Marketing: 2 of 4Ps
PRICE: Is it RIGHT or is it WRONG?
In the best of worlds, product launches are thoughtful, labor intensive risk-taking with marketing strategies firmly in place. Before investing in a new venture, four key marketing factors are carefully defined: Product, Position, Price and Promotion. Get any one of these wrong, and results will be less than stellar. Whether it’s widgets, consumer goods, or professional services, knowing the 4Ps will achieve maximum results with minimum effort. Ethics should be a part of pricing, but that is not always the case.
Here's an example; genital herpes is a painful, recurrent and debilitating disease that still has no cure. A friend of mine described it as being on fire from the inside out. When a repressive agent for the disease was discovered, a marketing team used focus groups to decide price. Questionnaires asked, “How much would you pay for relief from this condition?” Respondants answered “$100 a day” and “everything I have”. The questionnaire continued with price ranges, feeling out the market for how much is too much and what the market would bear.
Let’s take it one step further and ask if you were dying, how much money would you pay to stay alive? The exchange of money for curing human ills is a sordid business. It would be interesting to see how they determined the $360US price of the new cervical cancer vaccination that must be renewed each year. How many days this year would you like to be protected from cancer? Would a dollar a day be too much? Sheer unjustifiable extortion or an assumption that poor people don’t have lives worth saving?
A popular topic of conversation on message boards and forums is price; how much should I charge for what I do? Setting the right price is very important when marketing professional design services. Set it too low, and you may lose potentional clients who suspect shoddy work for bargain prices. Book writers without real world experience have some radical ideas about freelance fees including suggesting you use the average income of a full time designer in a corporation as a basis—an annual income that has no bearing on your expenses, range of projects or reasonable price expectations in your practice area. Base your charges on the range of services you offer and juggle that against your level of expertise and education; with a pinch or two for taxes, overhead, and a few bob for that yacht. Also consider that a well educated, seasoned designer can produce more quality work in an hour than a novice who is still learning. A client shouldn’t have to pay for time spent figuring out how to do the job, or trying at random a dozen or more typefaces because of uncertainty.
If you still aren’t sure about how much to charge, try an anonymous poll with competitors in the area by putting out a small job for bid. What should you say? You’ve got a small job you’re subcontracting out. Here's an excellent article on pricing strategies that appeared in Communication Arts Magazine. But this article walks you through what works and what doesn't; and was written by a person who faced the dilemma from every angle. Remember to consider skills, speed and know-how when comparing yourself to the competition. Be careful to include your cost of living—a freelancer in New York City or San Francisco should charge a great deal more than a designer in Beaumont (TX) because overhead is higher. In general, when setting pricing parameters, don’t rely on prices quoted in books or you'll price yourself right out of work. A unique style and experience require a price that reflects the value added services you provide. Don’t cast pearls before swine by selling yourself on the cheap and never work for free.
Anyone charging $25 an hour to create original art makes me wonder where they rank themselves among professional services and trades. Even in rural areas, plumbers charge $75 an hour plus a service fee. “Lady, it’s $50 just to see my face, then it’s additional for the work.” Attorneys charge upwards of $450 an hour. Is knowing how to unclog a sink or understanding the law much different from all the knowledge required to take a project from concept to print or develop a corporate identity? As a matter of fact, basing the value of design work on sheer sweat and knowledge alone must demand a higher premium than pipe jockeys, especially since we’re producing original art. Custom prices for custom work and don’t forget to add that 15% sales commission for outside services like printing.
Thinking of freelancing for a living? Tired of doing the boss' castoffs? Better get some good advice on how to protect yourself from those who would rape and plunder your creative talents. Look for more stories and adventures in advertising design in my book Start and Run a Creative Services Business. It's filled with great links and a full spectrum of experiences. Not an artist? You'll be in stitches as you follow the pitfalls and adventures of self-employment. And if you've been freelancing for a while, you'll find new information and a trustworthy mentor to stand by your side through thick and thin in Start and Run a Creative Services Business. Excerpts are available online at my website.
Susan, it's always good to read what you write. In this case, I'd settle for solidly dissecting the first-up "product pricing" issue, especially since it's an area in which marketing communications people (designers, copywriters, etc.) rarely have influence.
Q1: Do we want to have influence on a company's or a client's product prices?
Q2: Why is our influence desireable in such instances?
Q3: What impact does the product's price have on the "cost versus value" position, and where do we (as marcomms professionals) want to put the emphasis when we're creating ads, brochures, etc.?
Those questions being posed, here's a conundrum for your readers. When it comes to consumer goods, all of us have opinions since we're consumers, right? We know what a tube of good toothpaste ought to cost us. Are we switching to Crest, which just supplanted Colgate as the market share leader; or are we buying a store brand? We'll have a qualified opinion about the price.
But how many of us "know" the appropriate pricepoint of a polycrystalline diamond drilling bit or a year's worth of data management service for a large accounting firm? Here, we're less qualified to make a judgement and, unless involved and informed, might want to keep our opinions to ourselves.
Isn't this the same problem as the cervical cancer vaccination? How do we "know" what its pricepoint should be?
SDK responds: Here's the distribution of revenue from the drug Lipitor, manufactured by Pfizer.
Clinical trials: 10%
Manufacturing: 5%
Marketing and sales: 25%
Profit: 60% Sheer greed.
Their annual revenue is $48.4 Billion ($12.9 Billion is profit).
Source: New York Magazine 06/11/2007 p45
I am very interested in your article as it contains some conflicting ideas to what I've read in other articles. First up, I do agree with your analyses and discussion. I am just very curious as to why other "professional" have other opinions.
For example, the point about not working for free. I totally agree. However, I have read in a very reputable graphic magazine (Computer Arts, I think) that working for free is a fact that you have to accept if you want to go into a new market/client's book. What they mean is that if you want to be considered, you have to show what you can do and provide sample specific to the brief etc. This applies to both newcomers and professionals. I disagree. If I can show some of my work, and I have other equally reputable clients, do I need to show them that I can design a concert poster as oppose to a dance competition poster?
But on the other hand, I did encounter clients who want me to design something for them to see. They want to know that I have worked for exactly the same kind of companies, or else, I will have to show them - or to charge less. How do I know that they won't look at my work, think it's great and then hire a student to copy it? Or just look at my work and say "thank you"? And I have wasted all this time? Both have happened before. But if I don't do it, I am immediately out of the race.
Another interesting point is your pricing example. Again, I agree that one's rate has to be reasonable. But what is reasonable? My experience is that some times, clients don't really care how many years experience you have, or what you shown them. Yes, they like my work, but when I quote a $100 hourly rate, they were "shocked" as everyone else is only charging $50. The "everyone else" may be students? Professionals? I don't know. But when my colleagues did a marketing survey, we did find that some seasoned freelance people are charging a lower rate than I expected. They are usually a one-person operation, and I have a small firm with a few people.
I think my question is - when you are faced with a market where there are a lot of people who are willing to work for much less, and clients goals are the best bang for the buck, what can you do? I must admit that some newcomers and students are doing really good work. But because they are so eager to get in, they are giving work out for free or charging rock bottom rate. What is an established firm to do?
Interested to hear your view.
SDK responds: Only amateurs work for free. Even charities who ask designers to work gratis do so in exchange for printing commissions and publicity. Create your own assignments to fill your portfolio; asking a potential hire to offer ideas as part of the interview is just somebody trying to get something for nothing. Don't fall prey to this scam. Clients who complain about your rate after the work is done (even though you informed them of your rate prior to the work) are cheapskates who never intended to pay your asking rate. Get a copy of my book and read "Scoundrels and Scalawags, Piranhas and Barracudas" which will help you identify these idiots before you take them on. Also, own up to the fact that just like any other business, you have to qualify your clients; are they capable of affording your services? More often than not, they are just misers looking to keep a firm grip on their cash. Trust your gut reaction and RUN. OR only work on a retainer; collect the money up front and stop working as soon as it runs out. As far as being out of the race, it's not a race you should want to be in. Work smart or accept amateur status.
Susan: in regards to your Pfizer statistics, it's possible that the company is "paying" for its lopsided profits.
On 6 June, The Wall Street Journal reported thatt the Supreme Court rejected an emergency appeal from Pfizer Inc., which has been trying to delay generic-drug companies from offering an alternative to its hypertension drug, Norvasc. In its emergency-stay request, Pfizer stated that it gets more than $150 million in revenue amonth from Norvasc. The drug maker asked the Supreme Court to temporarily freeze a May 2007 federal appeals court ruling that opened the door for generic competition for the drug. The company said a delay was needed to give the high court time to consider its appeal of the lower court ruling.
The same source reported on 30 May that officials in Northern Nigeria filed a $2 billion civil case and were preparing criminal charges against Pfizer, accusing it of conducting a drug experiment that led to deaths and disabilities in a group of children more than a decade ago.
I offer these factoids to suggest that [a] you're right to disdain Pfizer for its "sheer greed" and [b] that the company, while greedily making profits, is still not completely favored by its shareholders, let alone the rest of its stakeholders.
At the same time, the company's story in terms of "Corporate Citizenship" makes for worthwhile reading. It is difficult to see how much the company has given back to the world in sheer monetary terms. But we know what Pfizer's CEO takes home. Hank McKinnel has taken quite a public thrashing because of his $83 million lump-sum pension, his $16 million in total comp last year, and his stock's 42% decline since he took charge in 2001 as proof of pay for nonperformance. (This is from a 2006 article.)
Using Pfizer as your example points to a bad actor, despite McKinnel's attempts to deflect attention to his salary.
Although I stand by what I said earlier about value pricing, I would personally appreciate much more transparency from these companies.