E256 | Powerful Pricing Strategies To Boost Profitability with Jenny Millar
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CastBoxIn a world where pricing is often feared and neglected, one woman is on a mission to bring some light to the topic. But what happens when she reveals the power of pricing to shape customer actions and boost business performance? Find out on a new episode of The Melting Pot with Dominic Monkhouse.
This week we learned from pricing expert and the founder of Untapped Pricing, Jenny Millar. With a decade worth of hands-on experience in managing the fees for selling on eBay’s European platforms, she has a deep understanding of how to use pricing as both a financial boost and a mechanism for customer behaviour management. She extends her ability to help organisations discover their product’s true value, leaving no room for guesswork. Jenny’s unique insights, drawn from both qualitative and quantitative customer research, provide game-changing guidance for businesses eager to leverage pricing to optimise growth.
Download and listen to learn more from Jenny Millar.
On today’s podcast:
- Unearth the hidden power of pricing
- Using pricing to shape customer behaviour
- Understanding the power of price options
- Debunking some of the most common pricing myths
- The importance of an evolving pricing strategy
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Removing the guesswork in your pricing strategy
Jenny Millar is a specialist, advocate, and thought leader in the field of pricing. She demystifies pricing strategy, giving business leaders the clarity and confidence to price their products and services more effectively. She founded Untapped Pricing to shine a light on the untapped potential of pricing to boost profitability, drive engagement with customers and unlock growth bottlenecks. Her lively team of pricing experts, Design Thinkers, research specialists and behavioural psychologists bring colour to the topic of pricing and help you remove the guesswork.
Her background includes 10 years with eBay, where she built world-class analytics teams to transform their 20 petabytes of data into commercial intelligence and delivered major price changes across eBay’s major European markets. Jenny teaches Entrepreneurship at Warwick Business School and Pricing Strategy at the London School of Economics. She is also a formal advisor to a number of ambitious start-ups and emerging brands.
Using Pricing to Influence Customer Behaviour
The power of pricing goes beyond revenue generation. It can serve as a strategic tool for regulatory and operational benefits when well executed. Pricing can serve to shape customer behaviours, nudging them towards patterns that offer optimum benefits to a business. Think about how it’s used to moderate the demand-supply balance or motivate customers to adopt new products. It also influences perceptions about a brand’s prestige, customer value, and service quality – needless to say, it establishes business image and character.
Jenny refers to her time at eBay as an example of how pricing can be used to influence customer behaviour. They used pricing to maintain the quality of listings and guide sellers on the ideal times for putting up their items to match peak demand. This instance shows how pricing can be leveraged to channel business performance and foster customer interaction dynamics beneficial to business growth.
During her ten years at eBay, Jenny was responsible for setting the fees for selling on the European eBay platforms. Back then, it was a $26 billion business, and they priced very strategically to optimise financial performance but also to nudge customer behaviours. And that’s where her interest in the psychology of pricing and its role in our decision-making, either as a consumer buyer or a business buyer, started.
“An example would be using pricing to help control the quality of listings being put onto the site. So we use a very small upfront listing fee, just a few pence, but that was enough to make people think, oh, is this worth it? And so there was a very small price barrier, but that really helped control the quality of inventory. Then we used promotions to guide our sellers until the best time to list their items. We noticed that the most common time for auctions to close was a Sunday night, or there was the most bidding activity and interest around 07:00 on a Sunday night. So we would run promotions to encourage sellers to list their items seven days earlier. So we’ve got the maximum amount of closing auctions when we’ve got the maximum amount of demand on the site.”
The Power of Offering Price Options
Staying competitive in business involves more than just selling quality goods or services. It’s about being customer-centric and providing options that cater to different client needs and preferences. Offering multiple pricing options really does this well. It not only caters to the diverse financial capacities of buyers but can also lead them to perceive a higher value depending on their choices. The flexibility inherent in this taps into the psychological aspects of purchasing, enhancing the customer’s feeling of empowerment and sense of fair play. So, in effect, creating different price points can positively impact your customer relationships, reputation, and, most importantly, your profitability.
Jenny casts her view on giving customers different pricing options, like the story about the bar offering differently priced beers and thus influencing the clients’ willingness to pay. Jenny supported the idea that presenting options, such as bronze, silver, and gold, aligns with empowering purchasers and shapes their perception of price. For businesses, this mechanism widens the range for negotiation by already outlining how the price structure changes with the varying scopes of work.
“It’s very empowering for any buyer to be presented with options. It lets you anchor their perception of price by pricing up that top option considerably higher than the others. Some will go for it because they want all the bells and whistles you can offer. But even for those who go for the bronze or silver, it’s still helping to influence their perception of those other prices, the students going for the middle. So that’s often called the Goldilocks effect. So we feel like that’s the safe option, and what a fantastic experiment to consider replicating in your business.”
Pricing for B2B Tech Companies
With the dynamism of tech markets and the ubiquity of B2B tech firms, pricing can be quite intricate. However, by focusing on customers’ specific needs and value drivers, tech companies can efficiently price their Software-as-a-Service (SaaS) offerings. Even if prices aren’t always publicly published in this setting, an evidence-based approach still reinforces pricing decisions’ effectiveness while eliminating guesswork. Jenny shared her experience working with tech companies to design and price their offerings. Here pricing isn’t always straightforward, but testing and using evidence from research helps to evaluate and cement pricing decisions. She highlighted the importance of considering the unique demands of enterprise clientele when shaping pricing, emphasising a need for a customer-focused approach, which is really the essence of it all.
“I would encourage organisations to remove the guesswork. Check if your customers shopping around and if so, what are the alternatives that they’re looking at and what is the role of price versus other factors? And then you know what to be taking into account when you’re making your decision and how closely to monitor those competitors.”
When conducting research with your customers, it’s best to ask them what was being considered at the point of purchase or the point of renewal and then to go beyond that existing customer base where you might come across customers of competitors. This way, adds Jenny, you can compare the answers from those who have experience of what you have to offer versus those who are just perceiving it from the outside.
“We have had a couple of instances where going into a project with a client thinking they were really clear on what they wanted to do. They brought us in either to validate the thinking or to help them communicate that price change. And actually, we’ve ended up advising them against that change or doing something different. Fortunately, those clients have been receptive to that. So they have changed tack and been open to that evidence-led thinking. Generally, they’re ready to act and ready to lean into the results.”
The importance of evolving pricing
In business as in life, change is the only constant. As markets shift, so should your business, particularly your pricing strategy. Whether these changes are minor adjustments to accommodate inflation or a complete overhaul due to competitively disruptive market factors, updating your pricing strategy keeps your customers engaged, your products or services in demand, and your profitability consistent. Jenny drives home the point that pricing strategies should not remain set in stone. She points out that there are always changes – in business landscapes, customer behaviour, and their willingness to pay. Contemplating this makes sense as retaining unchanged pricing strategies can cause potential financial opportunities to slide by. She stresses the need for regular reviews and adaptions of pricing to keep pace with market trends and shifting customer needs. It’s about staying on top of the game.
“Your business is changing, your customers are changing, and the needs and motivations and the willingness to pay evolve, and it can be quite continuous. And so I think if you don’t touch it, then that is going to lead to bigger problems. So it’s almost like it builds a pricing muscle in your business.”
The pricing thermometer
When asked about some of the myths of pricing, Jenny talked about the concept of the pricing thermometer. At the bottom, you have your costs to deliver your products or services, and then at the top of the thermometer, you have value to the customer. Then your price is set somewhere between the two. The difference between your cost at the bottom and your price is your margin. So that’s your incentive to sell. And then the difference between your price and value to the customer, that’s their incentive to buy.
But so often we see businesses that either aren’t clear on their costs or the value to the customer. Price gets set rather arbitrarily in between, which leads to common challenges around the business not being profitable enough, speaking to the wrong audience or struggling to convey the value they deliver. Because if you don’t understand it, how are you going to communicate that effectively?
So the two ends of that thermometer firstly around your costs so that directly points to your break-even point and costs are evolving all the time. Organisations that don’t stay close to that are going to get into difficulties. On the top of that thermometer thinking about understanding value, there are a lot of myths around or questions about how I would understand value.
“It’s a common phrase, charge what you’re worth. That, I think, sounds great, but it’s absolutely useless. What does that mean? Appreciate that willingness to pay is rooted in the perception of value, but it’s not an inherent property of a product or service. So if I said, what’s a pint of beer worth, then the answer really is, to whom? Because if you’re a wine lover, the answer might be nothing. If you’re a beer lover, then your answers still will vary hugely depending on the context.”
So you might be willing to pay quite a hefty premium for a cool beer on a hot day at a festival, at the only beer stand there, whereas you’d expect to pay much less for the exact same beer from a rundown grocery store. So whatever your business is, staying close to the context of your customers and how that’s changed is critical, says Jenny.