Relationships, Transactions, and Pricing

Recently, Jason Cohen featured two blog posts about pricing. Sacha Greif talked about how his research and thinking yielded a low price with high volume approach. Jarrod Drysdale rebutted with a tale of a high price and low volume strategy where he made more money. Amy Hoy got involved in the discussion both on HN and Jason’s  blog. She and Jarrod championed the high price model. It’s a good model. And she is correct in her assertion that higher prices make it more likely that you can continue to provide an exceptional service level to each customer. Sacha maintained that you could make money and address a wider audience with a lower price.

I recently read Bargaining for Advantage and it’s got me thinking about how to view these decisions in life and in business. There is a section in the book that outlines several types of situations where people engage in bargaining. One of the key factors in how he suggests you should bargain is based on whether or not you expect to have a continued relationship with the other party or if it is simply a transaction. Groceries are usually a transaction. Even most cars and houses, but most business interactions are best viewed as a relationship.

Relationships mean that you might not bargain as hard and you’d let the people on the other side of the table know it. Relationships mean creating more value than you capture. Relationships mean understanding the other side of the table and what goals they have not only for this deal, but also in life. Relationships are what build careers, reputations, and (I think often) wealth.

It’s easy to see most decisions, moments, and interactions in life as transactions. Walking by someone who drops things in the park. Seeing a neighbor struggling to load a truck. Passing by a forum post or email with a question you can answer. These aren’t transactions in a business sense, but even in helping out you can treat it like the beginning of a relationship or a momentary hassle. Relationships don’t scale. They can’t. And that is why they’re special.

In the end, I think there’s more than one way to skin a cat. Amy’s method allows you freedom to pour a lot of attention into a faithful few. I’m sure that can forge powerful relationships. Sacha’s method of selling for less is relational in a different way. I think people understand the value in his offering and it builds the bridge to start a relationship down the road across a wider audience (similar to Customer Perceived Value). You can’t always start with marriage and million dollar deals. Sometimes it helps to start slow. The level of “know, like, and trust” required to make a $3.99 sale is different than a $3,999.00 sale.

Ultimately, the approach to pricing depends on where you are and where you want to be.  The money won’t make you happy. Relationships can help with the money and the happiness. Pick the one that works for you.

 

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