The Most Common Pricing Mistakes & What To Do Instead

Sara Nay (00:00): Welcome to the agency spark podcast. This is your host, Sarah nay. And today I have pair show fours, AKA the price whisperer, who is the thought leader and author in everything pricing and how companies can use pricing to drive higher growth sales volume, and profits. He's a sought actor speaker for various conferences appears regularly on podcasts and business radio shows and gets routinely quoted in the financial and business press. So welcome to show pair.

Per Sjofors (00:55): Thank you so much, Sarah. I'm happy to be here.

Sara Nay (00:58): I am really happy that you are here today. As you were talking before we hit record, I work with a lot of marketing consultants, agency owners, and as they're getting started, one of the biggest struggles they go through is how to price in the strategic smart way. So I'm really excited to learn from you and everything that you have to share today. The topic that I do want to dive in with you is the most common pricing mistakes and what to do instead. So I would love to hear a bit of your story first, but then let's absolutely dive into those mistakes and help people avoid 'em in the future from

Per Sjofors (01:30): There. Well, it's interesting that you work with marketing agencies and so forth because pricing of course is one of the four PS of marketing. Yeah. And it's is often the forgotten P of marketing if you like. But my story is that I ran a couple of companies in Europe before I came here to the us and been running several companies here as well. And we did experiments with pricing. Some of those worked fantastically, well, next quarter revenues are up 25%. Some were complete duds. And what I had learned in business school, so academic and theoretical that it didn't help us to understand how, why some of those experiments worked. So 15 years ago, when I decided I was too old and too opinionated to be hired gun, I set up to set up my own shop and I developed a process that would make every pricing experimental success. That process consists of doing willingness to pay research into a marketplace. And from that understanding what they're willing to pay and what they're willing to pay for, and we can predict sales volume and revenues at different prices. Great. So that's the basics.

Sara Nay (02:36): Love it. Thank you for sharing in terms of your background story. And I think that's great that you have that formula in place. I love to, to hear a little bit about what are some of the most common mistakes that people make when thinking about pricing,

Per Sjofors (02:49): The, uh, one of the most common mistakes is to look at a competitor, especially for an agency that may have prices on the website. You look at a competitor and you say, I think we're a little better than them. So let's be a little higher. Or maybe you think that they are a little better than us. So let's be a little lower. Now the problem here is that first of all, you may see there are prices on the website, or you may hear the prices you may, for whatever reason you think, you know, what they're pay, what their prices are, but you don't know what special deals they're making. You don't know what, what bundles of services they may do and what, how maybe they price different bundles. You don't know what campaigns they may be. And then you have that a little higher or a little lower fluff factor that is just grabbed out of thin air.

Per Sjofors (03:41): This is a, this is, has nothing to do with what people are willing to pay. And it's, it's also leads to commoditization because the first thing that happened is, okay, you price the same or try to price the same. Then you look at you, compare yourself in terms of messages and in terms of how you position your company. And suddenly you are like everybody else. And if you're like everybody else, you're a commodity and in a commodity market, lowest price win. So the key here is to find a niche, either find something that differentiate yourself. This could either be that you focus on a very particular customer category, or it can be that you have a certain bundle that is, is unique in some way, or that you have certain services that nobody else does or all three for that matter. Yeah. But the key is to differentiate yourself and not be a commodity. Yeah. And if we think this is in a, obviously in a different business, but if you think about red bull, what business are red bull in

Sara Nay (04:54): Well, energy drinks. No, but also yeah, I was

Per Sjofors (04:58): Gonna say their business is extreme sports.

Sara Nay (05:01): Yeah. I was gonna get there

Per Sjofors (05:03): their business is extreme sport and they monetize that by selling an energy drink. Yeah. They're selling a lifestyle. They're selling excitement. They're selling a lot of different things to be able to charge a buck more than their competitors for the same caffeine lot and sugary drink, you know?

Sara Nay (05:26): Yeah, yeah, absolutely. On the marketing side of things, that's where a lot of our work is done is we do a lot of competitive research, but it's not to understand how competitors are pricing. Like we're not looking at that. We're looking at how competitors are positioning themselves. Mm-hmm , mm-hmm so we can ultimately be different when than what everyone else is saying in the market. And so I think you nailed on the head, if you pay attention to what others are doing and come up with a unique offer or a different way to market the business or a different way to price or bundle, like that's how you're gonna stand out from competition. Exactly. And then you're ultimately not just competing on price because then it can turn into the race to the bottom ultimately. Correct. It's not a good situation,

Per Sjofors (06:11): Which is not a good, and it was actually, Warren buffet said that his most important criteria for investing in a company is whether they have pricing power or not. Yeah. And then he continued to define pricing power as the ability to increase prices without losing sales volume.

Per Sjofors (06:32): Great. And pricing power comes from differentiation. Now another, obviously another very obvious mistake is to, is to use guesswork, feel good pricing. I know people that say we price to the market, how do they know what the market are willing to pay? They don't. Yeah. And feel the story. We, I had a conversations with the CEO of a company. They do some kind of contractor management piece of software. And, and he said to me that, oh, we decided to have the price to be $165 per user per month. That felt good to me. He said, I don't know, Sam, should it be 99? Maybe, maybe it should have been 250. I don't know. But 165 felt good felt. I can guarantee that he's leaving money on the table guarantee. And, and sometimes these, these it's obvious that that companies are underpricing themselves. I had, again earlier this year, I had a conversation with a digital agency and then, and they told me sort of their price list. And it was so low that it was like, what are you guys doing? Just double your prices. yeah. Yeah. And, uh, cuz there, there is like a, but there is like a, if you talk to enough agencies, at least the range and they were like way underneath that, you know, way below. So feel good pricing market price is also one of these things. I speak to people, CEOs who said, oh, we are sending out our sales people and they take the best price. They can get guaranteed. Not .

Per Sjofors (08:23): Cause salespeople often believe that a lower price is the way to, to sell more. And that's obviously true sometimes, but not every time. Yeah.

Sara Nay (08:33): So if people are gonna avoid some of these mistakes in terms of feel good pricing or going with their gut or looking at competition, like if they are like, what's the best approach then to avoid those mistakes and do it in a logical way, approach pricing in a logical way.

Per Sjofors (08:48): Yeah. If you let's say you're many of these agencies are fairly small companies, right? Yeah. And so what you want to do is that you want to go out to your marketplace, you want to find at least 25 companies that are not customers and not current prospects. And you wanna ask them two questions. The first question is first you describe the particular, the particular services that you have, right. And your expertise and your differentiators, most importantly. And then you ask them now when you know what we do consider, what is the price for this that is so low. You wouldn't buy it because it will, you, you don't believe that we can deliver quality.

Per Sjofors (09:39): Question. But then you also ask them the next question, which is now when you know what we do and you know our differentiators and you can expect the best quality under the sun, but what is the price that is still too expensive and you won't buy it. Right? And this may be a per month's price or whatever it may be. Now, then you take the averages of these two points and you have the range of your pricing. Shouldn't be below that. And it shouldn't be above that. You can never ever ask, how much are you willing to pay? But you can ask what is the price that is so low? You wouldn't buy because you don't believe quality that we will deliver quality. And what is the price that is so high that you wouldn't buy it because no matter how good the quality is,

Sara Nay (10:27): Those are great questions. Yeah. And so you recommend starting with minimum 25 people, as you said, obviously probably the more people you can ask the better and then taking averages from that data. And that should guide essentially your approach to pricing

Per Sjofors (10:40): That that is your guide. And then if you can get another 25, you try either you try with a different customer profile. So let's say your first ones are say, industrial companies and the next one may be consumer goods companies or something like that. Or you say that, and now we also have the world famous guru in SEO on our team. And then you ask the same question to 20, 25 new and see if there's a difference. And of course, absolutely. And obviously those 25 eventually probably gonna be prospects, at least some of them. Yeah. And so it's, but it's a way of eventually honing in on the range you should be. And obviously you want to price yourself at the top of that range, right? Yeah. Top, top of that average. And, but certainly not above it.

Sara Nay (11:31): Absolutely. And I think, and one more thing before we wrap up today, I think as well, like we talked a lot about new agencies getting started, but even if you're existing agency and you have your pricing ripped out, I think this would still be a good practice to do somewhat on a regular basis because the world changes, your cost changes, the world changes all of those things change. So I think even if you've been established and you have had your pricing determined for a while, this is probably a good exercise to go through, you know, similar

Per Sjofors (11:59): Regularly. It's always absolutely. Yeah, it is. It is, it, it is because like you say things change. And obviously now we have inflation and the situation and circumstances for many companies are different. And , if you think about now, this is a consumer example. But if you think about how circumstance affects willingness to pay, let's say that you you're on the you're in the car, you're running low on fuel and you, you have your child in your, in the car in your way, you're on your way to the hospital. And you're running out of you. Your willingness to pay for that gas is pretty high, right? Yeah. As opposed to when you're on the way to the indoors. Right. So willingness to pay, always change with circumstance of your buyer.

Sara Nay (12:50): Yeah. That makes complete sense. Well, thank you so much, P really great insights today. I love learning from you. And people would like to connect with you online to learn more, where can they find you?

Per Sjofors (13:01): Oh, the best way of finding me is to just Google the price. Whisper. You find my books. You find my, find me, you find my company. It's all the price whisper. Just use Google. That's the best way.

Sara Nay (13:13): That's such a great name as well. Thank you so much for being here and thank you all for listening to the agency spark podcast. This is your host, Sarah NA you.