Turning Clients Into Penny Pinchers

I was recently referred to an entrepreneur who was struggling in their business, specifically due to a pricing decision they had made. In an effort to jumpstart new client acquisitions, this business owner cut prices.

As they told their story, I asked a question.

“Let me guess . . . the price cut applied to all clients, right?”

“Yes,” she mourned.

“Here’s what makes it so bad: the people who used to be my best clients? I’ve turned them into penny pinchers. From the moment I cut my prices, they are scraping and angling for every little discount or concession they can get.”

Clients are Value-Sensitive Until They’re Not

Most clients are value-sensitive, not price-sensitive. Sure, everyone cares about the price they pay, but most clients are value-sensitive.

Value is the tangible and intangible benefit clients perceive they are receiving because of your work. For a consultant, let’s say, the tangible value may be additional revenue, lower expenses, or some other concrete benefit that is the primary reason for the engagement.

The intangible value received is what the client is able to do because of the successful outcome of?the project. Those intangibles might be how additional profit realized can be used to add key employees who, in turn, allow the business owner to focus more on the business itself and less on day-to-day, tactical decisions. Further, in turn, the business owner, because of those additions, might enjoy less stress, more family time, and experience joy in their business that they did not feel before. Those benefits are real and meaningful, yet intangible.

Yes, there is a segment of customers, for any good or service, who care only about the price. Most clients, however, are value-sensitive, not price-sensitive.

The story of this business owner illustrates a vitally important principle: if you decide to make the buying decision in the heads of your clients all about the price, however, even the majority—the formerly value-sensitive clients—are happy to go along for the ride.

You can turn formerly great clients into penny pinchers.

Pricing at the Golden Arches

There’s a version of this story happening at McDonald’s currently.

In late June, in an attempt to revitalize lagging sales, 麦当劳 announced a “limited time,” $5 Meal Deal. The deal included a choice of a McDouble or a McChicken, 4-piece Chicken McNuggets, small fries, and a small drink.

The deal was initially conceived as a limited-time offer for four weeks. It’s been extended, however, to the end of this month.

The risk of this strategy is what happened to the business owner I mentioned earlier: leading with price makes all clients price sensitive.

It's early, but there's evidence suggesting that's what's unfolding at McDonald's right now. A recent Bloomberg report noted:

"One potential downside of the value meal expressed by franchisees is that the promotion would push some customers to trade down to cheaper options. That appears to be happening. Average transaction values declined from a year ago each week between June 23 and July 21, according to Second Measure, which tracks a subset of US credit and debit card transactions."

McDonald’s has a lot of problems that go beyond this particular issue. One of the biggest problems they have, in my view, is that they use the word “value” to describe lower prices. In their world, it seems, "value" has no relation to customer perception of benefits received, like the joy of biting into a tasty hamburger.

If you’re a solo or small firm professional services provider, don't make this mistake. It could put you out of business.

A Happy Ending

McDonald's is a behemoth, with an amalgamation of company-owned stores and franchisees that generated $6.5 billion in sales for the last quarter alone. They are the proverbial battleship in the bathtub.

A solo or small firm professional services provider can adjust and recover. That's what our business owner did.

They not only restored their prices, they raised them. They did so after a reset of their understanding of where their clients perceived value in their service offering.

They recalibrated their understanding of what "value" means.

"Even my worst client," they reported, "is rising to the occasion."

#pricing #pricingstrategy #b2b #smallbusiness #pricevaluejourney

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Business consultant and coach, author, and podcaster John Ray advises solopreneurs and small professional services firms who sell their expertise on their two most frustrating problems: pricing and business development. John is passionate about how changes in mindset, positioning, and pricing change the trajectory of a business and the lifestyle choices of a business owner. His clients are professionals such as consultants, coaches, attorneys, CPAs, accountants and bookkeepers, marketing professionals, and other professional services practitioners.

John is the author of the national bestselling book, The Generosity Mindset: A Journey to Business Success by Raising Your Confidence, Value, and Prices. The book covers topics like value and adopting a mindset of value, pricing your services more effectively, proposals, and essential elements of growing your business. The book is available at all major physical and online book retailers.