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CHAPTER SIXTEEN

Price Is a Story

Pricing is a marketing tool, not simply a way to get money

Eventually, you’re going to have to tell people how much you’re charging for your services and products. There are two key things to keep in mind about pricing: Marketing changes your pricing.

Pricing changes your marketing.

Because people form assumptions and associations based on your pricing, and your pricing shapes what people believe about your service, it’s important to be clear about how you position yourself. Your price should be aligned with the extremes you claimed as part of your positioning.

Are you the kind of person who buys the cheapest wine on the menu? What about the most expensive?

Notice that neither question said anything about the wine itself. Not about its taste or its value.

Simply the price.

No one drives the cheapest possible car (you hardly ever see a used Yugo going down the street) and few are foolish enough to drive a Bugatti around town. But within those extremes, countless stories are being told. Stories we tell ourselves and stories we tell those around us.

A Porsche Cayenne has no conceivable utility proportionate to its expense. It’s merely a signal, a silver or red painted flag we fly high in our driveway and in the theater of our self-esteem.

Of course, the price is more than a signal. It’s also the engine for our project’s growth, because price determines what we stand for, who we’re designing for, and the story we tell. And price creates (or eliminates) margin, and that margin is the money that’s available to spend on our outbound marketing.

Consider the baker. If the ingredients and overhead associated with a loaf of bread cost $1.95 a loaf at a reasonable quantity, we can examine three extremes: At a retail price of two dollars a loaf, the profit per loaf is a nickel.

At a price of $2.50 a loaf, the profit per loaf is fifty-five cents. That’s an eleven-fold increase, more than 1,000 percent more profit per loaf.

And at three dollars a loaf, we’re making more than a dollar a loaf, more than twenty times what we made in the first example.

The baker who charges two dollars a loaf has to sell twenty-one loaves for every loaf the luxury baker sells at three dollars. Twenty-one times as many is the difference between a few customers an hour or a line out the door.

“But,” we say, “our customers would prefer to pay the lower price.” Perhaps. But how do they value the sparkling clean shop, with plenty of well-paid and helpful staff, a new sign in the window, and a local baseball team with new jerseys with your logo on them? How do they value the handsome shopping bag that comes with every loaf, not to mention the free samples of the little butter cookies you call punitions? How does it make them feel to tell their friends that they’re eating the same bread that’s served at the fancy restaurant down the street?

Better to apologize for the price once than to have to excuse a hundred small slights again and again.

Price is a signal.

Different prices (different people)

The Quakers invented the price tag. Before that, it was generally accepted that nothing had a firm price. Everyone haggled.

But Macy’s and Wanamaker’s needed to get big, to build huge stores with low-paid staff. There was no way to train and trust that many people to haggle. And so they pioneered the Quaker idea at scale.

While the price tag was originally conceived because Quakers thought it was immoral to charge different prices to different people, it caught on because industrialists and big organizations liked the efficiency.

But, like everything else, the internet changes things.

On one hand, you can tell the story that the price is the price. Tesla told this story to luxury car buyers and they breathed a sigh of relief. But when Uber tried to match pricing to demand, it cost their brand billions in trust.

For most organizations, particularly small ones, the hard part isn’t the mechanics of charging different amounts.

It’s the storytelling.

I bring this up because it’s a powerful way to understand the story of your price (and the price of your story). How do you feel when you find out that you got a discount that no one else got? What if you deserved it? How do you feel if other people got that discount and you didn’t?

What about the scarcity and pricing built into Kickstarter? Does the fear of missing out on a level that’s almost full push you to act?

“Cheap” is another way to say “scared”

Unless you’ve found an extraordinary new way to deliver your service or product, racing to be the cheapest probably means that you’re not investing sufficiently in change.

When you’re the cheapest, you’re not promising change. You’re promising the same, but cheaper.

The race to the bottom is tempting, because nothing is easier to sell than cheaper. It requires no new calculations or deep thinking on the part of your customer. It’s not cultural or emotional. It’s simply cheaper.

Low price is the last refuge of a marketer who has run out of generous ideas.

And what about free?

If marketing is done for and with the consumer, why not make everything free?

Two reasons:

Engaging in a transaction is fundamentally different than encountering an apparently worthless (or at least priceless) object that’s been freely shared. Scarcity, tension, and enrollment all exist when we must decide to make a purchase, and the marketer sacrifices all of these when a purchase is truly free.

Without cash flow, you can’t invest in your product, your team, or your marketing.

But free is worth considering for other reasons, in other situations.

Free is not simply a penny less than a penny, a dollar less than a dollar. It’s an entirely different category of transaction, because like dividing by zero, it scales to infinity.

A free idea is far more likely to spread, and spread quickly, than an idea that’s tethered to money.

If Facebook cost three dollars a month to use, it would have attracted fewer than a million users.

If it cost money to listen to the hits on the radio, the Top 40 would disappear.

And yet . . .

We don’t know how to make a living if we give everything away.

The road out of this paradox is to combine two offerings, married to each other: Free ideas that spread.

Expensive expressions of those ideas that are worth paying for.

When a chef gives away her recipes, or appears on a podcast, or leads an online seminar, she’s giving her ideas away for free. It’s easy to find them, engage with them with frequency, and share them.

But, if you want to eat that pasta served on china on a white tablecloth at her restaurant, it’s going to cost you twenty-four dollars.

When a song on the radio is free, but the concert ticket costs eighty-four dollars, the artist can be compensated.

The china and the ticket are souvenirs of ideas, and souvenirs are supposed to be expensive.

There are countless ways for you to share your vision, your ideas, your digital expressions, your ability to connect—for free.

And each of them builds awareness, permission, and trust, which gives you a platform to sell the thing that’s worth paying for.

Trust and risk, trust and expense

The rational thing is to believe that we’re more likely to require trust before we engage in risky transactions.

And it’s also rational to expect that people are more likely to want more trust before spending a lot of money (a form of risk). Or committing time and effort.

Many times, though, the opposite is true.

The fact that the transaction is risky causes cognitive dissonance to kick in. We invent a feeling of trust precisely because we’re spending a lot. “I’m a smart person, and the smart thing to do would be to be sure I trust someone before investing my life savings (or my life), so I must trust this person.” That’s what boot camp is for. The high cost of participation (blood, sweat, and tears) causes us to become aligned with the group.

That’s why people change at Outward Bound.

That’s why high-end restaurants and hotels can survive bad reviews.

When people are heavily invested (cash or reputation or effort), they often make up a story to justify their commitment. And that story carries trust.

Every con man knows this. The irony is that marketers who need to be trusted often don’t understand it.

Lowering your price doesn’t make you more trusted. It does the opposite.

Be generous with change and brave with your business

Generosity in terms of free work, constant discounts, and plenty of uncompensated overtime isn’t really generous. Because you can’t sustain it. Because soon you’ll be breaking the promises you made.

On the other hand, showing generosity with your bravery, your empathy, and your respect is generous indeed.

What your customers want from you is for you to care enough to change them.

To create tension that leads to forward motion.

To exert emotional labor that will open them up to what’s possible.

And if you need to charge a lot to pull that off, it’s still a bargain.

Case Study: No tipping at USHG

For more than a decade, the best reviewed restaurant in the New York Zagat’s guide was the Union Square Cafe.

Over the years, the company that operated the café added nearly a dozen other highly regarded restaurants around New York (and spun off Shake Shack, a billion-dollar company, in the process) as part of the Union Square Hospitality Group (USHG).

In 2016, they stunned a lot of observers by eliminating tipping.

Instead of accepting tips, USHG raised their prices 20 percent. They devoted the increased revenue to offering parental leave, fair wages, and the chance to treat their team as professionals. The shift meant that the folks in the back of the house (who actually cook your food) get paid better, and it means that the waitstaff have an incentive to work together, to trade shifts, to work the way a doctor, a pilot, or a teacher might—for the work, not for a tip.

This is great leadership, but it presents a host of marketing problems.

How do you communicate the price increase and elimination of tipping to a regular customer, someone who values the perception of a special relationship because he sees himself as an above-average tipper?

How to communicate this to a tourist, who is comparing menu prices online before making a reservation, and doesn’t know that having tips included makes the restaurant much cheaper than it appears?

How to communicate this to the staff, particularly the highest-earning servers, who stand to see their wages go down?

What’s the change being made, and who’s it for?

One of the big insights to take away is that a change like this can’t be for everyone. For example, some diners find joy in the status they get by leaving a big tip. They do it with a flourish, and, in the scheme of things for someone who’s well off, it’s a cheap thrill. USHG can’t offer that thrill any longer. “It’s not for you, sorry.” On the other hand, a diner seeking affiliation as a form of status can find that the right sort of sincere thank-you feels far better than the fear associated with tipping too little or too much.

Better still, the diner who has a worldview that revolves around fairness and dignity now has a harder time patronizing other restaurants. Given the choice between a restaurant where the workers are engaged, fairly treated, and working with dignity—or one where the hierarchy undermines all those things—it’s easier to become a regular at a restaurant that is proudly aligned with your view of the world.

Dining in a restaurant is rarely a solo endeavor. USHG gives hosts a chance to gain status through virtue signaling. They give diners a story they can tell themselves (and others)—a story about how the small act of choosing a restaurant turns the ratchet on a much larger issue around race, gender, and income disparity.

That story isn’t for everyone, but for the right people, it transforms the experience.

Who’s it for, what’s it for, and how is status changed? What will I tell the others?