Let me start by telling you a story about the time I paid discount pricing at $200/night for a stay at the Ritz Carlton. A few years ago I procrastinated planning all of my travel to the annual ASCRS/ASOA conference, where I would be a guest speaker. I’d known for a full year I was attending, and for six months that I’d be presenting.
Why I procrastinated is an article for another time.
What I learned about pricing is a story for now!
The conference was being held in Washington, D.C. – one of the busiest and most frequented cities in the world, and a mecca for hotels. Booking sites who suggest planning ahead are keen advisors.
I decided to book 3 days before arrival. As you can imagine, the nightly cost for a nice hotel reasonably close to the convention center was astronomical… except for the Ritz Carlton.
Yes, you read that right. The Ritz Carlton!
Despite my procrastination, I scored the Ritz for $200 per night in a corner suite. Since then, I have considered booking that same hotel and have never since seen a nightly rate of less than $450 per night.
At the time of this writing, that same stay averages $542 per night. I have never stayed there again, despite three more trips to D.C.
So, what’s the lesson? And why/how does this apply to pricing your product or service? Pay very close attention here if you think your business offers a premium service!
Why don’t premium businesses or practices offer discounted pricing?
To begin to understand my conclusions that follow, ask yourself: “How did he get away with such an inconceivable deal?” “How did this affect his perceptions of Ritz Carlton?” and “Why don’t they always offer that price?”
Now, imagine for a moment that you have an ophthalmology practice and you decided to run a “special offer” for a “limited time” that discounted your advertised price by 20%. (And if you are a medical practice of any sort, by a limited time I mean forever – because that’s what most practices really do.)
What would that say about the “premium” nature of your service? What expectations or perceptions would that create for your potential patients?
The answers to those questions are as wide as they are variegated. What will be true in all cases is that you’re introducing cognitive dissonance in the minds of each potential patient when they attend their consultation.
Discounts make your clients perceive your service as less than premium.
From the outset, they will have in their mind a discounted rate. Yet, you want to get full value from your services. You and your team will spend the entire consultation trying to persuade them you are a premium provider.
The outcome will be a discounted service.
And, you’ll keep asking yourself why you aren’t making more money.
Plus, you’ll incessantly torture your team with requests to cut costs or make more sales.
You’ll never catch up!
Premium Service = Premium Rate
The truth is you can’t consistently provide the highest levels of service without collecting the highest levels of compensation.
The components of a truly exceptional business (the best phone team, receptionists, sales team, counselors, administration, surgical team, etc.) are very capital intensive. It just costs a lot of money to be truly exceptional.
After 16 years of running and consulting businesses and ophthalmology practices, I am awed that people still repeat this pattern.
You can’t charge less, discount more, and make the consumer believe it’s a premium service worth paying for. That flaw in logic breaks the rational mind!
Is there a way out, you ask?
Yes, there is.
The Solution to Perpetual Discount Pricing
What I offer here has been repeated in ophthalmology, cosmetic surgery, dentistry, orthodontics, and other such practices. And for other clients who sell clothing, books, janitorial services, and more. Not to mention my own businesses.
In every case where we have increased price, we have simultaneously increased both volume and revenue.
We did pay more for top-notch staff. But, the marginal revenue far exceeded the marginal cost in all cases.
You can breakthrough discount pricing by implementing three important, albeit intensive, disciplines.
Fire Some People
Fire any staff members who cannot embrace a truly premium mindset and replace them with people who can.
Harsh, I know. You cannot break through without people who’ve experienced a little prosperity and see themselves as prosperous and powerful.
You need a team that can see that what your business or practice does for people is a value at your premium price. Your customers could be making the most rewarding or life-changing purchase they’ve ever made. You are potentially changing their lives!
You require a staff that can embrace this idea and celebrate it daily for your customers.
Eliminate Discounts and Simplify Pricing
That doesn’t mean you can’t throw a few bucks someone’s way to make a deal here and there (maintaining a premium price gives you the power to do good).
That doesn’t mean you can’t throw a few bucks someone’s way to make a deal here and there (maintaining a premium price gives you the power to do good).
It also doesn’t mean that you can’t run promotions if you are selling a product. Sales are still the best way to clear out old inventory at a marginal revenue if your business needs that.
Discounts enable laziness or incompetence in your sales team.
The wholesale discount gimmick has to be rejected to eliminate any chance of your team relying on money as a means of deal-making. The deal has to be about the service, not the price.
If your staff has discounts to lean on then they will become soft and never improve in their sales acumen. Plus, never introducing cognitive dissonance is the solution to overcoming it.
Invest in Training
Invest in the kind of training that will achieve a top producing sales team.
This investment comes in the form of great salespeople, frequent sales training, and legitimate incentives for high achievement.
To repeat my first suggestion, get the right people and their salaries and bonuses will be the best money you spend each year.
To go back to our ophthalmology practice example, bring in sales trainers specifically accomplished in LVC and Cataract sales and welcome their coaching and advice.
Lastly, make sure the compensation plan is reviewed annually and gives the team the opportunity to change their lifestyle from average to above average, at least.
Why did I get such an amazing deal?
The Ritz was desperate (only joking a little here).
They had too much inventory available and figured some money was better than no money. This is not a bad idea for a hotel where the marginal cost is a little extra laundry and labor.
Not such a great idea for a royalty and cost-intensive refractive surgery like ophthalmologists offer.
How did this affect my perceptions of the Ritz Carlton?
It definitely is a great service organization and a beautiful hotel. However, I have experienced a similar if not equivalent quality at other notable hotel chains where I paid a similar nightly rate. I have also been extremely disappointed with stays where I paid a similar nightly rate.
Why don’t they always offer a price discount?
Seems simple, right?
They can’t claim a place at the top of the premium provider of hotel stays if they are priced the same as those that aren’t. That’s certainly true if they resort to pricing gimmicks and discounts.
Moreover, they can’t add the special touches that set their organization apart if they don’t receive commensurate compensation.
If you want to provide value, then don’t stoop down on price.
Fifteen years ago I spent $5,600 on eye surgery that resulted in fighter pilot quality vision, instantly. I don’t think I have to tell you whether or not I feel like the present value of that decision was worth $373.33 per year (an annual costs that decreases every year I don’t wear glasses or contacts).
Giving in on price is giving up on value. And simply put, giving up on value for world-class products or services is a crime.