Offer Component #9 - Pricing & Pricing Structure

Creating Value Through Price Alone? The $120 Cheesesteak.

Irresistible Offer Component #9:  Pricing and Pricing Structures

Pricing is a fascinating concept – because higher prices themselves can create value. Simply because of the fact that that you are more expensive.

How many people can tell the difference between a $12 dollar bottle of wine, a $30 bottle of wine and a $50 bottle of wine?

And yet, we feel better about the quality of the product when purchasing a $50 bottle.

One of my favorite examples is of cheesesteaks in Philadelphia where I live. What do you think the profit margin is on a cheese steak?

One article from Philly Magazine was moaning how difficult it was for restaurants to get by. “They have gone from 15-20% margins down to 4-7% margins.” That means if you spend $10 the restaurant is only pocketing 40 to 70 cents in profit.

And this is the horrible vicious cycle of competing on price. Everyone who competes on price eventually gets squeezed down to where they barely survive and turn a profit.

For most businesses pricing looks something like this: What are all my competitors doing? I’ll try to give the customer a bit more and then make my prices middle of the road to stay competitive.

Then a couple service providers start dropping their prices, so you have to drop your prices, then they drop them a bit more and you drop yours again and so on…

It’s an eventual road to failure. Unless you can be the market leader and charge less than everyone else or you have some new process like Walmart with bulk purchases and distribution to charge the lowest prices – then don’t try it.

It’s a slow road that leads to burnout. Instead charge premium prices and increase the value. You’ll even get a small lift by the value that is created that higher prices command intrinsically. 

Barclay Prime in Philadelphia decided to try this model on one menu item. A new twist on the Philly Cheesesteak.

Made with the finest ingredients, Wagyu beef, sesame roll along with foie gras mousse and truffle butter and Italian Caciotta al Tartufo cheese and a half bottle of champaign.

The cost? A whopping $120. The world’s most expensive.

You could get 12 cheesesteaks at Pats for the same price.

What do they call a cheese steak from Pat’s or Geno’s?

A cheesesteak.

But a $120 cheesesteak from Barclay Prime?

Thrillist calls it a work of art.

While the profit margins were undisclosed – I imagine them to be many times better than the restaurant average of 4-7%.

So instead of competing on the lowest price. Charge premium prices and increase the perceived and real value of the product.

Lower prices generate a negative price war which brings in unloyal customers who are less invested in your services (so will have worse outcomes), have a less perceive value(because the product is cheaper), and you will have less profit to pour back into your services to hire the best people to get results.

On the contrary, higher prices produce loyal customers who are more invested in your services…which means they will get better results because their full attention will be focused on you, have more perceived value(just because your prices are higher) and you will have more profit to pour back into your business making your service better and enabling you to hire the best people.

Does this mean you can just increase your prices? Unfortunately not. You need to have the other ten component of an irresistible offer. BUT – price by itself is a signal of value and can in some limited way create value.

So where should my prices be? Toward the higher end of the premium range. T