Creating a Premium Pricing Culture
Pricing is a prison cell of our own making. And it’s cultural. Blair has come up with a series of prompts as a creative exercise to help us all move into a realm of higher pricing.
Links
“Creating a Culture of Premium Pricing” by Blair Enns at WinWithoutPitching.com
“Be the Client You Want to See in the World”
Transcript
David C. Baker: Blair, one of the most recent episodes, we talked about how we should be charging less, and now you changed your mind.
[laughter]
Blair Enns: Just covering all the bases, David.
David: Your goal is not to speak to the entire audience, you just segment it. It's like, okay, you half over here, I'm going to talk to you. Now the other half here. Here we're going to talk about Creating a Premium Pricing Culture. Actually, this one reminded me of that revenue 2.0 thing we did where you set up an exercise of constraints, and I still think through some of that stuff. When I was reading through some of your notes here, I was really drawn into this. Why so soon after talking about have we hit peak strategy, are we talking about creating a premium pricing culture?
Blair: Yes, good question. I don't know. That episode has aired a few weeks ago as of this recording, but the blog post just dropped a couple of days ago. I'm getting a lot of response to the blog post, all positive. That was a wake-up call. Hey, you might be charging too much if you bill yourself as a service provider and then just adding strategic in front of that service provider, design, development, whatever, doesn't make you so and it doesn't insulate you from what's going on in the marketplace. There was a lot of resonance. I don't know if it was because people was like, yes, we should be charging less.
Now here we are at the opposite end of the spectrum because as I pointed out in that episode and that post, I want everybody to be able to charge more, but you have to have a valid basis for doing so. The idea here is I read something somewhere, I read the words premium pricing culture somewhere. It was actually an AI prompt, and I thought, oh, that's really interesting. I started thinking about the idea, which I'd never thought of before, this idea that pricing is cultural. You have a pricing culture in your firm where everybody has this kind of tacit understanding- or sorry, implicit understanding of how much you can charge, what your clients are willing to pay.
I'm fond of saying pricing is like a prison cell in your own mind, of your own making. This idea that it's not just you, the business owner, everybody in the firm for the most part, you're all in the same cell. You're all suffering from the same limitations, many of them mental but not all of them, on what you might be able to charge. I wanted to do a series of exercises, just give the listener a bunch of prompts, questions to think about, to see if they can't come up with some interesting raw material to try to shift the pricing culture of their firm to more of a premium pricing culture. Does that make sense?
David: Yes. One of the suggestions that we'll talk about later, I kind of picture them sitting around a campfire late at night in the summer, pulling names out of hats. We'll get to that at some point. I was really struck by that one phrase you just used, pricing is a prison cell of our own making. I was having a call with a client, a very successful client, this week, and we were benchmarking the firm. His billings per full-time equivalent employee were $440,000-
Blair: Nice.
David: -which is way above the average, yes. He was lamenting, "I just don't feel like we're doing very well. We should be making more profit. It seems like we're giving in to pricing cues from our clients. It's like we haven't even hit our stride yet." Then I explained that the target is about $220,000 and the average is about $160,000. I said, "So, you're at $440,000. Let's quickly get you to $600,000. Here's how we do that."
The point of that story to me was that no matter where you are, you're in a prison cell. You might be at $440,000, you might be at $150,000, whatever it is. You're in a prison cell and you can bust out of that. There's always air above you to move into. You can always move higher. This episode is not just designed for people whose performance really is below or at average. It's for everybody.
You have five or six, I think, I didn't count them, ways to think about this differently.
Blair: Too many.
David: No, no, and I didn't think so. These are all sort of prompts, and then you've got a bunch of illustrations of each one. The first one is move to the high end of the market. Let's talk about that one first.
Blair: Yes. I was speaking to our mutual friend Christo the other day and somebody said this to him. He said the name, I forget who, so I apologize, but somebody pointed out to him that in any market, you move to the higher end, there's always more money. Salespeople make more money. Organizations serving the higher end of the market almost always make more money. Now there's often volume at the low end of the business, but at the end of the day, the money is moving upmarket.
If we take that on its face and say, okay, well, I believe that to be true, then the questions are, what are the things that you can do to move upmarket? I'll throw some questions at the listener, and you can too, and we can talk about the most interesting ones, but why are you serving the market you're serving now? David, I'm sure you've worked with a lot of firms who've carved out some sort of positioning where they're working with small businesses, right?
David: Right, where the money means a lot to them. If something doesn't go right, their kid's going to have to go to a state college instead, right? It's like very precious to them.
Blair: It's precious, and sometimes you would look at their position and go, why small businesses? They would come up with some not very good answer. There are good answers to that question, but very often I would hear not very good answers to the questions, which the real answer was, well, I'm really uncomfortable selling to more sophisticated buyers because I don't have a lot of confidence in our ability to do what we do. I've seen that happen a lot. You see somebody who's simply lacking the confidence, so they're not moving upmarket. They're stuck at the bottom end of the market. If you are serving the lower end of the market, my question to you is, why? Is there something about that market, or is it your fear of going upmarket?
David: What you just mentioned, the fear, I think that's real. I think also people get attached to it in the sense that I help these people. It's not necessarily just a lack of confidence in some cases. These people deserve my help. I don't want to abandon them, which is sort of mixing different reasons to be in the business. One of the things that you suggest here is- to get out of this market where you're not really as high as you could be is new hires. Boy, did that strike me as accurate because all of a sudden, a new hire comes along and you say, right before you're generating your proposal, "Hey, what do you think we should charge for this?" They mention some number and it's like, what? We have never done that. It's just like a matter of fact, "This is how we used to do it where I work." Wouldn't that be one of the key ways to move upmarket is to bring somebody in who has a different level of confidence?
Blair: Yes, absolutely. We'll come back to that topic too, but the point that we raised off the top, which is everybody is in a pricing prison cell of their own making; this new hire who comes to you from another firm, he's in his own prison cell. It's just way higher up. It's a much larger price. He's trapped in that prison cell and he's looking at you trapped in your prison cell thinking, what are you doing down here? Nobody's down here.
[laughter]
David: My cell is 12 by 12. What are you doing in this 8 by 8 cell with a steel toilet in the corner? Yes, so move to the high end of the market. Do you want to say anything more about that before we talk about this next one, which is my favorite?
Blair: No, let's move on to combined disciplines. I'm sure you did the exercise already.
David: This was so fascinating. It brought to mind something that I've wondered why nobody has solved.
Blair: Yes. I mentioned in the episode, Have We Hit Peak Strategy, that if you're billing yourself as a provider of discipline, so design was the example I used, you're probably under all kinds of pressure right now. If you combine two nontraditional, seemingly odd disciplines together, you create a new category. You get something really unique and really expensive.
When I was a kid, I was enamored by something I saw on television or in print somewhere that said the highest paying job in the world was underwater welding. If you go to my LinkedIn profile, you'll see my claim to have a master's degree in underwater welding and more. [laughter] I'll just leave it at that. That just always fascinated me; these two different things, scuba diving and welding. I forget what the wage was, it was like decades ago now, but it was a mind-blowing amount of money to somebody my age way back then. That's an example.
Where I live in this remote mountain town, I have two friends, both of them were rope rescue instructors for me when I was in search and rescue many years ago now. They're both electricians. They combined this rope work and electrical work to do really high-paying electrical work, mostly dangling from ropes in places where you can't put scaffolding, like dams, or where it's really expensive to put scaffolding. To me that was the first real-life version that I'd seen in my life of this combination that was like underwater welding. It begs the question, what are some disciplines that you could combine with your main discipline to come up with something just completely radically--
David: I took this one a little further. I got lost in myself here on this one. I said, okay, so forget the surface things that the creative marketing, advertising, digital field does. What's underneath all that? What are the core strengths that could be leveraged into other things? I came up with four of them. I'm going to test you with these.
Blair: Oh, good, because I didn't come up with any. I was hoping you'd come up with some.
David: [chuckles] The first is listening and seeing things that other people don't see. I haven't combined this with anything yet, but that's one that I think is a pretty unique talent in our field. Another is understanding human behavior. Third is simplifying the complex, and fourth is capturing desire. To me, the obvious thing, our listeners ought to be scammers. It seems like they have all the skills for that, right?
[laughter]
Blair: I'm curious where you're going with that. What do you mean they ought to be scammers?
David: They understand people, they understand desire.
Blair: Yes. We've seen some attempts at neuromarketing, which causes me to roll my eyes. Somebody reads a simple neuro book, like The Chimp Paradox or something, and then they start to call themselves neuromarketers. That's a poor attempt at a good idea. If you're a neuroscientist, yes, you can do that. You can take neuroscience and marketing. If you're a guy who read a book on neuroscience, you're not qualified to do this. That's an example.
When you say listening and observing or understanding, there are many different dimensions, many different fields. You could bring organizational behavior. That's a little bit too obvious. Neuroscience, that's pretty cool if it's real. It's rarely real. There are probably a bunch of other ways to listen, to learn, to understand and think about things. I'm not doing a very good job here. We should come up with one that's really good. Let's say you're a designer. Well, we could get into the development business. We could be design and dev. Yes, not that. That's what everybody else is doing too. You've worked with a client that does drink creation, right?
David: Right, yes. They invent cocktails, and then they have a training platform that you subscribe to for a fee. It trains people how to make and present and talk about the cocktails, yes.
Blair: They are regularly inventing new cocktails. They probably did it for clients first, probably started as a menu design and somebody was a home bartender.
David: Yes, exactly right.
Blair: Then they found a niche. Then they built a platform where it's like, we will just invent the drinks and you will subscribe to our platform. If you want to serve them, we will not only give you the recipe, but train you on how to make them. Is that it?
David: Yes, exactly right. We can go back to one of the earlier episodes we talked about. It's like, why don't you do your own product? That's not what the topic was, but--
Blair: Be the client you want to see in the world.
David: Yes. Here we are giving our very best efforts to our clients to help them create successful apps or products or whatever it is. Why aren't you doing that for yourself? You have that skill, and it's the skill that your clients are really missing and you bring it to the table.
Blair: That's the next category here of prompts, which is if you want to move the pricing culture of your firm to a premium pricing, you as the owner really need to obsess over the product. If you think of all the best founders, Steve Jobs, Jeff Bezos, et cetera, they're obsessive about building the best possible thing they could build. Somebody was giving me a suggestion the other day about something I could do in my business that would lead to some quick money, and I thought that would kill the product over time. That's something you have to be aware of.
When we talk about- to our audience, when we talk about obsessing over the product, a lot of listeners go, well, I'm in the service business. I don't really have a product. It begs the question, from our drink design and training example, maybe you should have a product to obsess over. If you don't have a product, then you should obsess over the how you do what you do, the codified proprietary methodology. The most recent episode we recorded is on something you did on leading in chaotic times, and you're telling principals to let go of a couple of things so they could focus on other things.
David: Yes, knowing where projects are, the status of projects, and being responsible for any client relationship. You're saying if you get rid of those two things, maybe you'd have time to develop your own product some more.
Blair: Yes, you hit the top four things that a principal should do, and obsess over the product could slide into there.
David: Yes, absolutely. The fourth one was innovate over the future, yes. You got to go pay attention to financial and people, but then you're still going to have some time to obsess over that. I think this is a secret dream of almost everybody listening here. Because it means they don't have to deal with their clients the same way, that they're not selling their time, that it's more scalable, that it has their own imprint in something. Obsess over the product. This is the one that's probably the least obvious, but probably the most life-changing if you pull this off well.
Blair: I think so.
David: You and I both know firms that have attempted and failed, and then attempted and really succeeded well, so that would be a fascinating discussion for somebody to have internally at their agency. What's our most likely product to come from this?
Blair: Yes, premium product, premium price. Okay, well, it begs the question, what is our product? If we were a product company, if we were going to productize our services or build a product of some kind, what would that product be? Now revisit that product, let's take it as upscale as we can. What is the Hermès version, or the Tiffany's version of this product? What is the ultimate luxury brand version of this product? Again, these are all prompts, all questions, all things to consider in moving the culture of your firm up to one of premium pricing.
David: We absolve ourselves of any chaos you create in your wake as you do this.
Blair: Yes, we're just tossing out ideas. We cannot be held responsible for any of this.
David: The next one is hiring prompts, and you're suggesting that maybe one way to get out of your own pricing prison is to think about hiring differently.
Blair: Yes, and you've already brought up that example of somebody comes from a much larger pricing cell, so they have quite a different idea of what they might charge. Here's the prompt, where would you hire from? What is the market that's similar to the one that you serve, but it's far more expensive and maybe even more luxury? Where is the place, the segment of the market or the market itself, or maybe it's even geography, where if you hired somebody from that place who served that market, they would bring with them other ideas of what you should be charging? What's the well that you will draw from to hire these people who are more used to charging a lot more money? Now obviously, there's a downside here. These people tend to cost a lot more.
David: Yes, details.
Blair: Yes, small details.
David: Yes. You've developed an onsite two-day branding event that you hold on a client's premises. Maybe you're charging $25,000 for that. Maybe you need to hire somebody who used to work for Tony Robbins to help you think through how to repackage it, what the top end for that market could be, or maybe you need to hire somebody that works at one of the big consulting firms or something. I like this idea a lot.
The next prompt, the next category is to play the long game, which is kind of the opposite of some of the things we've been asking people to think about. Play the long game.
Blair: Yes, and back to the point I made about somebody offered a suggestion for my business the other day and I thought, well, that's not a long game. That's going to degrade the product over the long term. I think some of the things-- Technology moves so quick. AI, social media platforms change that quick, but everybody seems to always be rushing to the next big thing. Whether it's the marketing channel, whether it's the claims they're making, whether it's the use of AI, whatever it is. I think people who are playing long games can afford to be more patient.
The Apple Worldwide Developers Conference was just the other day, and I was really impressed with how Apple addressed the subject of artificial intelligence. I think the whole market was saying, you're too late to this game, you're too late to this game. Ben Thompson wrote a great piece saying they're exactly on time. They didn't rush it. They've thought through what is the best role of Apple and their use of AI, and it's using AI to better take advantage of all the personal information that's on your device rather than large language models, et cetera.
That to me is a great timely example of a business that is playing the long game. They probably were rushing behind the scenes. They're like a duck, their feet were moving really quickly underwater, but they look pretty calm on the top. They're not getting distracted by the wrong things, going all in, dumping $15 billion on the wrong things; looking at you, Mark Zuckerberg. What's the equivalent in your business? What's the thing that you're rushing off and doing now instead of working to build a long-term luxury brand?
You want to move upmarket? There are probably some people that you should have relationships with, people who should know who you are. There are groups that you should be spending time with. Don't take too much time, but you should be playing the long game with these ideas rather than rushing after the next fad.
David: The argument behind this to me too is that you need to be widely read. Outside of your deep expertise, you need to be reading all kinds of unconnected things and listening to weird sources, and trying to keep piecing all this together in your worldview so that you understand how your small part of it fits into the larger picture.
That's play the long game. The next one is, what would concierge-level service mean to your current market and the tiers above? I presume you're not talking about just serving clients really well, but having clients pay really well for being served really well too.
Blair: Yes. Take what you do now, whatever that is, and ask yourself, what does the concierge-level service of this look like? What level of service could you provide that you don't currently provide for which your wealthier clients might be willing to pay a lot of money?
David: Okay, I've got the perfect example for you of this. I'm working with a client right now who does on average $60,000 websites, and there's nothing particularly remarkable about them, but they have to be right and they have to be up and running in three days. There's a concierge level of service there that does include around-the-clock service, which most of us are trying to push back because of our own concerns about work-life balance, but they've just embraced it and are making $60,000 for a website that you'd probably pay $8,000 or $10,000 for normally, right? I don't want to say more than that because it's their marketplace. That's an example of concierge-level service and having clients pay for it, and they're thrilled to pay for it. They have a fantastic relationship with their client base.
Blair: I think I've talked about this before, but I was at an Avis rent-a-car counter pre-pandemic, and there was a sign there saying Avis Chauffeur. It's like, you don't really need to rent a car. You need to get somewhere. You're standing at the counter. How about we just drive you? How about we just put you into this ultra-luxury vehicle and we'll just drive you where you need to go right now? Maybe Uber Black has killed this, but that's an idea of concierge-level service. Some of your clients don't actually want to rent the car. They just want to get to the place and they want to get there with no hiccups and maybe in luxury and style.
David: Yes. All right, the next one is brand.
Blair: Make the brand luxury. Again, these are just questions, these are prompts for you to consider. How would you go about doing that? What about your brand-- and I actually quite dislike referring to agencies as brands, but let's play the game anyway. What about your brand would you change, could you change to make it feel more luxury? We're just talking about branding, we're talking about feeling, how it feels to your clients. If it feels that way to your clients, it can start to feel that way to your people. It becomes this upward spiral of positivity. Ask yourself, what can you change? What dimensions? The website, the language that you use on the website, the language that you use in speech, the way you show up on social media or maybe don't show up, the way you dress.
David: Your facility, if you have one.
Blair: Yes. Your Zoom backgrounds.
David: Oh, Zoom backgrounds, yes. Even your camera.
Blair: Yes, your camera with a nice depth of field. I was on a call yesterday with two people in two different locations, and they both had just amazing camera video setups, just absolutely amazing. You think of the shitty Zoom presences out there. You're making this claim of whatever your claim is. There's some sort of implied level of culture, sophistication, even luxury. How is that delivered, either accented or negated, through the shitty webcam and the horrible background, and the fact that your person just got out of bed and is wearing a wrinkled shirt? Now, you and I aren't on video, but I'm wearing a wrinkled T-shirt and I haven't shaved in two days.
[laughter]
David: Again, ignore what we do. Even your email signatures or your scheduling program. It's like you get used to this stuff, right? You almost need a fresh eye from the outside to say, all right, I want you to pretend you're a client of ours. We're going to go through the whole onboarding process. Where does it seem like it's not consistent? What kind of an image do you get? That would be a fascinating thing to try.
Blair: Yes.
David: The next one is actual pricing.
Blair: Last category. Maybe we should talk about changing your actual prices to create a culture of premium pricing.
David: Why not? Yes, let me go through the ones we've talked about. We talked about moving to the higher end of the market. We talked about combining disciplines to come up with some unique category. Obsessing over the product. Other hiring prompts about bringing different people in to change your market. Play the long game. Concierge-level service. Your own brand. The last one is actual pricing, finally. [chuckles]
Blair: Yes, so I have a few points under here. The first one is if you want to charge more, you're going to need a higher anchor price. That question of concierge-level service-- or I'll frame the question differently, not just around service, but what's the absolute most that you could do to deliver the highest degree of certainty that your engagements would indeed create the value that your clients are seeking to create? What's the absolute most that you could do? Do this as a theoretical exercise. You can do it for like an average of clients or you can take a specific client, and just brainstorm and come up with stuff that you've never done before, that you don't know how to do. Come up with something, put a really big price on it. The price is a function of the value that you're hoping to create, so put a really big price on it.
Now consider that to be your new anchor. You need an audacious new anchor price. If you don't know what I mean by anchor price, go back and listen to some of the pricing videos or buy my book, Pricing Creativity: A Guide to Profit Beyond the Billable Hour, available only at pricingcreativity.com.
David: You sound like a TV advertising guy, [laughter] ex-agency guy.
Blair: Find a high anchor, which is the really big price that you start with, where you say, all right, so if we get really creative and we think really expansively, the most we could do for you, it looks like this is priced at this really big number. The anchor option or service is there to make the other ones look more affordable. Their jaws hit their chest, they choke on the price that they're hearing from you. You explain what they get, and then you start to move to your other options that aren't priced as high.
If you want to raise your prices, you also need to raise your anchor prices. If you want to raise your average price, you need to be putting really highly priced options. They're not just more expensive. They're more elaborate or in some way, deliver a higher level of certainty that the value they seek to create will be created. You lead with those numbers, and then you have not quite as big numbers that come in after them.
David: Do you think that some of this is so dissonant for people listening that they might struggle to move this far upstream and they need to create sort of a premium sub-brand?
Blair: Creating a sub-brand or second brand, you and I call them Skunk Works projects, it's a great way to transition to a new positioning, and it would absolutely work here. Why you would create a separate brand, do the Skunk Works project, is if you're, for whatever reason, in fear of rebranding the mothership or changing the positioning or the trajectory of the main business. If you want to test a hypothesis, and this hypothesis that we're talking about is that maybe you can create a culture of premium pricing, then create a separate brand. I think that's a valid way to go about it.
David: Yes. When people ask me pricing advice, they usually only ask me once. [laughter] I say, well, I don't really have the science. You need to talk to Blair. What I say is best time to adjust your pricing is when you're pissed off or tired. Then I say, all right, right before you hit send on a proposal, you need to be afraid of how high it is. You need to be terrified of how full of yourself you are, right? There's no science in any of that.
You've been saying over the years that pricing generally needs to be higher, and there's a lot of science behind it. Here, what we're talking about in this whole episode is that part of this equation is the culture surrounding pricing too, the things that influence you, the softer things that might help you move upstream mentally and emotionally.
Blair: Yes, and there are more things on this list under pricing, but I think we've gone on a bit long. Let's pick one more, this last one. I'll write this up in a blog post, and you'll be able to find it on winwithoutpitching.com sometime after this episode airs. The last one we'll talk about is, who's responsible for pricing in the firm?
You should think about it this way. You assign pricing responsibility to the best pricers. Think of that new person that you've hired, came from the more luxury place, the pricing prison cell that they occupy is a much bigger cell with much bigger numbers. Have that person set pricing. Have the people with the I-don't-give-a-shit attitude- maybe that's not the right way to think about it, but the people who are comfortable with really big numbers, who are most likely to come up with big numbers and feel confident in defending those numbers, assign pricing responsibility to them.
The mistake is to assign pricing responsibility based on the role, "You're in this role, you get to set price," or seniority, "You've been here this long, you get to set price." Neither of those are great, responsible ways to move upmarket pricing-wise. Figure out who's good at this, and it might be-- there's a school of thought out there that says your pricers should be young.
David: They shouldn't be driving Honda Accords either.
[laughter]
Blair: They should be expensively dressed. They should want to make more money. The key thing is they should be able to say a big number in the same tone of voice, the exact same way they would say a small number. The size of the number does not appear to bother them. Give pricing responsibility to those people. Of all the things we've talked about, there's a certain segment of our listenership here, it's just the one thing that you should do right now. You should say, as of today-- you know who your horrible pricers are, you know who the discounters are, and you probably haven't even officially given them pricing responsibility. Everybody just assumed that you're in this role, therefore, you should be pricing. That's not how we should think of the role of pricing. We should assign it to those who demonstrate that they have the skills for it.
David: Yes, and often the worst pricers are the principals.
Blair: Yes.
David: This has been a great episode. Thank you, Blair.
Blair: Thanks, David.