Tuesday, July 31, 2007

The Science and Art of Pricing

Pricing is to set a price for a commodity/service that people are willing to pay for.

It has nothing to do with the cost of production or the affordability. The selling price is not necessarily higher than the cost price as no profit is guaranteed in free trade. Sometimes the price may be affordable but people are not willing to buy. Sometimes the price may not be affordable, yet people are willing to buy with whatever means. The price depends on the quality of the product and the marketing. Good marketing can sell an inferior product at a price people cannot afford to pay.

Pricing can be a science or an art. The science of pricing is to yield the maximum profit. The art of pricing is to bring the maximum benefit to the world.

Take, for example, my Feng Shui Correspondence Course into consideration. If I price it at $20 including the course books and the yahoo group and wiki group, the I suppose I can sell about 3000 to 5000 a year with good marketing. The profit will be maximized. Scientifically this is the right price. This will allow many more people to understand Feng Shui and to do it themselves. The impact is that no one will care to be a practitioner as there will be no business. This means no one will have enough practical experience and Feng Shui will stop at the theoretical level. There will not be any new findings. Such pricing cannot be considered good pricing as it has a negative effect ultimately.

JY

6 comments:

Mary Catherine Bax said...

Hello Joseph,

The Feng shui you teach is so powerful that if it is not understood properly, great harm can be done.

You are good and kind to guide us through these studies.

Thank you.

Mary

Fourpillars.net said...

Dear Joseph,

What you say about pricing is right.
But I doubt this idea that cheaper courses would mean there will be no business anymore for the practitioners.

If we look for example at Western astrology, then there are plenty of inexpensive books on the topic, ranging from rubbish to very high quality.
There are good books describing virtually every advanced technique.
There are courses ranging from free to very expensive.
There are even multi-year education programs in western astrology.

But this has not led to a situation where everybody can do it for themselves and the professional practitioners have no business anymore.
Rather on the contrary.
Even if people can do it themselves after they took a course, they often still want to consult a professional with many more years experience.
Actually, I have a friend who is a professional astrologer and he tells me that over 50% of his customers are people who have already read advanced astrology books or taken courses themselves.

If you sold these 5000 feng shui courses at 20$, it would not mean there will be 5000 new practitioners and no new clients for them.
Out of these 5000, perhaps only 20 will proceed to become a professional consultant.
Perhaps another 80 will become a part time practitioner.
The other 4900 will just practice as a kind of hobby or move on to something else, but many of them will also become customers to the professional consultants.
Not only that, people who do a professional course usually also enthousiastically tell their family and friends about it.
This generates even more interested potential customers for the consultants.
I am sure you experience the same.
Many of your course participants will probably ask you for a reading.
Why, if they can do it themselves?
We can see that this "they will all do it for themselves" idea is not valid.
It is not true in any discipline that has merit.
For example there are many courses for painting, sculpting or music,.., but that doesn't mean that there are no longer any artists who make a living.
Because talent and experience are also a factor.
The main investment when we learn feng shui or astrology is not in the money that we pay for a good course, but rather in the amount of time we spend to practice.
We all have only that many days to live, and to spend a certain amount of that time on practicing, it quickly becomes a much larger investment than any money paid for the course.
And that's why out of 5000 people who take a course, only few will make that large investment of their time and become professionals.
The fear that everybody would become practitioner and there will be no business, is unfounded.
And the idea that everybody would stop at theoretical level is not right either.
In Western astrology the plethora of available books and courses, has led to more practice and more discovery and research in the field, not to less..

***

Secondly.
We also send out a contradictory message by not selling these 5000 courses for mentioned reasons.
It is basically suggesting that we ourselves are not confident that results of our art will be convincing enough to result in a growing customer base for feng shui services.
So, on the one hand we claim to be able to generate growing business for the customers where we do feng shui, but on the other hand we show little or no confidence that we can grow our own market beyond its current size.
What is the casual observer to make of that?
It is like artists arguing against cheap painting courses, fearing that everybody will start making their own paintings to decorate their homes.
A good and talented artist will not worry about cheap courses.

***

Thirdly.
These interested people who are looking for 20$ materials will probably find something.
But since we refuse to create such cheap courses, they are likely to end up with some very low quality stuff.
For most it will not be any convincing and they will simply turn their back to this feng shui.
They won't become practitioners, but they won't become users of the offered services either.
So we do ourselves no good by arguing against cheaper courses, it simply guarantees that more people turn away from our art.
How would that benefit anyone or anything?

***

Feng Shui needs to get rid of this "staying small" mentality.
If we are confident in our art, then it should show also in our own actions.
But we send out the opposite message.
So, we are creating a self-fulfilling prophecy that there will not be enough business.



All the best,


Danny

Joseph Yu said...

Dear Danny

Remember that I am just thinking aloud and do not want to present a theory.

In Feng Shui we have seen people reading a few books and become practitioners or even call themselves Feng Shui masters. Of course, there are more than half of the practitioners like that in the market.

If a decent course is priced as low as a book, then this will flood the market with such practitioners and they can claim to have learned from FSRC to gain credibility.

If my courses are priced right, on the other hand, people will have to be serious before they take my courses. You can see that I did not train a lot of practitioners but I guarantee they do a good job as a professional.

The scenario is a little different here.

JY

Fourpillars.net said...

Dear Joseph,


I know you were not presenting a whole theory.
But that's how a blog works, readers can give comments and complete the picture if only one aspect of a topic is covered by a blog article.
So one learns how to play with that. It is not something very serious.
The author of a blog posts something, and via comments some readers add different ideas and perspectives.
It makes the topic richer and more varied and alive.
You think out loud, and it stimulates some readers to think out loud as well.. It is good.
That's the main difference with an old fashioned website, which was basically one way traffic only.

When you write something, then I am not clearvoyant enough to see why you write what you write.
Maybe you write an incomplete piece or theory inorder for your students to use their brain and complete the picture..
How I am to know from here?

***

The topic of "pricing" is obviously a very broad topic with many aspects.
What you mention about the market being flooded with practitioners when there are decent courses at low prices.
Honestly, I have never seen that happen in any type of business.
There are cheap books and courses in alternative medicine for example, and written by famous authors.
But that doesn't mean that everybody who reads such courses or books, rushes into becoming a practitioner.
In fact very few ever do, because people generally know it will take a lot of effort to market themselves and gain a foot in the market.
It is no different for the feng shui practice.

I have seen earlier discussions about this pricing topic, and interestingly, often the opposite argument was brought.
Some people argue that if the courses are cheap, then nobody will practice it.
Now you say that if the courses are cheap then almost everybody will practice it..
Clearly not both ideas can be true.

No matter what we do, those individuals who start practicing after reading just one cheap book, they will not be stopped by our decision not to provide materials at low prices.
They will find their cheap book and start.
And this happens in every unregulated profession.
The only difference is that many will take more and better education later, especially if they happen to get some customers.
And they will usually go to the school that provided their first cheap course that got them started out.

Which car companies are bigger?
Which car companies have survived for more years?
Those who provide models in every price category?
Or those who only provide expensive cars?

I think that is something to consider.


Danny

Joseph Yu said...

Dear Danny

Blogs are intereactive websites that bring people of like-minds together. It is a good way of mutually benefitting each other, the blogger and visitors.

So far, I have been able to provide something for free (eg. the 101 courses and the free ebooklets), and then some affordable ebooks, then correspondence courses (expensive/inexpensive depending on the taker), live seminars (expensive by itself but inexpensive compared to some others) and also affordable online seminars with recordings.

I am happy to say that even the least popular correspondence course (Zi Wei Dou Shu) has attracted well over 100 students up-to-date.

Regarding pricing, can you explain why your software is priced as such? You must have good reasons behind your choice.

JY

Fourpillars.net said...

Dear Joseph,


Let me first point out that I am not saying that your courses are too expensive.

I was mainly responding to this idea that decent courses at cheap prices would mean that practitioners would flood the market.
I don't agree with that.
Cheap courses also grow the larger user base.
We should not only focus on the "negative" effect that a few people will start as a practitioner after only reading one cheap book.

We could say that the more expensive expert courses grow the "top" (by lack of a better word), the professional practitioners within the feng shui community.
And cheap or free materials will grow the "basis", this larger group of people that has an interest in the feng shui topic.

If we neglect growing the user base, then growing the top will be difficult, because there will be no growing demand for the services.
So work at the basis is very important. And that's what cheaper materials take care of.

In my opinion it is mainly a question of striking the right *balance* between offering cheap and free materials on the one hand , and offering more expensive advanced materials on the other hand.

By handling both the *top* and the *basis*, we can grow both, and there will be no problems.
If we only offer little or no free and cheap materials, then we leave the growth of the user base to others, and then we will be largely dependent on *their* success in doing so.

***

I use that principle in the pricing of my softwares.
I am offering a freeware program and some free online calculators and articles, this serves the basis.
Then I offer a professional software, this serves the top.
The pricing of my software is based on the assessment of how much time I will have to devote to it.
As long as I have to pay for bread and butter and taxes , I cannot give away all my time for free.
Some time goes into developing and improving the software, even more time goes into solving problems, serving passwords and answering questions later on.
People generally underestimate the amount of time that goes into serving the customers after they have already bought the software.
I am sure it's pretty similar in your experience with answering the people that have bought your courses.
It is a years long, if not lifetime commitment, and how you can put a proper price on that?
It is by trial and error.
My first software version sold at $67.
But then soon I found out that I would need to go on giving out passwords, and solve problems, and answer questions...
So later the price was adjusted and now it is pretty much right.
But I can tell that if I was not living in a relatively low cost country, with only 10% flat income tax rate, then I would not be able to offer the program at its current price.
And I do not believe in making much more money than I will ever need, so that's why the price is what it is.

I mainly work based on four basic principles:
1) If you focus on improving your product and offering it at a fair price, then the money takes care of itself.
2) If you focus on making your customers happy and keep them happy, then marketing takes care of itself.
3) When these two things are in order, then all you need are patience and perseverance.
4) If above doesn't work, then come to the conclusion that you are in the wrong business, and go look elsewhere..

***

And we can see it in practice.
Who is growing more successful today?
Google, who go on making people happy with ever new free services (like now recently: http://docs.google.com/).
Or Microsoft, with their charge money for everything model, and then try charge again for the same product every other year?
We only need to look at the performance of their respective stock prices...


Greetings,


Danny