PSU Insight

Setting Your Fees and Prices

The Danger of Competing on Price

As you have seen, there are a variety of reasons to set a low price (or lower your price) on a resource, including making the resource more affordable, increasing sales volume, or using a “loss leader” to increase sales in other areas. But there is one reason that you should not consider when lowering your prices… competing on price.

The problem with getting business by having lower prices than your competitors, is that your competitors may choose to lower their prices to match yours. In such a case, you have little choice but to lower your prices still further, and your competitors soon follow suit. When you’re no longer making a profit, you cut your costs so you can cut your prices still further.

Look at the airline industry in the United States. For years, they enjoyed price protection through government regulation. Then the airlines were deregulated. Deregulation itself isn’t a problem, but the way the airlines responded was disastrous.

They began to compete on price. A price cut by one airline was matched by a price cut by the others. The American consumer initially benefited from cheaper airfares, but eventually airlines started to curtail their services to survive.

In just a couple of decades, flying in the US went from an enjoyable adventure to a dreaded necessity.

Now, it would seem that I’m talking about pricing your physical resources (books, CDs, etc.), but actually I’m talking about your speeches. Many speakers are unfortunately choosing to compete on price… and in doing that, they’re in danger of being perceived as a commodity.

How can a speaker be a commodity? Simple. When a CEO of a company tells her meeting planner to “find me a $3,000 speaker” and he finds you, you’re a commodity.

Now you might not see the initial problem in this. After all, you’ve been “found” and you’re getting your fee, so what’s the problem? The problem is that you’ve been “found” but not necessarily hired; and whether or not you’re hired will depend on how much benefit the meeting planner feels he is getting for his buck (or, actually, his three thousand bucks).

One of the first questions the meeting planner will ask you is “is your fee open to negotiation?” Of course, you can always say ‘no’… but the meeting planner will ask that same question of all the other “three-thousand-dollar” speakers that he finds. And if only one of them offers comparable “bang” for less money, you probably won’t get hired. (After all, the meeting planner can use that $500 he saved for better hors d'oeuvres at the cocktail party or T-shirts for everyone!) And if your fee is open to negotiation, you might have to match the low fees of your most desperate competitors.

But picture this alternative — the CEO tells the meeting planner “Get me [insert your name here] for my event!” And so the meeting planner calls you and asks how much you charge. If you’re within his budget, congratulations — you’re hired! (And if you’re not within his budget, then it’s his problem to find some way of making it work. After all, the CEO wants you.)

And isn't that a lot better?

In summary, there are a number of reasons why you might want to price your programs inexpensively. For example, you might want to “break into” a new target market, you might want to make yourself available to a market that couldn’t otherwise afford you, or you might want to offset your diminished fee income with an increased income from product sales. But you do not want to compete with other speakers (or other forms of competition) on price. Do that, and you become a commodity. Become a commodity, and you’re on the path to financial ruin.