Central Perk: Seth's Blog : On pricing power

joi, 17 februarie 2011

Seth's Blog : On pricing power

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On pricing power

If you're not getting paid what you're worth, there are only two possible reasons:
1. People don't know what you're worth, or
2. You're not (currently) worth as much as you believe

The first situation can't happen unless you permit it to. If you're undervalued, then you have a communication problem, one that you can solve by telling accurate stories that resonate.

Far more likely, though, is the second problem. If there are reasonable substitutes for your work, and those substitutes are seen as cheaper, then you're not going to get the work. 'Worth' in this case means, "what does it cost to get something like that if something like that is what I want?"

A cheaper substitute might mean buying nothing. Personal coaches, for example, usually sell against this alternative. It's not a matter of finding a cheaper coach, it's more about having no coach at all. Same with live music. People don't go to cheaper concerts, they just don't value the concert enough to go at all.

And so we often find ourselve stuck, matching the other guy's price, or worse, racing to the bottom to be cheaper. Cheaper is the last refuge of the marketer unable to invent a better product and tell a better story.

The goal, no matter what you sell, is to be seen as irreplaceable, essential and priceless. If you are all three, then you have pricing power. When the price charged is up to you, when you have the power to set the price, there is a line out the door and you can use pricing as a signaling mechanism, not merely a way to make a living.

Of course, the realization of what it takes to create value might break your heart, because it means you have to specialize, take risks, create art, leave a positive impact and adopt generosity in all you do. It means you have to develop extraordinary expertise and that you are almost always hanging way out of the boat, about to fall out.

The pricing power position in the market is coveted and valuable... The ability to have the power to set a price is at the heart of what it means to do business profitably, so of course there is a never-ending competition for pricing power.

The curse of the internet is that it provides competitive information, which makes pricing power ever more difficult to exercise. On the other hand, the benefit of the internet is that once you have it, the list of people who want to pay for your irreplaceable, essential and priceless contribution will get even longer.