. Right, and this is what marketing channels they like, what marketing message they like, how they want to learn about products in this category and what sales methodologies and channels and so forth. And when you know all that you can serve, that you know that constituency better than competitors, even if they're big companies, right, yeah, and because of that it supports higher prices.

Speaker 2: 21:37

Okay, yeah. So starting out, you know what would, or they're early on and they're really trying to figure out their pricing. What would the top three things you would tell them to do? And one might be know your customer avatar, right? You mentioned that multiple times. Are there any others that you'd really have them focus on?

Speaker 3: 21:57

Well, there is a methodology new companies can do, or struggling companies can, and that is that you want to find, or this company. You want to find, 25 potential buyers, at least 25 potential buyers. You know, more is better right.

Speaker 2: 22:19

Yeah.

Speaker 3: 22:20

Now, these are not your current prospects. They are certainly not friends and family, right, but people that could buy the product or service if they knew you existed, right, yeah. And then you approach these people and you know if this is a consumer goods kind of thing, how do you do? Well, maybe you go down to your local Starbucks and you ask can I ask you a couple of questions and I buy you a coffee, right, yeah. And if it's B2B it's a little bit more involved, but you can use LinkedIn and stuff like that, right. And then you ask them. First you describe your product and you confirm that they understand the description, right, right, and you do that by asking them to describe it back to you, right? And then you ask them two questions.

Speaker 3: 23:21

The first question is now that you understand my product or my service, mr Customer, what is the price that is so low? You think that this is not going to be any good, that we are overpromised and going to underdeliver, and because of that you are not going to buy it, right, yeah? And then you say and the phrase you hear is very important because it needs to be what is a price that, essentially, is so low that it sets an expectation of inferior quality. You are spending, and then you ask the customer another question, right, and that is. And now let's look at the flip side. Let's look at if my product or my service is better than you can ever imagine, that we are underpromising and overdelivery. What is the price that is so high that you still wouldn't buy it?

Speaker 3: 24:32

Okay, now, then you take the average of these two. You have the too low and the too high. You take the average and you have the span of where your prices should be. Okay, now, if you continue to do this and you do it, obviously, if somebody says pricing that is completely out of whack, like this pen, a million bucks, right, those do you ignore, right, but if you can continue and do this to another 25, or another 25, so eventually you get up to maybe a hundred people and this could be done over several months, right, maybe even a year, depends on your business Then you can start seeing if certain customer categories have a span that is higher or lower than other customer categories.

Speaker 2: 25:43

That's a very interesting space. I like that. That's a good thing. I never thought about going and asking like, what price would basically you not purchase because it seems too low and I'm not going to get value for it, and then the opposite. That's a very. I really like those questions of a murrower. Yeah, Having those.

Speaker 3: 26:02

We've all been there, we've held something in our hands, and either physically or metaphysically, and we say to ourselves, I kind of want to buy this, but at this price no.

Speaker 2: 26:16

Right, yeah, it's going to be bad quality, it's not going to last, or like if not worth that price kind of thing from those perspectives.

Speaker 3: 26:25

Exactly, and we also have been in the same situation that I really want to buy this, but it's just over my budget. If I can't afford it.

Speaker 2: 26:32

Right.

Speaker 3: 26:33

Let me give you an example. This looks like a pretty normal smart watch. Right, it's not. It's a smart watch, but it also checks my blood sugar, my what do you call it blood pressure, my blood oxygen and all that stuff. Right, yeah, 62 bucks, wow, you know, these guys are leaving. I would say about $440 on the table. Yeah, you know, right, I mean, imagine if you're diabetic and you have to prick your finger all the time. Right, and not only that, these testing strips and stuff like that I think is like $30, $40 a month, right, right. And this watch do it all, wow. And so here's the company that says we got to be cheap. We have to be cheap because, first of all, they're Chinese and the mindset in China is those questions that I mentioned doesn't work in China.

Speaker 2: 27:50

Really.

Speaker 3: 27:51

Yeah, there is no conception that something can be too cheap. Wow, yeah, yeah, it's a cultural thing, yeah, and so these guys are. They're shooting themselves in the foot.

Speaker 2: 28:11

Hmm, that's crazy, yeah, yeah. So I think that, but I appreciate all this that you've given so far. I think these are very valuable things that even myself can start wondering and asking potential people just for our stuff, just to see our range. And yeah, that's very, a very interesting perspective of asking just individuals within your market, like what's the lowest and what's the highest kind of thing. So you know, pear I, this has been awesome. I think people can get a lot of value on their pricing and start really thinking about you know where they can land to be profitable, to be more profitable, and so you know, kind of rounding things out with that kind of a different random question, just not necessarily about pricing, but you know, with everything you're doing, you know with the books, helping people with this topic as the price whisper, you know, 10, 20 years from now, what do you hope your impact or legacy is?

Speaker 3: 29:18

Yeah, that's. I mean. Obviously, most companies are there to deliver value to their clients, to their clients and to their customers, and a unique value, right, and if you focus on profitability, you can develop more value and give more value to your customers. Ongoing right, right, and there's, you know, there's some companies who doesn't have that view, right, and it's all about. For them, it's all about taking those profits and put it back into shareholders' pockets only, right, right, and with less concern for what value they can deliver to their clients.

Speaker 3: 30:29

But those are very few, right, and most companies, and certainly small to mid-sized companies, they are always, almost always, looking at the increased value they can deliver, because, in the end. So what I'm hoping is and I'm sort of in my latest book, the Price Whisper the book is about one thing and it's about understanding how everything matters in your company. Everything you do in the company affects how you can sell, affects how you can price, and the overall thing, the overall theme, is that if you can price for profit, you have more resource to grow your company and deliver more value to more people. Right, yeah, because if we have a company that doesn't deliver any value, then there's no point, right?

Speaker 2: 31:46

So that's awesome. So again, pair, appreciate you and your time today sharing these insights on how to price better, how to increase profits through pricing. Where can people connect with you? Obviously, your books out there so they can read that. Where can people connect with you to learn more?

Speaker 3: 32:04

Well, the easiest is just do a Google search for the Price Whisper. There you go Right and you'll find not only the books. You'll find. I have a YouTube channel and a TikTok channel and lots of articles out there, and, of course, you'll find my company as well, and there's a masterclass in pricing on our website. So, but there's lots and lots you can read up, right, yeah, so yeah, guys, search him, get connected, see what he's doing Again.

Speaker 2: 32:38

pair, thanks so much for being on the show today.

Speaker 1: 32:41

All right, thank you so much Thank you for listening to the Elevate Media Podcast. Don't forget to subscribe and leave a review. See you in the next episode.