Pricing Your Goods
We're going to talk about the production possibility friends here ppf basically how much your limitation is and this is a very again over simplified concept just so then you can get a field what you have to sacrifice in order to gain something else that's basically entire concept so when it comes to ppf you can have have a life or you can make money you can't have one you can have both I mean you can have both but you have to give up some in order to have another so even if we were to use different points on there it's all about opportunity cost you have to give up something you want to make a lot of money you have to give up a lot of your life if you wanna have a life you have to give a lot of money and because our businesses are not because we are based in the service business which as I mentioned earlier it's not separable which means that it's not scalable the only way how you can sort of expanding business is by increasing using technology faster computers can process for this qui...
cker um better software to add a quicker this allows you to scale your business and have hired help if need be and a fortune you can't clone yourself but then again you have to feed that clone so lots of resources in that self in a way too so everything is still limited so my point is is that you have to be able to price accordingly. This is just a very broad skill of understanding how it works. Everything is a giant opportunity cost you have won, you must give up another, but one thing you have to be afghanistan is the elasticity of demand for services, so when I'm talking about this is if you were to change some price point, how does that affect your demand so briefly in terms of numbers in the elastic is on the left elastic is on, right? So in an inelastic, if you were to change a price point by a lot, you're quantity demanded changes very little, so pretend electricity as an example, even if electricity doubles in price, is it going to be such a dramatic shift that you're going to not turn on lights anymore? Probably not. You still wanna turn the lights, you still have to use a computer you just going to find to save money elsewhere? So when it comes to photography services, if your prices were so low, if you're targeting a certain clientele were you charged a lil were increasing it by fifty percent, which could be just a dollar? I don't know how much you wanna charge as an example, it's not really going to scare away so many clients, whereas other aspects were for the luxury industry if you charge so much but increasing it by one thousand dollars, you will lose a giant partial of your clientele, which could be the case for a lot of people. So you have to understand all this before you khun price yourself correctly. There is one way to get around us and is to increase your traffic and inbound traffic to a point worth so much where it doesn't even matter, because if you have so much traffic and clients to choose from, what difference does it make? I could lose five hundred, and I still have plenty because all you need to do is book thirty or fifty clients, so when it comes to your pricing objectives, you have to know what your goal is, and depending on the stage of your business, you have to decide where you want to do or what you want to do. The very first part is about survival. Now this is really applicable for two parts of your business. When you're starting off, we're just trying to survive or when you're dying off when you're still trying to survive, I mean both ends of the spectrum here. The next step in most businesses is to return to create the return on investment here are away, but don't forget to count the time the time you invest is also worth so all of that is very important. The next thing you want, the next phase in most businesses is to understand is to increase profit and it's very different if you're talking about counting practices, there's personal profit where you're just paying us up salary and then there's retained earnings if you talk about corporations, the bottom line is when you talk about profit there two parts about it profit or salary for yourself if it's a direct sole proprietorship but also a profit for a company which is completely separate from your personal, so make sure as long as you understand the phase is good, the next one is you want to work on cash flow and I'll actually talk about cash for a little bit as a disruption aspect on day two but casual is really cool because then it's going to point where you just haven't you a study income of money, a steady stream of clients but the question is once you've reached a status quo, do you maintain if it's bearable and this is where it's really tricky? Because if it's not broken, do you fix it? That's the common question and this is where complacency falls into play because a lot of times you get too comfortable you don't change, which is why I always emphasize marking plans always change as we re mentioned earlier external factors economic, legal, regulatory, political and social, cultural they all influence how you should pressure your work because they influence how things change, which is why we're going to be talking about destruction. They iran they too you have to be able to destructor model to find innovative ways and how I can generate money for decisions for pricing it's there many factors and again just like marketing it's not formulaic but there is there are some core factors we can talk about, such as costs based pricing when I tell mecause I cost of good soul soul if something costs x dollars if I increase it by forty percent than that's my profit margin, you know that's a very simplistic way of putting it thing, putting this into perspective but that's cost based marketing or call space pricing. The other other method is to do the man based pressing and this is where if I have so many in correze I could lose some in whatever who cares? You know that means I can constant increase my prices and still not worry, or I have so little in correze that I have tio price accordingly. The next one is competition based person sick tang of so many or so little competition and I should price according to that so there's, so much competition you obviously charge less if there is so little competition and so much supply of clients you try tomorrow so I can't tell you you should charge whatever amount because everybody's situation is different the next thing is you want teo analyze customer response and interprets interpretation so based on what people were saying you know like oh, she is so good and cheap which is a good thing but it also means that you're charging too little he should charge more or she's so terrible for the quality I'm getting for the price then maybe you should just accordingly or she's too expensive I regret paying x twenty dollars and again we talked about the external forces you know, economical, political, legal, technological and social, cultural all of these things change because one of one day everybody values photography then all of a sudden you're you're the man for your services increases at the same time technologically it makes photography so simple to dio that everybody becomes a photographer then what happens then you have to lower your prices see there are so many factors aged factory in based on where you are especially from different countries, different states, different cities lots of things. So next part is about the psychology of pricing and I think that one little bit more fun, so I'll leave it at that I know for a photographer specifically we have so many questions about pricing it's something that we really get focused on and stuck on so any time we can talk about pricing especially the psychology of pricing I think that's really good way get into the pricing those photographers okay, so the pricing parts that I'm gonna be talking about is really an overview of the marketing side because again I don't want to get into the cell site that's a whole different part but everything beforehand we did mention one thing earlier is do you put all your prices out online publicly no it depends on what you want to dio the strategy's adam is a shin do you want to be atomized because remember eight thousand versus two thousand ten years veteran sea of experience versus three years of experience it dictates how people perceive you which is really the indicative value you it determines it puts a lot of expectations based on what you put out there because it automatically makes you a comparable even your age makes you comparable even your ethnic background makes you comparable I mean it was not a surprise when I was shooting weddings they kept on attracting asian clients and it was not something I forcefully dio intention that it just happened because again we're most comfortable with those who are just like us so decided what you want to put out there even when it comes to pricing it has an indicative value people have expectations next thing only talk about odd even pricing all even pricing is really if you think about when you here in ninety nine cents, what does that tell you? Cheap valuable I mean really good deal and if you think about ninety cents which is even now what does that tell you? It's different as different feeling it's not ninety nine cents for sure it's more value so if you think about unique low or your clothes or whatever call themselves everything that christ is based on something that ninety everything that's cheap you know from other businesses it's nine cents you need clothes doesn't have any nine cents in there or if you want to bring it up one extra step you have no sense at all if you've been to one of those fancy restaurants steak forty nine lobster sixty two you know cosmopolitan eighteen there are no sense no nickel and dime ing so you have to determine how do you want to press yourself if you want to be lower and cheaper photographer ninety cents might be a good starting point I mean not ninety cents something ninety like five ninety but the same time if you want to be much more I'm tom a per prints but if you want to be perceived as more valuable something just a flat rate eight dollars four dollars because four dollars still sounds much more valuable perceptive the then something with ninety five cents nine cents for ninety nine cents a chin down plays all three numbers if you go there, the cheaper items are always nine cents like four nine nine seven, nine nine, nine, ninety nine but they're higher and stuff ends with ninety five, fifteen, ninety five, eighteen, ninety five and all of their suits and I can only speak for men because they haven't seen their women gear but all of the suits are one twenty nine one seven nine flat no sense so it the perspective of the products differ based on how you put your numbers out there oh my gosh, how much I would love to get a hold of their like marketing statistics on how that works the only way you can get corporate relations is to be inside it's I'm sure there's probably some sort of marketing research online that you could find on how that psychology of how that works right young, you can't pricing all those different prices oh, I thought you'd come up the corporate strategy. Yeah, well, I just meant, you know, chart yeah, the corporate strategy. Like what? In the success behind how how well that they each d'oh it's hard. I don't it's very it's very rare that company we ever disclosed information unless you're part of the corporate strategy even for example, I'll give an example for and this is really about sales and I don't I would go into attendant so let's just think about do you have two packages? Three packages, one package for packages five I mean tommy package or no packages ala carte this is cells now how that how does that matter? And I might tie into corporate strategy in a second, but remember we talked about loss of version we don't like to lose we like to win all time anything that has lost his bad so when you and we only understand value by comparing to something else from an esoteric items, if I have two glasses of beer or coffee, I couldn't tell you which is better, but I can't tell you if they're good or great by themselves, so if we understand all of that zero packages makes it a lot of choosing just like going to a restaurant oh my gosh, so many great choices! Which one am I going to choose? But if it's all a cart same thing I have no value everything's expensive which item in my going choose because they are also comparing a five dollar print to a forty nine cents at wal mart or costco it's like why the price difference even though it is about your photography and your career by they don't compute that it's like you're charging me eight bucks, it costs forty cents there so allah car is very difficult because people can't understand value that way one package it works if that's what you're going for one package allows you to see value so by buying a package you're combining multiple items are very popular for a discount if you buy a book that's how one package works but the question is why not have two packages? So let me ask you very quickly in terms of two packages for two beverages for a twelve ounce drink it's a dollar fifty or twenty four ounce drink for a dollar sixty five so twice the amount for fifteen cents more which one would you buy? I would go for the big one it seems the better value better value. Okay, which in did you say won't you just holding my cousin when asked a number of questions I would also picked the bigger one cause fifteen cents just isn't it's not enough money to make me go with a smaller one okay, but even though you're not very thirsty, you go with a safer route betty, do you want? Yeah, I always go with the smallest size of them not thirsty. I don't want to spend an extra fifteen cents if I don't have tio and that's just what I do, I'm the opposite well, most people fear loss so much that they'd rather buy a little more a lot more for a little bit just then they can have that extra buffer just in case if I want drink thirteen ounces versus twelve because that one next round's for fifteen cents more I have it there just in case so that encourages people to upgrade but the same time I can encourage you to downgrade just as easily. Twelve ounce drink for a dollar fifty or twenty four ounce drink because twice amount to be three dollars for two dollars and eighty cents now which one would you buy my id by the smaller one smaller one but earlier you said the bigger one uh you're still with some other one it was okay, but probably if I actually was mildly thirst and plywood have gone for the big one but in this case yeah, because the differentials so huge just not really worth it to double up you see how numbers can only change how we respect I mean how we decide which one to choose and then we have to go into the hole three packages this is where in and out is very famous for their three tier burger the double double cheeseburger in a single non cheeseburger regular bird so if you have one I'm in, you know low price point mid price point, high price point which one do you go for it's the same question if I were to ask you three if you had to rate yourself in computer skills on a scale of one to three three being very good like phenomenal one being you just don't know how to type or to your right the middle where is your how would you rank yourself number two then went to all of you it number two less pressure even though if you're really good and I can code you know quite well too, but I would still say number two because I know there are some people who know ruby they know petri I mean, you know all these other languages I don't know yet and very good at it much better than me I would still say to no matter how adept I am at it safe choice remember loss aversion we don't want to say one because we wouldn't wanna look sound silly don't know he's a computer because that's lost but we also don't want to oversee extend ourselves and say three because that's also potential loss we don't want spend so much that was like a god I got hosed, you know? So we always pick too but there is another predicament what if I would say on a scale of one to four how would you rate your your computer skills? So I was just thinking like every surveys always five options but in this case I would probably lean towards three just because I have a preference but I would really have trouble to saying to really three of my feeling confident today I just say three there is no two point five, there is no middle ground and if you know us and just because of the internet, it was not like dead science. It was intentional silence because when there is forced dichotomy, there is no middle ground, you have to either go up or you go down, there is no middle, which is why we had a bit of a science right now because we didn't know how to rank ourselves. We have to act to decide how do I feel that I want to be above average or below average below average is loss above average is not so much loss, but it's still there? Now I'm not saying that you should have four packages, you should have three you chef to shove one it works whatever way you want to go, but the whole point of me bringing this up and I went on attendant was because susan brought up about corporate strategy and starbucks if you think about it, they've always had three cups, but in twenty eleven they introduced a fourth cup, the trenta right, the one you and never going to ever buy, but all of a sudden it make the venti not so big anymore do you get what I'm saying? And I tried and tried to you know research all the pds and the investor relations for the you know, ten k reports I could not find us a lick of information on this corporate society which is what my point is it's a longwinded answer most corporations are hesitant to disclose this information but if they do it's you know because they don't fear competition executing the same thing because there is no fear but when it comes to pricing notice how the psychology of numbers really manipulates how we perceive things and I have a great example later on to show you if you can hold your questions for a little longer you'll be really fine I promise you so the next thing I hope that was a good example going okay is about prestige person prestige pricing is basically anything artificially inflated to very high amounts it's as I talked about earlier with ferraris it's to distinguish the difference of people who have and those who have not it helps put them apart so it's really catered for the few people the people who want rolexes the one we want some sub zero refrigerators and ferraris things of that sort but again it has to be easily accessible but not easily attainable we talked about this earlier on or a high awareness low attain ability how you have the high awareness is high social media high word of mouth or and high search presence you have to be everywhere you have everyone has to know what it is but cannot buy it almost like the apple life that you want to be able to walk around with it proudly and nothing about pricing is it's really about mental shortcuts I mentioned earlier if it's priced really low it must not be so good if it's price really high this person must be phenomenal this just mental shortcuts and we rely on them to short cuts because we don't have time to invest into researching everything ourselves an example I like to give his organic foods when you see the usda organic or in other countries by logic or biological or however you want teo whichever language you're not really there watching the farmer put seed in the ground and bury it and water it and not put pesticide herbicide on it you just assume it's a mental shortcut you see the sign it's safe that's all this and this is the same way how we perceive numbers expensive must be good cheap must be back you know a number of years of experience things of that sort the next thing I wanna talk about the special event pricing this varies pricing from event to event so holiday parties, weddings and again as I mentioned earlier it's really difficult to discriminate pricing your offering the same exact service same exact product at a different price it's sort of like the whole airplane ticket thing everybody in the airplane cabin paid a different price same destination, same everything so how do you differentiate this it's? A very pick your peculiar situation the next thing we want to talk about his professional pressing professional pricing is only professional because there's a uniquely great skill involved such as a surgeon does a very rare skill to have. But the question is what happens if this unique skill is no longer unique woman about to show you is a graph and for those who have, you know, mba, very calm majors, I'm oversimplifying, but in terms of photography there is a in my opinion, but inevitability of pricing is eventually going to go down and you have to realize that because of professional pricing, if the unique really great skill is no longer you know what happens if everybody becomes a surgeon in the value surgeons decreases so let's look at this graph really quickly so there's a supply in the man the moment to increase the supply or increasing photographers and it's not like the demand has really changed because there are only a certain number of brides or pet owners and things of that sort that maintains virtually the same on this population increases and a number of other factors or expectations demands for services change then that the man would change but for the most part, if it's consistent granted, it is consistent with the increase in fertile for us, the inevitability is decrease in your pricing or the increasing demands for your services at a higher price because of increasing photographers. The only thing too is, as I mentioned earlier for your ppf skill. If you increase your production capability because of technology, pretend that back then a person who shot film can only shoot fifteen weddings a year because the person had to shoot it process the film you know, go through the whole darkroom, print them delivered products long time, but now I can shoot fifty weddings justus easily with this time less headache, and if I came in outsources thing to other editors, I can shoot four hundred pets instead of three hundred because of technology, you're allowed to scale your business even more but the same time, if each photographer is able to produce more, then you even have to have more competition and there are ways how you can all elevate the price in I don't want to get into game theory or anything like this. You can read about this in my side. I wrote the whole extensive article on this topic about game theory about conversions send the economics of the situation and why it's inevitably going to go down but check it out okay, so brief may pricing is a barrier but discount remove barriers for the most part but I want to give you a story there is one girl her name is sara. She had a very peculiar situation she wanted build portfolio but she had no clients so what she did was she wants to shoot children uh you know okay, I was anyway so she want to shoot children so she need teo build a portfolio so is she emailed or contacted thirty of our mom friends like I need to borrow your kids to shoot them? I need build my portfolio thirty kids is a lot even if you shoot one a day that's thirty days not including editing time or a shooting time scheduling time consultation is a lot, you know, cause I mean not cost him outfits there's a lot of things with the shoot, so she went ahead and scheduled and shot all of them it took about three months or something and extreme out time and in the end, these moms even tore sir, I need this one edited to black and white and this one sepia and please print this one out of eight by ten she's like whoa, well, whoa, I shot this entire thing for free and now you're asking me for prints and stuff to say yeah, well use my kid as a portfolio the least you could dio what's what's ten more minutes to edit some photos for me so then she said, oh gosh, you know, this is so annoying, lawrence, I don't know what to do and at the very end I don't have my portfolio that's the crazy part and I spent a lot time while the money and I have nothing how should I approach this? And I said I thought about for a moment I told her this is how I would've email or contacted all of these people is by simply adding barriers to every step of the way so I would say moms, I am emailing you first I'm e mailing all of you first because I have other options because who doesn't like free for an opportunity to shoot your kid to build my portfolio? But first you must send me a photo of your kid, you know, to make sure that the kid's cute enough and a description as to why I should choose him or her, which is just an added barrier for no reason because as no value and another thirty offers I'm giving you I will pick five you could pick mohr, of course, but I will pick five so all the sounds like, oh my gosh, is this special contin ue I verify a really great kid description by my kid and great given great photo all of all of these barriers all of a sudden made this free service a valuable thing simply by adding barriers along the way I was able to turn the table around so understand that barriers work even if it's completely free even if it's discounted when it comes to psychology pricing there lots of factors as I mentioned even procedure pricing I mean lots of things to consider but numbers do play tricks in you all at the same time barrier's add value so if you have to walk away you know, keep those things in mind if you're trying to create a luxurious experience don't nickel and dime it's not going to make a massive difference that you have such a economy of scale that five cent is going to make a difference increase it to the full round up dollar make it flat add barriers everywhere you can because remember you wanted to be extremely difficult to pass through the hourglass, but once they d'oh that's where you shower and you over deliver even here's an example of beefy factor I like to call it my friend used my example first have you ever purchased a cd of a software from adobe or intuit quickbooks? Its comes in a gigantic box right? But inside just one city the whole thing is just one city because if they're going to charge you a hundred dollars for one cd, it sounds really ridiculous and that's why, you know shooting burning while it may work it's very hard to swallow because a hundred bucks that's why they have to put in a giant box so looks like it's more value it's the same thing about dictionaries which dick shinning up by twenty bucks for a gigantic one or a tiny little one unless you're going for travel that's a different story, but generally speaking you want the bigger one more words because it's heavier it's more weight, it's more beefy so when you're coming, when it deals with cells or pricing, you have to add beefy things to it. So my example would be give things that are cheap and free to you or cheap. I know there's nothing hard to find free, but if you had to let's just say you sell package in order to be makeup over, deliver on the promise over the liver it's like all by the way you only picked out one hundred eight by tens or I'm sorry hundred four by six is but I realized you like so many of these other ones, I decided to print them for you anyway, because how much is a four by six? Nothing what's, not nothing but it's, not that much two hundred more, which is more than one hundred that's, two hundred percent more that's a lot to go and guess what it's heavy it's, beefy. So it looks like a lot it's going take him quite a while. Looked again. That is a way of over delivering and that's in away makes you look very over sharing very giving. So if I had that's, basically something up on the promised overdeliver barriers, high barriers, psychology, prime numbers, make sure that they match what you're trying to do.