The Fifth C - Capacity
You know the traditional 3 C's of pricing: Cost, Customer, Competitor. We can think of these as the environmental factors that drive optimal pricing, but as pricing people we have little control over them. Several months ago we proposed a 4th C, corporate strategy. This met the same criteria as the original 3 C's. The other day it became apparent we need a 5th C, capacity constraints. I was working with a client who, as a consultant, charges by the hour and has regular weekly work hours at each of her customers. For example, she would spend the day with the same customer 8 hours every Monday, a different customer 4 hours Tuesday afternoons, etc. As we discussed her pricing situation, it became apparent that she should be charging higher prices to NEW customers when she already has an almost full calendar. When her calendar is more empty, she is more in need in clients and less able to lose the opportunity. Then she should charge less to make certain she fills her time. After stepping back and thinking about her situation, she should charge different prices based on how close she is to full capacity. Wait, airlines do this as well. The more full an airplane is, the more expensive the seats. Hotel rates go way up when demand increases. (I heard that a room at a Best Western in Indianapolis over Super Bowl weekend was over $1,000.) Some spas only offer their most expensive services during their busy hours. It's all around us. Think about your business. Are there times when you are capacity constrained? Can you find a way to increase prices during those periods. One way is to be selective of your customers during those times. Typically you will want to continue to serve your regular, loyal customers without price increases, but there is nothing to keep you from raising prices on new customers. Who knows, they may remain customers at higher prices, even after the capacity constraints have eased. Mark Stiving, Ph.D. - Pricing expert, speaker, author Photo by Sarah Elizabeth Simpson
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