Guest post by Jon Manning, Pricing Prophets
We all know that people are better at making relative judgments than they are at making absolute judgments. The same applies in the world of pricing. It is much easier to set a price relative to another product or service, than trying to work out a price without such a point of reference.
Many years ago, when I worked at a chain of Internet cafes that were rapidly expanding from London, to elsewhere in Europe and New York (in the days of pre-Wi-Fi and pre-Euro), the launch price for one hour of Internet access would be determined by reference to the price of a morning newspaper and a cappuccino in the country we were expanding into.
So, for example, we would price one hour of Internet access in Spain at 250 pesetas, in Italy at 200 lira, and in Germany at 2.50 Deutschmark.
This is a common way of setting prices. I was recently talking to one of Australia’s foremost image consultants, and that’s exactly how she prices her services: relative to the price of a hairdressing appointment.
This approach to pricing will generally serve you well…initially: just be prepared to fine-tune your pricing based on customer and competitive feedback. But you do need to be mindful that the relative price has been correctly set. And while there is no such thing as a perfect price, relative pricing anomalies should be easy to spot.
I was sitting in the bar at Manila Airport recently, when a passenger next to me started a conversation. He went on to tell me that a packet of cigarettes in the Philippines costs less than one Australia dollar. Viewed another way, the price of a packet of cigarettes in Australia is equivalent to some Filipino’s daily wage (that might explain why my taxi driver stopped to buy just 2 loose cigarettes from a roadside seller on the way to the airport).
The message should be very straightforward. If you are pricing something relative to something else, make sure it’s an appropriate comparator: a newspaper or cappuccino in Europe would work better than a price of cigarettes in The Philippines.
Jon Manning is Principal Consultant at Sans Prix Pty Ltd, and the Founder and Managing Director of the worlds first and only online pricing advisory service (PricingProphets.com), where companies can ask a panel of global pricing experts and thought-leaders what price they should charge for a product or service and why.