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Bite-Sized Pricing

Kobe SteaksA client recently told me a story of taking his team out to dinner at a fancy steakhouse.  The waiter described fine, hand-rubbed Kobe steaks for a mere $3.50 per ounce, which sounded very reasonable.  (An 8-10 ounce steak was $28 – $35, which was fair for a truly fine steak, right?)  The group was then marched into the kitchen to personally select their steaks.  Herein lies the proverbial rub.  What looked better, little tiny 8 ounce steaks, or nice, fat, bigger ones?  The big ones of course!  (How big were they exactly?  Who knows?  Who cares?!  It’s just a little bit more!)  The group returned to the table to enjoy drinks and await their meals.  Soon, out came their large, juicy steaks, cooked to perfection.  Lo and behold, it turned out the steaks were 28, 30, even 32 ounces, ranging in price from $98 – $112 each.

What is the pricing lesson?  If a $100 Kobe steak had been on the menu, the team never would have ordered them.  They would have felt that price was too high.  But the price was presented on a small scale, a manageable scale, bite-sized, so to speak.  And the price per unit was so small that most everyone selected this expensive steak over other options.  Now, let me be clear that I am not advising you to use this method of bite-sized pricing to “trick” your customers in any way.  I don’t advise you to price in a way that causes your customers to purchase something counter to their interests.  (Did the steakhouse push it too far?  Maybe.)

But this method can be used to minimize pricing in the sales conversation relative to the value of what you actually sell.  Often, companies sell products and services of extraordinary value, but customers experience sticker shock if the product is unusual, or the service is one they haven’t bought before, or the total price of your offering is just very large.  It can be very, very helpful to nullify sticker shock by breaking the pricing down to a “unit price” basis.  Break your price down relative to how your customer realizes value from your product or service, and that will make your pricing seem smaller.  Here are some examples:

Instead of… Try…
1 $2,800 Annual Maintenance (21 Devices) $11.11 / Device / Month with 100% Uptime
2 $159,600 Project Fee (42 Workstations) $3,800 / Workstation with Award-Winning Ergonomic Design
3 $3,000 Training Course (20 Employees) $150 / Attendee for World-Class Training & High ROI
4 $360 Annual Storage for 1TB Data $0.03 / GB Storage / Month with 24-7 Support
5 $3,500 Marketing Campaign $3.80 / Customer Acquired Based on Proven Conversion Rates

 

Give customers bite-sized pricing.  They may be more likely to eat your cooking.

A couple of finer points:

  • Consider adding value-selling messaging into your pricing, as I did on the right.
  • Consider changing the unit of measure to one customers can get excited about (#5 above) using reasonable assumptions and data. No one is excited to spend $3,500 of their hard-earned dollars on a marketing campaign, but acquiring a new customer at just $3.80 each is something customers can connect to and which feels “worth it.”
  • Remember:  pricing and quoting are not the same as contracts and billing.  I’m recommending “bite-sized” pricing, but you don’t necessarily have to bill that way.  (You can still bill $3,500 for a marketing campaign and $360 for annual data storage.)  Bite-sized pricing can be very useful in the selling process, but what actually appears in your contracts or billing can be the rolled up version if more practical.  It often is.

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