Pricing: It’s the one thing every business needs to do. But most entrepreneurs can’t help but wonder if they've set their prices too high or too low.
Even when you see a breakthrough business like Uber try something new, like charging more for their car service during periods of high demand, and make it work, the blowback from some customers might make you think twice about going back to the drawing board. And what about the café owner in London who's experimenting with charging customers by the minute? While customers seem excited by the new pricing model, others are wondering just how long he can afford to stay open.
Then again, getting creative with your pricing could be the move that sets your business apart from the competition. If you think it could be time to switch things up, take a look at the unusual approaches these creative business leaders have taken to price-setting.
Go High Tech
While Uber has made headlines of late for its approach to so-called “surge” pricing, Vacasa, a full-service vacation property management and marketing
company based in Portland, Oregon, has turned to its own variable pricing engine to help it dynamically price the 800 diverse properties it manages in such areas as Lake Tahoe, California; Vail, Colorado; Sun Valley, Idaho; and Mount Hood and Sunriver, both in Oregon.
Vacasa uses an algorithm designed by Scott Breon, the company's director of finance and analysis, that optimizes property rental rates four
times a day, every day, for every property the company manages. The rental prices are set based on hundreds of variables that include things like weather forecasts, location-specific holidays and events, competitor pricing and occupancy, lead time, current sales and promotions, regional demand trends, proximity to area landmarks, and seasonal demand curves.
In the first six months after Breon implemented his pricing engine, Vacasa’s properties saw a 30 percent average increase in revenue compared to the year before. “We're one of the fastest-growing startups in the country,” Breon says, “and one of
our most important assets is our pricing engine.”
Save Money, Make Money
Everyone knows that airfare and travel expenses can add up quickly. But what if you could lean on a service that would be on a constant lookout for ways to save you money on flights? Even better, what if you didn’t have to pay for that service unless it actually saved you money?
That’s the premise of Yapta, an airfare price-tracking solution whose service, FareIQ, dynamically monitors a traveler’s itinerary to see if there are options to save money. If FareIQ identifies a potential savings, it triggers a series of email and Web alerts the traveler can act on. Yapta then pays itself a percentage of that savings—typically 35 percent.
To date, FareIQ has identified savings on approximately 11.5 percent of all the itineraries it's tracked, for such clients as the Bill & Melinda Gates Foundation and St. Jude Medical, with an average savings of $260 per itinerary.
"We realize that the concept of airfare price tracking is new to most companies and that we're ushering in a technology that's entirely unfamiliar,” says James Filsinger, president and CEO of Yapta. “That said, our pricing model is designed to make airfare price tracking a risk-free proposition to companies that might have otherwise been mired in skepticism.”
Put Some Skin in the Game
One of the more challenging aspects of charging for professional services like legal, accounting or even advertising work is finding a price point that your customer doesn’t chaff at. The worst case for customers is that they feel like they’ve been billed for a lot of time without any real results coming from that expense.
That’s exactly the dynamic Andrew Graham considered when he started his New York City-based media consulting firm Clear earlier this year. Rather than charge fees based just on work completed as most other agencies do, Graham developed a pricing framework that had his firm sharing some of the risk with its clients.
“Under this model, we reduce our base fees and set that amount aside in the risk pool,” Graham says. “We then agree with the client on goals that can be quantitatively assessed as well as a multiple that will apply to the risk pool. If we miss our goals, no further fees are paid. If there's a positive outcome, we receive the multiple of the fees we'd put at risk.”
Graham says his pricing model gives clients protection against being sold on ideas that aren’t realistic while also rewarding his firm for achieving what they say they can. “It’s true risk-sharing,” Graham says, “not just downside protection for the client.”
Offer a Subscription Service
Perhaps one of the simplest yet most effective pricing models might be a subscription-based design, where you and your customer agree on a certain monthly budget that works well for both parties. But how well could it work in an industry that doesn't typically charge this way?
Case in point: Strategic Income Group, a financial planning services firm in Chandler, Arizona, has moved away from the industry standard of charging its 350 customers either a one-time fee or a commission for services completed. Instead, it has implemented three different tiers of subscriptions where the price is determined by the phase of wealth a customer is in and what kind of financial advice he or she needs.
For example, customers pay $60 a month for services related to reviews of budgets, insurance or debts. For $85 a month, they get access to advice related to retirement, education and investments. And for $100 a month, they get all of the above plus additional planning focused on maximizing retirement income and legacy planning.
“I have yet to see any other firm charging this way,” says company CEO Michael J. Gauthier. “And we've been having great success with it. While other firms have minimum assets, we're able to turn a profit even if clients don't have many funds to invest.”
With such diverse businesses successfully using these creative pricing models, you may just rethink your own strategy when it comes to pricing products and services.
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