Monday, October 26, 2009

Highs and Lows are the real Middle Ground: A good principle to "price" services

Many times over, people say, "good is the evil for great" and "mediocrity is least desired path for growth". I had my moments earlier too and the realization hit hard today.

In talking to my project team about a proposal, I realized that we had offered a low entry cost to break the barrier. Now when upgrades and maintenance is to be undertaken, we ourselves cannot come to argue with the fact that this should be lower than the initial price. Many arguments and points were floating around on how much could be a desired range and how much can be a climb down.

At the end, one of my colleagues said "You know we suffer from median syndrome. We never have a high-low or low-high price model. Take a look at product companies. Initial cost is high, while upgrades and maintenance are at a high discount price. We should follow a similar model or a reverse of it." A person who considers real estate business his forte said "Right. Either make it clear at start or keep a tight mix as in housing loan EMI: Initially a high premium + low principal which reverses as you move along years.)

True, either keep a higher price point for fresh work (consequently deliver equivalent value) and charge significantly lower for recurring services or keep an optimum price point for fresh work, but make it clear that the same price would be maintained in case of recurring services as well. (In analysis, low entry price and same price for recurring services means higher price for significant perceived low value of maintenance and support.)

Keeping middle ground is a difficult business. Have a high-low/low-high price mix in your arsenal to make good business sense.

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