In a perfect world, what a customer spends for something should be based on their opportunity costs. However, customers are irrational when it comes to money. By distorting a customer perception of their opportunity cost, a savvy business can make the customer spend more and be happy to do it.
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Each customer is different in terms of their needs and ability to pay. There is no rule that says that every customer needs to pay the same price for the same product or service. Working on a government contract has more overhead than working on a commercial account. As such, the billing rate we used
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Sometimes you have a new product or service category with little or no competition and are free to charge whatever you want for early adopters. When I had an Invisible Fencing franchise the sum of direct costs for a self-install kit was about $100 in parts and another $100 to cover the parent company’s national
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Small business owners often live and die by controlling their cash flow. Having a customer pay for products and services as they use them may not provide sufficient cash flow to your business. Getting the customer to prepay for products or services can be the difference between surviving and dying. Smart tools and gift cards
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Limited availability or scarcity is a powerful tool to create the premium pricing. There is only one Super Bowl per year with only a fixed number of seats. Tickets prices rise to meet demand. Furthermore, there are only so many ads spots during the Super Bowl. Here again, prices rise to balance out demand. The
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Contrary to popular belief, people are really not motivated by money. They are in fact motivated by status. More money simply gives folks the ability to buy more status symbols, which they can use to flaunt their status. That being said, most people equate a higher price with greater status. We all know that a
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Within a few hours after the September 11th attacks, you could not find patriotic items like flags anywhere. Even before the day was out there were secondary markets set up selling flags and other patriotic items for more than ten times their price before the attack. Many store owners were not collecting the price premium.
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If a customer has to go to some effort and expense to join a club they often develop a sense of loyalty. Sam’s Club and Costco restrict shoppers unless they have a membership, which they get customers to purchase up front. Good Sam’s (a camping membership) allows members to get discounts at participating campgrounds while
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Customer acquisition costs represent a significant indirect expense. Once you acquire a new customer you should implement strategies to keep them coming back again and again. When you fly you often have a choice of airlines that fly the same route. To encourage repeat business many carriers offer frequent flier miles that equate to perks,
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If you are not pricing your service based on the time of day you are leaving money on the table. Many businesses have peak demands at various times of the day. Popular restaurants are generally full between 5:30pm and 7:00pm for the dinner rush. Many restaurants have early bird specials to drive customer traffic for
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