December 29, 2008
A friend of mine is a fantastic freelance writer. After telling her how great she is, she asked, “So if I’m that good, how come I’m not working now? Tough market out there.”
Yes, it is a tough market. But I suspect that is not the reason she can’t find work. She has fallen into the trap of believing that being good is good enough. It’s not.
I often tell other professional speakers… “We are not in the speaking business, we are in the marketing business.” Or maybe more accurately, we are in the marketing and innovation business.
The late, great Peter Drucker once said, “You get paid for creating a customer, and you get paid for creating a new dimension of performance, which is innovation. Everything else is a cost center.”
His perspective is brilliant. I particularly love that his definition of innovation is not focused on creating new products but rather on “creating a new dimension of performance.”
If your business is not as successful as you would like, maybe you need to focus more on marketing and innovation.
March 7, 2008
Last night I attended an event where three presenters shared examples of how “New Media” has become a powerful marketing tool. Here are my three favorites.
The best video series award goes to the “Will It Blend” videos. Done as a viral marketing campaign, Blendtec, a small blender manufacturer, developed dozens of 90 second videos. What do they do? They put random objects, like marbles or glowsticks, in their blender. They are hilarious and they definitely convince you these blenders will pulverize anything. What I particularly like is that these videos are developed on the cheap. Click the video above to see them blend an iPhone.
The best “spoof” award goes to the “rap” videos developed by Smirnoff Raw Tea.
The best use of New Media award goes to the “Stay Smart” campaign by Holiday Inn Express (done by Digitas). My favorite piece is the “See what the candidates could’ve saved by staying at Holiday Inn Express.” They went through the public records of hotel expenditure of each Presidential candidate during their campaign and then estimated how much they could have saved had they stayed in a Holiday Inn Express. This campaign was timely, funny, and created a splash. Even Mike Huckabee was asked about his hotel expenditures on Fox & Friends. You can’t buy that kind of publicity!
February 27, 2008
I was having a conversation the other day with the CEO of a small and growing company. We were talking about innovative pricing models that could help attract – and then lock in customers. Although there are many models out there, here are three I find particularly interesting.
The Consumable Model
With this model you give away (or sell at a reduced cost) a product that has a consumable portion to it. Give away the razor and people need to buy the blades. Get a cell phone, and you need to buy minutes. Buy a printer and you need to buy toner. The consumable portion can be sold on an as needed basis (the consumer needs to buy), as a subscription (you get a set amount each month – such as cell minutes), or as an automatic replenishment (use and we resupply). Staples recently introduced “Ink Drop,” a NetFlix style automatic replenishment for printer ink. Send in the empty cartridge and they will automatically send you a new one. I discussed this concept in my entry on analogy driven innovation.
The Substandard Model
With this model you sell a product or service at a significantly reduced cost, knowing that people will want to (or need to) upgrade at some point. I worked with a large computer manufacturer a number of years ago. Their top of the line product was out of the price range of many companies. So they offered a scaled down and slower version that was quite affordable. Here’s the interesting twist. The slower model was exactly the same computer as the top of the line model. All they did was add a chip to slow it down! They knew that many companies, once the computer was installed, would want the costly upgrade. To do so, they would simply remove the rogue chip.
The Freebie Model
This model is growing in popularity (I suspect it was originally invented by drug dealers looking to hook new addicts). Give a product/service away for nothing. Then, as they want more – or have increased needs – you start charging. This is particularly useful for web-based products where the cost of delivery is inexpensive bandwidth or software. Offer a base product for nothing. Although you may limit the number of users or the number of features, it is a fully functioning product. This is not a trial. Many website offer free versions of their base product, but charge a subscription for their “gold” level features. Adobe did a brilliant job of offering the Acrobat pdf reader for free. This created an industry standard…and helped sell their pdf creation software.
Are you looking to attract – and retain – new customers? If so, try these three models. With some creativity, I am confident that all of these models can be applied to your business.
What other innovative pricing models have you seen?
January 23, 2008
A recent blog entry of mine focused on how price impacts perception. Today’s topic is on how perception drives price. Many times, the cost of something is driven by what we paid in the past – even when the rules have changed.
Seth Godin recently wrote about how Apple will be charging $3 for online video rentals. This price is roughly what BlockBuster and others have charged in the past for their physical product. But with digital content, the rules have changed. Although productions costs are significantly less for downloadable videos (there are no manufacturing and distribution costs), the price remains the same.
What we paid in the past often drives what we are willing to pay in the future. Sadly, this not only robs consumers of better pricing, but it might also rob an industry of a game changing opportunity. If movie studios charged only $1 per rental, it might wipe out the piracy. I do like the new Netflix online streaming video model: unlimited viewing for one fixed price. Time will tell how this all shakes out.
The point is, price is often determined by what we paid in the past, not by value or even by production costs.
Oscar Wilde once said, “A cynic knows the cost of everything and the value of nothing.”
I did an experiment a few years back. I called it PW3 – “Pay What We’re Worth.”
In determining the fees paid to a professional speaker, traditionally the speaker sets the rate before the work is done.
With PW3, as an experiment, I turned this model upside down. Instead of quoting a standard rate, the client would determine my fee after the work was done.
The plan was to send the client a blank invoice after I gave a speech, and they would pay “what I was worth.”
The only stipulation was that we would have a conversation about value up front. I wanted to learn the value they got from previous speakers. How were the concepts reinforced after the presentation? How were ideas implemented? How was value measured?
What I discovered was that Oscar Wilde was right. Companies were happy to pay me what they paid their last speaker or what they had in their budget. Discussions of value were often painful and fruitless.
The result? Nearly all of my clients that year opted to pay my standard rate.
Only one client applied a subjective value system. They surveyed all of the attendees after my speech. If I received a 5 out of 5, I would receive 100% of my standard fee. A 4 out of 5 would yield 80% and so on. Of course this is not a measure of real value.
In your life, how do you determine what you are willing to pay for goods and services? Is it based on what you paid in the past? Is it determined by how much money you have in your bank account? Or is it determined by the “real” value you receive?
In your business, how do you determine what you will pay your employees or consultants? Is it based on market rates (which may or may not be a determinant of value)? Is it based on your budget? Is it based on what you paid your last consultant? Or is it based on the “real” value you receive?
Don’t be fooled. Value and cost are not related. Stop being a cynic. Determine the value of everything – and decide what you pay based on that.
January 18, 2008
I wrote a blog entry entitled, “How to Lose a Sale By Charging Too Little.” In it I describe why charging too little reduces the perception of value.
According to a recent Stanford Graduate School of Business study, there are biological reasons why price impacts perception.
Subjects were given a number of wines for tasting and were told their price. Some of the wines were given to tasters more than once, with a different price tag each time.
What did they find?
The same wine, when given a higher price tag, tasted better.
Surprisingly, according to fMRI scans, the pleasure centers of their brains light up more, even though the “taste” centers do not. The body knows the wine tastes the same. Regardless, it is enjoyed more when it is more expensive.
“We have known for a long time that people’s perceptions are affected by marketing, but now we know that the brain itself is modulated by price,” said Baba Shiv, an associate professor at the Stanford Graduate School of Business, and one of the authors of the study.
As the recession looms on the horizon, companies may be tempted to drop their prices to stay competitive. But there may be powerful biological reasons not to do so. Price can drive perception. And perception is reality.