Price sensitivity depends on market conditions:
-
oversupply
-
supply/demand in balance
-
small oversupply
-
severe shortage.
Your pricing need not necessarily correlate with your production cost, but must mesh with your business strategy.
Beware "loss leaders" in professional services
“Loss leaders” are where you reduce your price to a low level - even lower than your real cost of production - to win business.
Reducing price to “loss leader” level to retain or obtain a client can be dangerous. Beware !
- it’s easy to be deluded
- it rarely works as intended
- consider alternatives
- learn to re-cut some work to fit within a price.
Price sensitive work tends to be
- high volume
- mass markets
- little or no differentiation
- huge profit opportunities for firms who get it right !
Price insensitive work
- unique, highly differentiated
- specialist
- innovative
- high commercial impact
- brand, reputation dependent
- low volume
- huge profit opportunities, again.
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