Saturday, May 18, 2013

Should You Tell Customers the Cost of Running Your Business?

Last week I was asked to critique a piece of pricing communication. The one page document was designed to be printed and placed on the front desk of a professional services company to inform clients of the expenses involved in running the practice. Is this a good idea?

The one-page, A4 document contained words roughly along the lines of the following:

To operate at our best, and provide you with the best possible service:

Ø  We stock a wide variety of drugs, preventatives and nutritional products;
Ø  We keep our medical records software up to date;
Ø  We also have the latest laboratory & diagnostic equipment;
Ø  Our facility incurs rent or mortgage payments, utility costs and property maintenance, as well as repairs fro time to time, and;
Ø  Our staff receive on-going professional training and development

While there is no doubting these are legitimate expenses that may be incurred in running a medical practice, there are a number of things I don’t like about this approach.

Firstly, it is specifically designed to take away the need to have a conversation with the customer about pricing. I come from the opposite school of thought: that professional service firms should talk to customers about their pricing as early as possible.

Get the pain out of the way early, and remove the risk of buyers remorse, invoice shock or any last minute umm-ing and argh-ing about “what’s all this going to cost me?” It's the opposite of what hotels do: spread the pleasure (during your stay) and concentrate the pain (of the invoice, when you check out).

Secondly, the document is designed to justify a price increase, which is being attributed to increased costs associated with running the business. The natural response from the customer to this is “well, that's your problem. I don’t care about your costs”

Finally, this is a one-off piece of pricing communications which, when the dust has settled on the price increase, will no doubt be assigned to the rubbish bin. If however, it was a value communication strategy, it would continue all year round, because value-based pricing is a process, not a project.

In critiquing this pricing communication, I drew an analogy with Coca-Cola. Does Coca-Cola try and tell you what the cost of the can is, what the cost of the syrup and other ingredients is, or how many standard minutes of a person’s time was spent on creating a can of Diet / Zero / Cherry Coke?

No…because no one cares about costs. They tell you it’s the most refreshing drink on the planet, because refreshment is the value it provides. 

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