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Thursday
Sep202018

Pricing vs. charging: is there a difference?


 

Pricing and charging are often seen as the same thing. They're not. Pricing a product or service is a strategic decision, whereas charging is tactical. I’m defining strategy as the game plan and tactics as the moves.

Pricing products and services needs research, planning and thought. For example, the Recommended or Suggested Retail Price of a product, the “Rack Rate” of a hotel, or the headline hourly or daily rates of a service. Setting the price for that product or service sets its perceived value, i.e. how it’s positioned in the marketplace.

What a business charges for that product or service can be varied or altered according to circumstances. For example Uber uses "surge pricing" during busy periods, while many retailers have sales from time-to-time.

If discounting, it's crucial always to show the full price, as well as any discount, so that the original perceived value is not lost. Imagine you're in the market for a camera. Let’s suppose it’s the first time you’ve bought one. You’re feeling both excited and nervous as you enter a camera shop.
The camera salesman listens to your needs and says, “Okay, given what you’ve told me, I suggest you look these three options.
Each one has its pros and cons: there’s this one, which is priced at £1,000, this one priced at £500, and this one priced at £250. The one priced at £1,000 is on special offer, because they’re going to replace it with a newer model, so we’re able to charge you £500, in other words a 50% discount. Which one would you like?”

Given these options, I think most of us would choose the £1,000 one, discounted to £500, rather than the £500 one or the £250 one. Most of us associate high price with premium product, so, by definition, the highest-priced product or service is perceived as the best.

We associate price with value, so it’s very important that pricing of products and services is carefully thought through - i.e. a strategic decision - it says what you, as a business owner, value your products or services at.

As for charging – be careful not to dilute the value of your product or service by offering discounts or specials too often; be tactical about why, when and to whom you offer a discount.

 

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