By Andrew Sobel, Big4 Guest Blogger.
I was at a concert the other night at Avery Fisher Hall at New York City’s Lincoln Center, and decided to buy a bottle of mineral water at the bar. An 18-ounce, medium bottle was $4.00. I really didn’t think twice about the price (hey, this is New York!), although my wife suggested that the water fountain was a lot cheaper.
Avery Fisher Hall, New York
Intrigued by the ease at which the bar sold $4.00 bottles of Evian, I subsequently checked out a variety of prices for mineral water, from different sources.
Here’s what I found:
Fresh Direct (shipped to home) in a case: $0.29 per bottle
Street Cart at Columbus Circle (NY, NY): $1.00
Joyce Theater (NY, NY): $2.00
Avery Fisher Hall: $4.00
Here it is in a chart:
Think about it: There are few things you can buy that will vary so much in price. The most expensive bottle I could find was 14 times more expensive than the cheapest bottle.
So, why is that? There are many reasons, of course, including:
- Scarcity of supply and the number of nearby competitors.
- Posh-ness of the surroundings. Avery Fisher Hall is more “posh” than the Joyce Theater (upper west side/Lincoln Center versus 8th Avenue and 19th St).
- Affluence of the client base.
- (Related to affluence) The purchase price as a % of the customer’s income.
- We “expect” to pay a lot at the bar at Avery Fisher Hall when we’re attending a concert by a famous musician.
- The degree of your thirst.
This phenomenon applies to your fees as well.
Here’s the connection—one for one against the points above. You get much higher fees when:
- There is a scarcity of people who can do what you do—you are highly differentiated in the marketplace.
- The shopping environment is posh. For example, in terms of web presence, it’s the difference between going to a lackluster, dated website and one that sparkles with thought leadership and sophistication.
- You are targeting successful, profitable companies which are also large enough to pay your fees without flinching.
- You are working with executives whose budgets are so large (e.g., a Division President versus an HR manager) that your cost is a small percentage of their expenditures.
- Because of your brand and reputation, clients expect to pay high prices for your products and services.
- A client has a truly urgent “red issue” (a high level of thirst) that is a high priority for them.
So you see, the 14X difference in the price of a bottle of mineral water is entirely rational. It is explainable by the same conditions you can develop or target in order to charge premium prices.
Anyone who buys a copy of my new book, Power Relationships, can download the free 90-page Planning Guide I’ve prepared at Power Relationships Planning Guide
I help companies and individuals develop winning marketplace strategies and build clients for life. My bestselling books include Power Relationships, Power Questions, All for One, and Clients for Life. I spent 14 years at Gemini Consulting, where I was a Senior Vice President and the Chief Executive of Gemini’s Italian subsidiary. For the last 17 years I’ve headed my own consulting firm, Andrew Sobel Advisors.
I’d like to hear from you. Contact me at www.andrewsobel.com.