The Five P’s, Pricing and Picasso
Anybody that’s done a course in marketing will have heard of the ‘Five P’s of Marketing’. The theory is that Product, Place, People, Promotion and Price, when approached correctly, can combine to create the perfect ‘marketing mix’. Most of us are comfortable with the first four p’s mentioned – even if we don’t always have the magic answer to how best to get our products in front of people at the right time and in the best manner.
But being British, price is something we so often avoid talking about.
Yet price is such a fundamental element of doing business. Failure to price your products and services correctly can mean the difference between success and failure. Under-price and you risk failing to meet your overheads and outgoings – meaning you could be operating at a loss. Overprice and you won’t be able to secure the business of customers so even if you have the best product or service on the market, you won’t have a viable business.
When it comes to pricing, different strategies can be taken when selling a product vs a service. In some ways, selling a product is easier to price – or at least easier to justify a price. After all, there are underlying costs to account for – from raw materials to the cost of manufacture, the cost of overheads and delivery of the final product can all be quantified, allowing a markup to then be applied and a price put forward.
Pricing a service can be somewhat trickier. After all, there is no ‘end product’ to be able to show potential customers – nothing tangible that people can hold in their hand to assess whether they’re getting value for money or not. People in creative industries or others that sell a ‘service’ often have a choice of whether to charge by the hour of by the project – each of which comes with its own benefits and potential drawbacks.
I was recently having a conversation about this very dilemma when the person I was talking to mentioned the Picasso story and the concept of ‘Value Pricing’. I couldn’t resist looking into this further and what I found is something I will take forward and wanted to share on my blog.
In this simple story, a woman approached Pablo Picasso in the park and asked him to sketch her portrait.
After studying her for a brief time, he put pencil to paper and shortly after produced a portrait.
Delighted with her work of art, the women asked how she owed the artist.
“5000 dollars”, was the reply.
Shocked, the woman asked: “How could you want so much money for this picture? It only took you a second to draw it!”
To which Picasso responded, “Madame, it took me my entire life.”
Clearly, most of us aren’t Picasso and aren’t able to justify this sort of price for a few minutes’ work. But the story neatly demonstrates that charging by the hour can sometimes do you an injustice.
Furthermore, the story goes to show that to get to a point where you can charge a good rate for the service you provide, you’ll have had to put in many hundreds of hours of work. You’ll probably have honed your craft and become a specialist in your own right, and undoubtedly had to start off under-pricing your services to create a portfolio of work.
So the moral is…don’t be afraid to stick to your guns when trying to win work. be confident in the service you provide and remember the hours of work you’ve had to put in to get there.
If you find yourself trying to win work on price and you get to a point when you no longer feel comfortable, have the courage to walk away. You won’t end up begrudging the work or the client and even if you don’t win the business, you’ll almost certainly win a bit of respect.