A few thoughts on pricing

Many people, when they first start thinking about pricing, are affected by the idea that everything has a “fair price” – what should be charged for particular goods or services. We can learn as much economics as we like (in my case very little) but the idea’s quite hard to shift. It’s not necessarily good for business, though. If you bend over backwards trying to be “fair” to your clients, you may not be quite “fair” to yourself. And you may even deny yourself the opportunity to look for other clients who would find a higher price just as fair. After all, you have to be fair to those existing clients, don’t you?

In fact, prices have very little to do with fairness, and a great deal to do with all sorts of other factors. This was brought home to me recently when I spent a few days in Switzerland. For those who don’t live there, everything seems a little expensive in Switzerland, but there’s nothing more expensive than eating in restaurants. In Switzerland, the price of a three-course meal in neighbouring France or Germany will buy you just a plate of pasta or a pizza. And you won’t save much by just drinking water, a medium-sized bottle of which costs about the same as a glass of the ludicrously priced wine. It all came as a bit of a shock.

Prices

It got me thinking about what makes the price of something like a meal in a restaurant. There are the raw materials, of course, but those will hardly be different from the ones that go into similar meals across the border. There is also rent for premises, staff wages and taxes, which could well be higher but still do not explain the full startling contrast in price. Then there is the ability and willingness of the customers to pay, which depends partly on the incomes in the country and partly on their habits. In this respect, sometimes the market shapes prices and sometimes prices shape the market. For example, although I don’t doubt that the Swiss pay good wages, I hardly think the Swiss go out for meals with the same freedom as people do in Barcelona, where I can get a three-course meal for half the price of that Swiss plate of pasta and a bottle of wine for proportionally even less. I imagine it is similar to England in the seventies and eighties, when a restaurant meal was to celebrate a birthday or an anniversary – a special occasion rather than a regular treat.

Notice that I haven’t mentioned quality at all here. Sometimes quality does affect price, but not necessarily. The meal you can get in a Swiss beer hall is more or less the same as the one in a very similar German beer hall just over the virtually invisible border a few kilometres down the road. The difference here has more to do with the vagaries of currency exchange rates making the Swiss franc strong than it does with the Swiss making better sausages than the French or the Germans. On the other hand, an up-market restaurant in Switzerland or Germany or anywhere is always going to be even pricier than the beer hall next door.

Freedom

So pricing is a kind of looking glass world, where nothing is quite what it seems. Working in the Internet age, across borders, gives us a degree of freedom, although that freedom is also enjoyed, of course, by our clients. For us as freelancers, the limits are the various markets we can sell in: the language combinations we work in; the countries where, as a result of this, we have to look for clients, our specialisations, and, of course, the individual clients we can find.

There are markets that are always going to pay more and some that will necessarily pay less. But within these limitations there is quite a range of prices different clients will be willing to pay. Some years ago, when I went on a tour of northern India, whenever our coach stopped to see a Mogul tomb or ancient city we were besieged by hawkers selling all kinds of tourist trinkets. When we got back on the coach, there were often several people happily carrying the same wooden snake or souvenir box. One would have paid perhaps 100 rupees, the second 200 and the third 300 rupees for exactly the same object, but all of them were satisfied customers. In a sense, all of them had paid a “fair” price in the sense of a price they were happy with. What that tells us is that whatever price you set, you will probably find someone prepared to pay it. The trick, or the hard work, is in finding the 300-rupee customers and not being sucked into thinking it’s unfair to charge so much just because others are paying, and accepting, one third of the price.

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