Communicating value in service-oriented businesses, Part 2: Reframing value for maximum profits

Ok, let’s recap:

I did a case study on a small business, Derek Brad Photography, and determined that by constantly low-balling his prices, Derek was inadvertently giving clients the perception that his work was of a lower quality. This was consequently lumping in his professional services with years of experience with amateurs and hobbyists who just use photography as a sideline business rather than a livelihood–definitely an unintended by-product of bargain pricing his services. Industry leaders published research that indicated that three things had to be discovered prior to setting a price for services: 1) Figure out what you provide that sets you apart from your competitors–what value do you bring that  no one else does? why should someone hire you?; 2) Discover everything you can about target markets and prospective clients and make sure the services you offer measure up to their needs; and 3) Consider your business’s brand, image, and business model to make sure your prices “fit.”

Awesome. So, now that you recognize that your services have value and your prices have to reflect that, how do you communicate price increases to your existing clients without alienating them and to potential clients without scaring them off? After all, it is very probable that both current clients and possible future clients already have preconceived notions about you working for significantly low prices based on your history. This was certainly the case with Derek.

Keep_Your_Customers_Coming_Back_and_Have_Them_Bring_Their_Friends_w_ThemHarrison’s public relations research on value (2012) states, “The perception of value is one of the most important elements of pricing. If customers don’t think they are getting value for money, you have no pricing power – you can’t lift prices to maintain profitability without losing many customers. However, if customers believe they are getting value for money, they will remain loyal despite price increases.  Value is not just a single element (price); it encompasses a range of attributes of your goods and services for which customers are willing to pay.”

“Value can be taught” (Vickers, 2008, p. 386).  This is an extremely encouraging statement for photographers and other small business owners who struggle with raising prices in a way that will not anger and drive away existing clients who are used to paying lower prices and will not deter potential new clients from engaging their professional services.  The author goes on to say, “Viewed in relation to other costs and expenses involved in producing annual reports, magazine ads, brochures, direct-mail pieces, and multimedia shows, a relative commercial value for photographs can be determined and defended using the cool, objective logic of apples-to-apples comparison.  Advertising space rates, printing, paper, retouching, design, and mailing costs are available, through some research, for every project that involves photography.  But while these costs have steadily climbed, photographers’ fees have declined…They must recognize their value and learn how to negotiate it” (Vickers, 2008, pp.386-387).

Searching for a Niche Group - Magnifying Glass
Identify your target market, then fulfill their needs.

According to Berry and Yadav (1996), widespread pricing mismanagement plagues service industries in particular because businesses ignore the special challenges of pricing intangibles.  Creativity, lighting expertise, and turn-around times (among the countless other “invisible” conditions that go into creating an effective communication image) are all intangible assets.  “The key to improved services pricing is to clearly relate the price that customers pay to the value that they receive.  A customer may or may not look for the absolute lowest price available for a service, but everyone wants something worth the price he or she pays (Berry and Yadav, 1996, p.31).  Again, as Jackson pointed out, marketers and businesses must first understand what constitutes value for each target market.


This next paragraph is ridiculously important.

The perception of value can vary widely from client to client.  The purpose of value communication is to narrow the gap between perceived value and actual value.  “Value-based pricing will fail unless customers actually perceive the value that you create and are asking them to pay for…In fact, customers are generally ill-informed about the value of items they buy unless the seller proactively educates and communicates value to them” (Smith, Hogan, and Nagle, n.d.).  Ultimately, value communication exists to raise customers’ willingness to pay for the value they perceive.  It is important to determine the type of benefits buyers are seeking from a purchase.  Are they looking primarily for economic benefit, i.e. the lowest cost?  Or are they looking for psychological benefits such as comfort, status, appearance, pleasure, or personal fulfillment (Smith, Hogan, and Nagle, n.d.).  These questions relate directly to Jackson’s advice to know your target market and what they value most and will help business owners in deciding effective tactics to use in communicating value of goods and services.

Derek Brad Photography engages in B2B and B2C business.  Generally speaking, B2C customers (typically those who purchase prints of their favorite musicians) are looking for economic benefits.  B2B customers are more often looking for the psychological benefits of Derek’s talent value because they are marketing to clients of their own and need images that reflect well on the agency and are effective in selling for their clients’ purposes.  In the experience of Derek Brad Photography, the clients looking for psychological benefits, i.e. advertising and marketing firms, are willing to pay much higher prices for Derek’s products and services.

Perception of value is usually very subjective.

Effectively communicating value to psychological benefit seekers can be tricky because the perception of value is usually very subjective. It’s like the beer goggles of marketing. “The key to influencing perceived value for such products is to help buyers make connections between the differentiating features they recognize and the possible psychological benefits they could gain.  One of the most effective ways to do this is by reframing the way the customer views the product or service differentiation, not in terms of the product’s immediate attribute performance (‘this razor will give you a closer shave’) but in terms of a possible end-benefit (‘the shave this razor gives you will make you more attractive for an evening out with your date’)” (Smith, Hogan, and Nagle, n.d., p.10).  Therefore, it was important while creating the public relations and marketing plan for Derek Brad Photography to choose the most valuable end-benefit that could possibly be associated with choosing Derek for a photographic assignment for each target market segment.

Once a business has a notion of what kind of value it can offer, has examined its target markets for what kind of values they are looking for, sets a price reflective of that perceived value, and can propose the price in terms of end-benefit, how can it overcome preconceived notions about what a price “should” be? Stay tuned for the final installment of this series of posts. Pins and needles, folks!

Be sure to subscribe to this blog or check back later for the next installment. You can also follow me on Twitter @laurakate79 or like me on Facebook to join the conversation and get updates. And as if that wasn’t enough, you can also follow me on Google+ and LinkedIn.

Again, don’t forget to check out Derek’s work at Cool stuff!

Open Air. Photo by Derek Brad.
Open Air. Photo by Derek Brad.
Chevelle. Photo by Derek Brad.
Chevelle. Photo by Derek Brad.
Kimbra. Photo by Derek Brad.
Kimbra. Photo by Derek Brad.
Sabers at Flyers. Photo by Derek Brad.
Sabers at Flyers. Photo by Derek Brad.
Philly Skyline. Photo by Derek Brad.
Philly Skyline. Photo by Derek Brad.

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