As a follow up on our last post ‘How to compete on cost’ there was a very interesting article in Wall Street Journal about pricing strategy ‘Raise Your Prices!’ by Frank Cespedes, Benson Shapiro and Elliot Ross. The conclusion of the article is that “companies that can should compete on the basis of performance, for which their customers willingly pay higher prices. By competing on performance instead of price, you shift the battle to where your company’s strengths lie – in the ability to deliver unique benefits. So-called performance pricers are adept at three core activities: identifying where they can do a superior job of meeting customers’ needs and preferences; shaping their products and their business to dominate these segments; and managing cost and price in those areas to maximize profits.”
The Wall Street Journal article has also been commented in a proficient way by Jay Shepherd in his Client Revolution blog post ‘Competing by raising prices’. Jay states that value pricing is “about aligning your prices with the value the clients place on your services. So yes, you can raise prices for premium service and still save clients money. Bottom line: clients will pay for value. If you’re constantly discounting your fees, what does that say about the value you provide?”
Jay Shepherd has written several other posts about value pricing and open pricing that are highly recommendable, see for example ‘An alternative to “alternative billing”‘.
The joint conclusion of our last post on competing by cutting cost and this post on competing by performance could be something as simple as to focus on streamlining, standardising and using technology whenever possible to reduce cost and instead ensure that high performance and value is provided to the clients in a way that they are more than willing to pay for – all in all to perform the right kind of work in the right way to gain maximum profit.