Replies to This Discussion

Permalink Reply by Tushar Bhargava on May 15, 2012 at 1:37pm

The same dilemma we had. Initially we priced our product on lower side but in a long run it hurts the revenues. Once a customer joined you on lower price-point it is never easy to get them to pay higher rates.

The only solution we found is let the old customers on same price point and increase the rates for new customers because at the end, if you add 10 clients and lose 8 (your old one) your total gain will reamin to 2 only.

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Permalink Reply by Anamika Joshi on May 15, 2012 at 2:35pm

Quite fair. But what if you are having a greater work flow from your old clients who are expecting you to work on the same rate but deliver more.

Believe us, what you have mentioned is what we are following till now. 

We do have certain valid points like - expanded team, dedicated designers for specific projects and a bigger space to hold larger work force. 

For a creative agency, it can never think of giving low quality for those who pay less. While it consistently works on polishing it skills with every passing day, clients often tend to ignore the very fact.

But yes discussing the question clears the mess and helps in coming out with a clearer picture.

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Permalink Reply by Samudra Neelam Bhuyan on May 15, 2012 at 1:45pm

Hi Anamika,

Is it possible for you to deliver more value at that higher price? Like maybe "Premium support" or something similar, which your clients will gladly pay more for?

There have been 2 very interesting posts about pricing strategies recently - 1st post (about how low pricing works), 2nd post (counter to 1st post, about how value pricing works), and some very good discussion on HackerNews regarding both of them. 

Without knowing anything about your startup, I believe I understand the ceiling that you have hit. I have been agonizing over pricing my products for a long time now, and have finally decided on the value based approach. This I have decided mainly because I would rather position myself as a high-value product, than an "affordable" one, even though there are options which the customer can take that makes it affordable.

If I were you, I would focus on finding other, higher paying customers and slowly replace your portfolio with them. My reasoning is that your existing customers will do one of 2 things: a) "upgrade" to your higher prices, OR b) drop out, leaving you with more time to focus on your higher value customers.

(I am not an expert on anything. Whatever I have said, is backed only by gut instinct. :-) )

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Permalink Reply by Anamika Joshi on May 15, 2012 at 4:59pm

To let them 'drop out' becomes even more difficult when the agency-client relation is more on the informal front wherein you understand the basic issues of your clients and the client place great trust on your services.

But instead of replacing the existing clients with higher paying ones (which literally i can't afford to do), let's make them go with your first reasoning - upgrade them to our increased rates :)...in whatever way possible - may be with something like 'premium support' option as you suggested initially. liked the idea. :)

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Permalink Reply by Ninad G Deshmukh on May 15, 2012 at 2:12pm

Pricing decision for any product or service is always very difficult. Most of the time we think by pricing low we could get more customers or business. IMO, pricing decision should depend on how you want to position your company/product than purely to get customers in short term(but sustaining initial years is very difficult if you do not have customers/revenue). 

I am into health food processing  and used to participate several exhibitions in Mumbai to promote our products. Almost all customers at exhibition used to ask for discounts, saying that its exhibition and they should get some discount. I used to ask them to take a look at Poster pasted by me on back wall reading "We don't Discount our Products, We don't Discount your Health" and the reaction was very positive and they used appreciate our confidence in our product. 

So you have decide how you want to position your company/services and stick to it from early stages of operation.

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Permalink Reply by Anamika Joshi on May 15, 2012 at 5:02pm

Very impressive way out. the only thing i see here is a major issue with our kind of business - running an ad agency. You can't say to your clients that "your designs will get compromised on if you pay less."

But it's a good example of a win-win situation. You happy with good pricing for your product and your customers happy with getting value for their money in terms of good product.makes for a great instance :)

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Permalink Reply by Anamika Joshi on May 15, 2012 at 5:03pm

Very impressive way out. the only thing i see here is a major issue with our kind of business - running an ad agency. You can't say to your clients that "your designs will get compromised on if you pay less."

But it's a good example of a win-win situation. You happy with good pricing for your product and your customers happy with getting value for their money in terms of good product.makes for a great instance :)

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Permalink Reply by Rituraj Chaturmohta on May 15, 2012 at 3:18pm

Hi Anamika, Not an expert but here are my 2 cents...

1. when you started, you positioned yourself as someone who would do GOOD work at low prices. You gained clients "initially" because of that. Now when you say that you want to raise prices to the same clients, you have to differentiate between the GOOD that you have been delivering and the GREAT work that you aim to deliver with these higher prices. Until the clients see a clear differentiation in the quality of work delivered, along with the clearly outlined factors which would contribute to it, they wont change their mindset about how much to pay you.

2. Always remember that your initial clients are the ones who helped you get into the position where you can demand higher prices from clients, old or new. So dont just consider their payments in absolute terms of what they are paying. They are paying you back through repeat business and the resultant credibility it generates. Good references and credibility come at a good cost, and in case of service industry, at a HUGE cost. You just CAN NOT BUY good references

3. As has already been pointed out, you can go for a tier based pricing. For example, Silver Gold and Platinum which are differentiated based on parameters like time that a senior/experince/skilled of resource would spend on the project. (In my opnion, we should never say that a Silver tier would not have high skilled resource. We should rather limit the time s/he spends on that project as compared to a Gold or Platinum one). You can also differentiate the kind of support hours / warranty that you would be proposing for different tiers. There are multiple ways to do it.. think and you would get it.

Regards

Rituraj

 

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Permalink Reply by Anamika Joshi on May 15, 2012 at 6:35pm

That was profound Rituraj!

gained some really meaningful points to ponder from your suggestions... You words exude guarantee. Thanks a tonne!

Just a point - when we started, we just wanted work, work and work. So it was not us who proposed "sir, we will give you best work (designing and content creation) at best price." As a matter of fact, we had least idea of what the market price were then.

So we proposed the highest price (from our point of view) after collecting all our guts, but those were not quoted as 'low' by us, in any way.

But when we went with those price proposals to our prospective clients, they realized that they wont get better rates and thus our price became the reason for work that poured in, at the initial stage.

So it was always 'best work' that went out from our agency. However, i don't regret the ignorance. It did teach us a lot. Many clients were surprised to see us working at such rates. An insider from a client office even warned us, "quote high, your prices are way too low. These guys will squeeze both your time and energy. Quote high"

There is always a way out and i guess,  will have many ways out from guys like you! :) thanks again!

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Permalink Reply by Rituraj Chaturmohta on May 15, 2012 at 7:54pm

Happy to help Anamika,

I am myself planning something and this discussion would certainly help me define the pricing mechanism for my own venture. Similar to you, I dont want to be locked into a relationship v/s profitability cycle..

Thanks for initiating the thought process again!!!

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Permalink Reply by Abhishek Sinha on May 15, 2012 at 4:16pm

I had an opportunity to listen Mr, Narayan murthy at one event and there he had said, in a situation, at a very early age of his business, he was generating 60% of revenue from one particular client. That client quoted his own price for their project and Infosys rejected to work at that price. many of the well known competitors agreed to work and got the work. Infosys lost the project but after an year he was happier than all his competition as he stated. 

In case it helps you decide :)

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Permalink Reply by Anamika Joshi on May 15, 2012 at 6:39pm

To say a NO is so gratifying. Believe me, I feel more happy saying 'NO' to a work which i think is not exactly what we started out our agency for, than nodding helplessly. 

The above instance from you just replicates the joy of being assured and clear of what you want to do and what not. To just go on and do whatever comes by simply hints at lack of strategy and ultimately zero progress.

Thanks for the share.! :)

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