What is Price Discrimination?
Price discrimination simply means charging different customers different prices. This is so important in value pricing because everybody values things differently, which means if you have a client with a single price, it’s always the wrong price. On my Price Consulting programme, when I work with accountants and take them through a 12-month programme, I normally teach 15 or 16 powerful different techniques and methods around price discrimination, but I'm going to share two of them now.
You can find the full video explaining these techniques, as well as 3 other powerful videos, when you sign up for my free video course here. This is also where you can sign up for my upcoming free webinars and begin your Price Consulting journey.
Always give the client 3 options
What economists teach us is there are 3 degrees of price discrimination; first, second and third. The first technique I’m going to share is a form of second degree price discrimination and the other is the most powerful level, it’s first degree.
I'm going to use a real-life example of a business that does bike repairs to illustrate this topic. I'm a cyclist myself, so it's an industry that I have a real interest in. When I was running my accounting firm, 16/17 years ago, I started in consulting work and I had a client that ran a bike shop. And like most bike shops, they also had a bike repair business.
Now, like most small businesses, the owner, Barry, had no idea how to price his service. It was crazy cheap. So, we did a pricing session where I taught him a better way to price. What he did back then, which was a huge mistake, is he gave customers a single fixed price for doing a bike service. What I taught him is a technique you've probably come across, because I've been teaching this for 17 years now, it's what I call menu pricing. It's about giving the client different options or different packages to choose from. More importantly, giving them three packages.
Offer bespoke packages
Now, Imagine that I went into a business like this one to have my bike repaired and rather than seeing three choices, the owner opened up on their iPad a software tool to ask a series of questions, to identify more about me as a customer. Questions such as, “What type of bike is it?” Because if you've got an expensive racing bike then that means you're a serious cyclist who is going to be willing to pay a higher price than somebody who perhaps has a shopping bike with a basket on the front.
So, by asking questions like that we can start to tailor the price to different types of clients. And, we can even go beyond that. We can ask questions about things that they might want. "Would you like us to replace the chain? Would you like us to check the brakes?" And so on and so forth. So, by asking a series of questions we end up coming up with a price that's bespoke to that particular client.
Now, what we can then do to take things to another level entirely, is then combine this with menu pricing. So, we can come up with a bespoke price, but then offer 3 different packages so that the client gets to choose an appropriate price based on their circumstances. This is what I call iterative digital pricing.
To find out more about this powerful topic, and to help you start your price consulting journey, sign up for my free video course here.
And, if you didn’t already know, I’ve created the perfect tool to enable you to set up pricing models for your clients and offer them bespoke packages. You can find out more about it here.
Wishing you every success on your pricing journey.
Chartered Accountant, public speaker and #1 best-selling author of
“Effective Pricing for Accountants”
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