Before we start, we would like to thank Toronto wedding photographer Calin (www.bycalin.com) for his contribution to this article.
There are quite a few ways of pricing a product or service ranging from randomly picking a number, during a comprehensive cost analysis and adding a markup or following the pricing leader in a specific marketplace.
Regardless if you are a wedding photographer, officiant, planner or DJ or own a photo booth, clients will ask you to provide a list of packages to your potential clients. Understanding different pricing methods is paramount for any professional who intends to grow his or her business in the competitive wedding industry.
Value-based pricing is that price that takes into consideration the perception of value of a product or service in the eyes of the client. Please note that this perception can change depending on season, geographic location, and other factors. An obvious example is the price of a commodity, water. A bottle of water costs $0.50 in a grocery store when bought in bulk, while a vending machine placed in the desert could sell it for over $10.
The Coca-Cola Company adopted a value-based pricing approach and built an algorithm that would increase the price of their beverage sold through vending machines when the outdoor temperature increased. Even though such a model is often used by airlines, hotels and car rental companies, the Coca-Cola executives found themselves in hot water when the customers recognize the scheme devised to increase the company profits.
We are not advocating pricing discrimination! Pricing discrimination means offering the same product or service at different price points to different clients.
For example, a form of price discrimination is charging a percentage of the wedding budget. This pricing method is often employed by wedding planners who charge different fees for exactly the same services depending on the wedding budgets. For example, a bride who has a $50,000 budget will pay $5,000 for the wedding planning services, while another bride who has only a 30,000 budget will end up paying only $3000 for the exact same wedding planning package. Different weddings should not command different prices only because a couple has a larger budget.
In our opinion, that pricing technique is unfair and should be avoided at all costs.
It is very important to keep in mind that the same product or service can represent different values for different segments. A segment is a homogeneous category of clients with similar income, willingness to spend, preferences, age, social category, etc.
In order for the value-based pricing method to be effective, the wedding professional should know her clients. What are the products and services a bride values and more importantly, she is willing to pay for? It is crucial that we capture that value and are paid for it.
For example, a wedding photographer knows that nowadays most couples want to do an engagement photo shoot and are willing to pay for it. Still, sadly, most wedding photographers include that service in every single package. That limits their ability to charge a fair price for the engagement photo shoot. After all, those photos are extremely valuable for the engaged couple and they are more than happy to pay for them.
In order for the wedding professional to increase their top line revenue, they need to determine the products and services that offer value to their customers and price them appropriately.
The key question to ask yourself is what would your brides buy if your product or service weren’t available. The next best alternative for your couples will give you an idea of the prices you need to charge for the product or service.
The next step in determining the value of a product or service is understanding what makes it different from with the crowd. What features and attributes does your offering include that makes it valuable in the customers’ eyes?
For example, a wedding photographer could offer a next-day teaser whereby she promises to send the bride 5 to 10 images right after the wedding. While for the photographer this is a half an hour exercise to pick the winning images, for the couple this is of enormous value, especially the day after the wedding when it is customary for the newlyweds to meet their family for lunch.
Setting the price is always very difficult, especially when you headed into uncharted territories and offer brand new products and services. If you have a website, you might want to do some pricing split testing to determine your customer’s willingness to pay.
Split testing is a method often use in web technology to determine the best approach. For example, to determine which button color is more effective, the website should have two versions of the same webpage. The first one will feature a button and color A while the second version of the page will have an identical content with the only difference being the color of the button.
Afterwards, the visitors are redirected to the two versions of the website and by looking at the analytics, we can determine which color is more effective.
In a similar fashion, we can build different pages featuring the same packages at different price points. By taking into account the conversion ratio (how many prospects purchase the product or service) and the price point, we can select the right price depending on our pricing goal.
Different companies have different pricing goals depending on many variables. A new wedding photographer’s pricing goal would be to acquire market share, build a brand, and increase brand recognition. An established studio might opt to price its packages so that they maximize the profits.
During downturns, the pricing goal could be simply the company’s survival were covering the costs. That is the reason why often during the COVID-19 pandemic many wedding professionals dropped their prices. We think that slashing prices is a bad idea and you should avoid it at all costs.
Only thinking about pricing increases terrifies wedding professionals are terrified as they believe they have to analyze every single feature of the product and service. In fact, we only need to look at the differences between our product and the next best alternative. If we are New York wedding photographer offering a one week delivery option, how much would that be worth for a bride?
Using this pricing strategy does not automatically mean a vendor or would have an instant success. The market realities change and so should be pricing. Competitors might copy our model, hence negating our competitive advantage. Finally, if we don’t have a deep understanding of the client psychology, we might realize that a feature we deem crucial for our couples might be in fact irrelevant.
For example, a wedding photographer might think that bright and airy for was are in high demand when in fact brides are looking for dark and moody imagery. The couples taste change and we should be aware of that.
Wedding professionals are not pricing experts, so we can understand why they make mistakes. Among them charging a cheap price is the most common. Often your competitors do not take into consideration costs such as utilities, rents, depreciation and only focus on the direct costs associated with the production of that good or service. If that is the case, value-based pricing might not help because the pricing reference point is so low that it is impossible for you to justify such perceived high prices.
A Quick Guide to Value Based Pricing, Harvard Business Review, August 9, 2016
Value Based Pricing: Drive Sales and Boost Your Bottom Line by Creating, Communicating and Capturing Customer Value, by Harry MacDivitt and Mike Wilkinson