Flexible Pricing: How easy-going should your pricing strategy be?

Hello and welcome to Live with the Pricing Lady.

I am Janene, your hostess.

This show is all about helping you build a sustainably profitable

business, helping you to understand the tactics and strategies of pricing

so you can create value and charge for it effectively and with confidence.

Welcome to the show.

Today, we're going to be talking about how flexible should your pricing be.

Now, let me share with you one little insight before we get started, and that

is that flexibility in pricing usually comes at the expense of complexity.

So as we're going through this conversation today, I want you

to think about what is the right balance between flexibility and

complexity in your business.

So I've broken this down into three parts.

First of all, we're going to take a look at the advantages of flexible

pricing, and then we'll take a look at the trade offs or the

downsides of flexibility in pricing.

And then I have some tips on things that you can do to better

understand how flexible to be and how to manage that flexibility.

Let me be clear about one thing before we go further, and that is you can have

flexible pricing regardless of whether you're offering products, services,

or software, or a combination thereof.

So it's very important, as I go through this today, I want you to think about

what's going to be suited, mostly for your business, because of course there

are some aspects of what we're talking about that are not suitable for all.

All right, let's take a look at those advantages.

The first advantage is tailored solutions.

If you have a product that you make bespoke, based on customer

requests, or if you offer a service or software that's a tailored solution.

Of course, if your pricing is flexible, it's much more easy to

offer customized solutions for your customers, for your clients.

Second of all, it's also easier to manage the budget.

Right?

So to hit their budget is actually what I mean, not to manage it

necessarily, but to hit their budget.

So if you can adjust your pricing relatively, if you have a lot of

flexibility there, then it's easier for you to be able to meet lower

budgets as need be and also scale up to bigger budgets, which brings me to

the next one, which is scalability.

Scalability is also easier when you have a high level of flexibility in your pricing.

However, it doesn't always have to go hand in hand, and we'll take

a look at that in a few moments.

The next advantage is that you're more able to quickly adapt to

changes in the marketplace.

So if your pricing is a little more flexible, then you'll

have a little bit more agility.

That's not always good.

It depends on your business and what's important.

Is being agile an important part of what you do and how

you do it with your customers?

That is the question, whether or not that's something you want to do.

Now let's take a look at some of the downsides of flexibility in pricing.

Actually, I like to call them trade offs.

So the first trade off is pricing almost always comes at the expense of complexity.

Yeah.

So it's great that you want to be flexible and you want to be able to meet lots a

diverse group of customers needs, but that is definitely going to make things

more complex for you and your customer.

Doesn't mean you can't mitigate it.

And we'll talk about mitigations in a few moments.

Second of all, it can create confusion.

The more flexible your pricing is, it usually will mean there are

more options for the customers.

And there's a certain point where you get into decision overload or this decision

process breaks down because there are too many options for the customer.

That's why it's good to be careful about flexibility so

that you don't create confusion.

Next, it can create a perception of unfairness.

And this perception of unfairness can, quite frankly, impact your brand.

So for example, if, you know, when we fly on a plane, we pretty much

try not to think about the fact that the person next to us probably didn't

pay as much as we did, or that we didn't pay as much as they did, right?

We kind of ignore that, even though we know that very seldom

will any two people on the plane pay the same price for a ticket.

When you have flexible prices, that usually means you're selling

the same offers at different price points to different customers.

If there's a lot of transparency and they find out, that can create

this perception of unfairness.

And it will have an impact on your brand eventually, for sure.

It can create unexpected, those are in air quotes there, "margin or profit erosion".

So this comes down to, you know, if you're planning with a certain

price before the year starts.

And you do your math and you're like, okay, this is what it's going

to take for me to be profitable.

And you plan with a certain price, but then throughout the year, you're selling

at lower prices because your pricing is flexible and you're making adjustments.

Then chances are you're not going to hit the numbers that you thought

we were going to hit, unless you do it a lot more volume.

But as you know, lower prices doesn't always guarantee volume.

So you have to be really careful about that.

Next, it can create an administrative burden.

So when you have lots of different prices to manage, then it's difficult

for you in the back end of your business to be able to manage that.

I've seen this quite often, especially with coaches.

Where, you know, they start out with a really low price and then

the first few customers have that.

And then they get a little bit of confidence to raise the rates, but

they don't raise them for the old customers, just for the new ones.

And they keep raising them for new ones.

And then after a year or two, they have, you know, clients

who have all different prices.

Because they didn't manage that, that just kind of evolved into this.

That's also a flexibility issue.

Or it can be that, you know, you have a product and you've

played with different prices.

So you have different prices for different customers as well.

And that complexity is difficult for you to manage internal to the business.

The last is that it can induce price wars if you're not careful.

So if the competitors see that you're quite flexible with pricing, they

may try to take advantage of that, put additional price pressure on you.

If you respond to that in kind, then all of a sudden you

find yourself in a price war.

And price wars, do nobody any good.

They are not good for you, they are not good for your competitors, and they are

definitely not good for your customers.

You may think that a price where is good war is good for customer because they get

to pay less But in the long run they have fewer choices when it comes to purchases

in the future and the company that they bought for May no longer be in business

when they need extra service Yeah.

So that's really important to keep in mind.

So those are some of the trade offs that come from flexible pricing.

So all of this begs the question, Oh Janene, pricing goddess, no, Oh

Janene, Pricing Lady, what do I do?

How flexible should your pricing be?

Now the real answer is you need to determine the trade

off between flexibility and complexity for your business.

But here are some things that you can do.

First of all, segment, segment, segment.

Get very clear on the different product or offer segments and customer segments

that you have and be clear about which customer segments are, or let me say

that differently, which offers is the main offer for each customer segment.

So too often what people will try to do is they'll try to, you know,

every product is good for everyone or every offer is good for anyone.

And that is really going to be difficult for you because then, you know, when you

talk to a customer, you're like, well, you can do this or this or this or this

or this or this or this or this, or this.

And then all of a sudden they're under this umbrella of

possibilities and they're confused.

So segment, and as a result of segmenting, then you can bring certain

offers to the table for the right customer and talk about that only.

And then if they say, Oh, well, we'd really like this as well, then you can

bring that next layer in if you want.

But segmentation can help you do that.

Second of all, you want to make sure you understand their needs.

Yeah, and the flexibility that you offer should be based on what they value, not

on just what is convenient for you or on all the possibilities that you have.

So, if we put this into context for a moment, if you think about mobile phones.

There are so many functions and features in there, if the phone

producers had decided to make all of those functions and features also

price variables, then it would be so difficult for us to make a decision.

what to buy.

Instead, what they chose to do is they said, okay, people are, it's

important to them, the quality of their camera, it's important to them

how much storage capacity they have.

And it's important to them what color the phone is.

Right.

And so aside from brand, those are the three price Variables that we have,

right, or features that are what they base the pricing on, how flexible it is,

it's based on those three things alone.

Why?

Because those were the things that in the end were most

important to us as consumers.

You want to do something similar with your offer, your product,

your service, or your software.

When you look at flexibility, what are the most important things that In that you

want to be flexible on, so what are your flexibility or pricing variables, right?

But base them on what's valuable to the customer.

That's what I'm trying to say.

See?

You can also be, instead of just changing the price on the same offer or

product is you can have a varied offers.

So specific offers for each target group are really going to help you because

then you don't have to change the price.

And it could just be one small difference between offer A and Offer B, but the value

that that difference brings allows you to have a different price, which meets

the need of a different target group.

Varied offers are a great way to have flexibility in your pricing taking the

risk of people feeling like they're paying different prices for the same thing.

The next one is one that I absolutely love.

And I have used this even before I was a pricing expert.

I used this in very early days of my career.

Make it modular.

If you can make your pricing modular, this is especially good for project based

businesses and service based businesses.

Make it modular.

I know, I know you want to be Customized for everyone, but you can still be

customized and make the pricing and the structure behind your pricing modular.

You will thank yourself and your customers will thank you as well.

So try and make it modular, put it into building blocks.

It makes it easier for you to explain, easier for the customer

to understand, and then all you have to do is price the blocks.

Yeah, that is a great one.

Create clear tiers for yourself.

T I E R S.

So know when you want to offer what.

To whom, under which circumstances, yeah, instead of just going to your

customer and kind of laying this table of variables in front of them, right?

This big basket of options of what they could have, listen to the

customer and then say, you know what?

I think this offer would be the best one for you and here's two options because

I heard you mention this and this.

If you have a clear understanding or these tiers set up based on the target

customer groups and your offer, it's going to make it so much easier for you

to have the conversations with them or for them to see that on your website.

If that's the way the sales conversations goes as opposed to overloading them

with too much information up front.

Make sure that the flexible variables you use in your pricing are based on value.

I think I alluded to that before, but it bears repeating

again, value is where it's at.

So be sure that everything you're doing when it comes to building flexibility in

your pricing is leading or coming from a place of what the customer truly values.

But also do make sure that you keep it simple for yourself.

And then this last one, I just love this.

I love this phrase.

Make it appropriately transparent.

Sometimes I find that when people build flexible pricing schemes, they

feel like they have to share all that information with the customer.

Now if your business, if one of your values in your business is transparency,

then of course you're going to be more transparent than someone who doesn't

necessarily have that as a value.

But that does not mean that you have to or want to give them all the details.

So, for example, if you're doing a project and you itemize everything on

your offer, then that opens the door to have a conversation about the fact that

the customer doesn't really want that.

Now, that may be critical to the project.

They may have felt like they've already done it, but until you've

seen the level of "done", of done it, right, you don't really know.

So if you take that out, it could risk the whole project.

So I wouldn't itemize something like that.

Be appropriately transparent if you need to be.

Yeah.

But don't be overly transparent.

It will make it harder for you.

And once again, it also makes it harder for the customer because you

put more variables in there or more decisions into what they need to do

into their decision making process.

And that can hurt the whole process of whether or not

they're going to buy something.

I think I've given you quite a few things here to think about.

There is a lot to this topic of flexibility in pricing, but I think what I

want you to keep in mind is the following.

First of all, Flexibility and complexity in pricing are linked.

The more flexible you are, the more complex it usually ends up being.

So it's up to you to decide where on that complexity, uh, flexibility,

complex scale you want to be.

Sorry, that was a funny play on words.

Second of all, it should always go back to the customer and what they value.

And third.

Try.

Especially if you're new in business, try to keep it simple at first.

You can always build complexity and more advanced things into it later,

but do try to keep it simple at first.

You will thank yourself and your customers will thank you as well.

That is what I wanted to share with you in this episode today.

In our next episode, I'm super excited because we have a

guest once again on the show.

So we'll be bringing back the guest episodes for the rest of this year.

I very much look forward to that.

If you have any questions, please reach out, head on over to

thepricinglady.com/Book-a-call, set up a call with me, and let's

talk about what we can do to improve pricing in your business.

I wish you a great day, all the best and enjoy pricing.