Speaking of creating and marketing an experience, I came across a term some years ago that explained what I was already doing in my marketing, and explained how I was able to get the highest prices.
The term experiential marketing is sort of an unusual, obscure term, but is key to getting the highest prices for your service. In his book Experiential Marketing, Bernd H. Schmitt states:
Today, customers take functional features and benefits, product quality, and a positive brand image as a given. What they want is products, communications, and marketing campaigns that dazzle their senses, touch their hearts and stimulate their minds. They want products communications and campaigns that they can relate to and that they can incorporate into their lifestyles. The want products, communications, and marketing campaigns to deliver an experience…
Notice that it says to deliver an experience in the marketing campaign. Business owners should create the most unique and powerful experience when we actually serve our clients, but what this is saying is that it is created in the marketing campaign. Interesting.
The quote goes on to say:
The degree to which a company is able to deliver a desirable customer experience (in the marketing) and to use information technology, brands, and integrated communications and entertainment to do so, will largely determine its success in the global marketplace of the new millennium.
You may not be concerned about the “global marketplace” in your industry, but the degree to which you understand and implement this concept determines the degree of success you’ll have getting higher prices.
What is the marketing message of most business owners? How do average, everyday businesses advertise their services? If your industry is like most, you’ll find that their message is either about price or about how they do their work. The features of the product or service.
Let’s deal with price advertising first. Price advertising comes in many different ways. The most common type of price advertising is placing an ad that offers a low price. But that’s not the only type. The way you carry yourself as a business owner is a reflection of the value of your service experience.
How you dress; what your company materials look like; how your company telephone is answered; and what your employees, your store, or equipment looks like will have a big impact on your perceived value. You see, you will take up a position in the marketplace, just by existing. The question is whether or not you will take up the position that you want. You have to design and create your position, rather than letting it happen by accident.
Jim Bardwell, who was one of my employees for eight years, worked with me as I was developing the marketing systems in this book. As I began to teach the systems to other business own- ers, Jim would sometimes teach some of the seminar sessions.
He always said, “You have to assign a higher value to yourself. You have a price tag on your head and your job is to assign a higher value by adding more value than the next person.”
Every industry has a “going rate.” That rate is on your head until you decide to change it.
Avoiding the Three Types of “Price Advertising”
One of the worst things you can do in marketing is advertise price before value is proven. The most common type of price advertiser is the one that advertises a ridiculously low price with no intention of ever honoring that price. Or, they have one item in stock at that price. You can put this type of price advertiser in the “bait n’ switch” category.
They bait the prospect with a low price to get in the door. Once the prospect is generated, the advertiser switches the prospect to what they really want to sell. In the worst case, the company would even refuse to offer the low price service. Let’s say that you see an ad for a new car at a ridiculously low price. You arrive at the dealership only to realize they only had ONE vehicle at that price. (It was in the fine print.) Do you have bait n’ switch operators in your industry?
The bait n’ switch advertiser is only one of three types of price advertisers. The second type of price advertiser is what I call the value advertiser. Unlike the bait n’ switch, the value advertiser is a legitimate business model, and has intentionally positioned itself as the lower price alternative.
Think of how Southwest Airlines started. They intentionally positioned themselves as the low price alternative and they were very focused about running their business model accordingly.
Not offering meals on their flights, their point-to-point routes, open seating, and the revolutionary “ten-minute turnaround” have all kept their costs low so they could offer a lower price and make a healthy profit. This model, however, doesn’t work for the small business that doesn’t have the scope or infrastructure that a larger company has.
This brings me to the third type of price advertiser: the “independent professional” (probably you). This is the small busi- ness that doesn’t have the management infrastructure a larger company does. You don’t have the market penetration a larger company has, and you don’t do the volume a larger company does. You don’t have capital they have and you don’t have an advertising budget they have.
Let’s think, for example, about a plumbing company. If a plumber has a smaller operation, why would he want to match the price of a bigger competitor?
He can’t compete with their margins. He doesn’t have the management infrastructure, the capital, the brand image, or the television commercials that the larger company might have. His revenue is generated by his sweat. Therefore, even though the overhead is lower, this person should charge more rather than less. The key is that this plumber must understand what differentiates him from the larger firm, which I will get to in a moment.
Let’s look at a comparison between the smaller operator and the larger company. Let’s say this is the income statement of the larger firm:
– $2.5M Cost of Sale
= $2.5M Gross Profit
– $2.0M Fixed Expense
=$500k Net Income
Compare this to a smaller operator. If a smaller operator who billed $200,000 has the same cost structure that produces a 10 percent margin, he would end up with $20,000 in profit. Not cool! And that’s what is happening in small businesses around the world every day! Obviously, there are lots of variables in this scenario, but the point is that you can’t compete with the larger company on price.
The bottom line is that price advertising attracts price shoppers. So, choose your pricing strategy to fit your business model and size.
In this simplified illustration, Job 1 (which could be Product 1) is priced at $200 and the cost of producing it is $100, which would give you a $100 profit.
Job 2 offers a discount of 20 percent, which would make the price $160. Guess what doesn’t change? The cost! It still costs $100 to do that job! So that means your profit went down to $60.
That’s a 40 percent drop!
What if you could position your company in a way that you could charge 20 percent more instead of less? What do you think would happen?
Let’s take a look…
Job 3 is priced at $240 instead of $200. What stays the same? The cost! $240 minus $100 gives us $140 profit. And by the way, the difference in profit from Job 2 and Job 3 is 2.33 times the amount.
Or do the same volume and make more than twice the money. This is a very important concept for smaller companies to understand. With any company, it’s not in the volume, it’s in the profit. It is extremely important for independent business owners to understand this because they don’t have a national brand to generate leads. Small businesses have an entirely different set of benefits to offer, which are worth far more.
That means you could do half the work and make more money!
How They Do Their Work
The second way that most small business owners advertise their company is how they do their work. Other than price, what could possibly be wrong with this? Let’s look and see…
Let’s say that Sue Smith is a CPA. When Sue introduces her- self at a networking group, it will usually sound something like this: “Hi, I’m Sue Smith with 1-2-3 Accounting Firm and we do taxes. If you need anything to do with taxes, just give us a call. We do everything from soup to nuts, A-to-Z; you name it, we can do it. If you need anything, just gimme a call.”
Isn’t it true that just about every time you hear someone intro- duce their business, nothing stands out that makes them unique and different?
The problem is that everyone is saying the same thing. So why should people choose you over another company? Why should they pay you a higher price? They shouldn’t. This huge mistake is repeated by small business owners every day. In today’s competitive marketplace, it is not enough to just tell what you do or to tell the features and benefits of what you do.
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