• Mike Atkinson

Pricing Models and the Cruise to Nowhere 

Recently my family and I went on a short three-night cruise to nowhere. Well actually it was a cruise around our beautiful Hauraki Gulf, but we didn’t get off the boat as there were no ports of call. This wasn’t our first cruise, so we had an idea of what to expect, but nonetheless the experience reminded me of the art of pricing models. 

The cruise started off being reasonably well priced. However it isn’t long until the wallet gets dusted off and the moth balls cleaned out to spend. In fact, the cruise ship makes it so easy to spend additional money by making your room key also your ID on the boat and for ease and convenience the way you purchase anything on board. 

You see there are four elements to sales, and any good sales person will intuitively work through all four, often not even realising it. The four elements are:

Often when we are trying to sell, we jump straight from identifying a need or a want to providing a solution. Most of us are not good at creating desire or demonstrating the consequence, and to make matters worse we often make it difficult for someone to buy off us. 

Thinking about the above process, the cruise ship had this down to an art. You see, if I wanted to only drink water the entire time I was onboard, and I didn’t want to do any of the other wine tastings, whiskey classes, or buy photos, then I could get by without spending any more money. My meals were already paid for, and my entertainment was included. However, they create pockets of desire to entice me to want to buy more. For example, if I want the really nice steak for dinner, then I have to order from their indulge menu, which would cost just a little bit more. If I wanted to drink any alcohol, then that’s extra. However, their masterclass of desire is to constantly take photos of me and my family and then display them within a few hours, so that we can almost instantly buy the photos to remember our experience. Create the desire - brilliant. And as I mentioned, to make it super easy, I just show my room card. In fact, it was so easy that my daughters became well-practised at acquiring new items. Make it easy to buy – child’s play. 

So how often do we follow this process in our businesses?

To build on this model is a second concept linking the important of value, cost and quality. Its import to remember that Value = to the client, Cost = to the business. Below are a handful of questions to test how well you apply this in your business:


How do you ascertain value to clients?

How do you package what you do and create value in the eyes of the client?

What is your value proposition, can you capture the essence of the value you add?

How can the quality you expect and drive in your practice be packaged as valuable to clients?

How do you price your offer?

Can you have all three components happening in unison?

How do you get quality?

Which one is most important? How would you prioritise them?

What will you win on?


To round out the pricing discussion, we need to understand what some of the common pricing strategies are. Below is a summary of the more common approaches:

Unbundling - user pay basis for various service/product components, for example the different fee structure for various services from a bank.

Success Fee Pricing - linking price to what is actually delivered.  Reduces customer uncertainty, such as recruitment fees or commission on sales. 

Customer Performance Pricing - linking price to performance of customer, for example no claims bonus on insurance.  This can be a good option if the performance of client is variable, and associated costs to service are high.

Loss Leaders - launching a new relationship at a low price in order to get established, with intention of raising price later. Take care, as often you can struggle to raise your price later.

Offset Pricing - low price for the basic service but high price for peripherals which are added later, for example the extras on my cruise.

Price Lining - keeping the price constant but varying the product or service package according to what the customer is found to accept.

Customer Rebates - providing an overall discount or rebate for achievement of volume.

Beware, if you have an issue with selling, and your pricing is wrong, the immediate thought is to often drop the price via some sort of discount. This strategy is almost always a short-term solution, with a long-term impact that may devastate profits. Pricing problems might be a symptom of other weaknesses in the business or your offering, such as poor quality, poor marketing of benefits, wrong match of service/product to customer needs etc.

Reviewing pricing is a discussion that often comes up, but how well do you actually do this? Are you good at providing desire or articulating the consequences of a course of action? Do you make it easy for a customer to buy from you? Do you understand the relationship between Cost, Quality and Value? When you’re reviewing your pricing strategies, just remember my cruise experience, which demonstrated Offset Pricing strategies, was brilliant at creating desire and made the buying process child’s play, 

For any help with all your pricing strategies and to assess the impact of discounting on your business, contact Mike Atkinson from Bellingham Wallace. 



Issue 89 July 2018