By Mike Southon, FT Columnist
Late January is commonly regarded as the most depressing time of the year, with holiday euphoria long gone, and the arrival of Christmas-related credit card bills. For entrepreneurs, a good way to lift their spirits is to think creatively about how to increase their prices without losing their customers.
The obvious way is to improve the quality of products and services whilst simultaneously targeting customers with the deepest pockets. More interesting is to understand the subtleties of dynamic pricing; if you match customer demand with correct timing, you can often charge a premium.
It is mostly assumed that the Internet has destroyed the concept of fixed pricing, with the fundamental pressure working downwards, and last-minute bargains to be had everywhere. This is certainly true for hotels and airlines with excess capacity, who reckon that some revenue is preferable to an empty room or plane seat.
But just as common are the same operators upping their prices moments after a UEFA Champions League tie announcement or a top-selling live act is announced in their domain. I have also noticed a significant rise in the cost of Internet-booked inter-city train tickets this month, a combination of inflation-beating fare increases and the rail operators seeing what the market will stand.
No one looking to promote their services on the web should attempt to wage a price war, unless they are backed by significant investment and have proven expertise in their chosen target market. Everyone else should concentrate on delivering the best possible quality and look to exploit any kind of time constraint to their advantage.
An excellent example of this is Seatwave, an on-line ticket exchange service founded by Joe Cohen in 2006. He had previously worked for Disney and later set up early web sites for a wide range of early Internet adopters such as Home Box Office. He developed some of the first online Yellow Pages directories, before the company he worked for was acquired by the Home Shopping Network, which itself was later merged with Ticketmaster.
He ran the non-US operations for Ticketmaster for many years before deciding to turn the traditional pricing model on its head. Concerts are put on by promoters who hope their act is sufficiently desirable to sell out all the tickets as soon as the date is announced.
This generates excellent up-front cash flow for the promoter, but leaves many fans disappointed. Their only remaining option is to approach 'ticket touts', or as they are less attractively referred to the USA, 'scalpers'.
This profitable but unregulated market invariably attracts criminal elements and offers no certainty that the ticket itself is real. Seatwave offers an online service that is not only legal, but also guarantees that the seller and the tickets are genuine. If the tickets turn out to be fake Seatwave cover the cost.
This approach has not pleased everyone, especially Cohen's former employers who very much preferred the status quo. But he is universally popular with his customers, who are willing to pay the prices offered, so long as they receive the right level of service and their tickets precisely when they want them.
The Seatwave concept of matching customer demand against time to increase margins is a good model for all entrepreneurs, especially those starting out. Too often I am pitched ideas that involve getting initial market share via reduced cost and lower quality.
It is much more sensible to try and do the complete opposite by targeting money-rich but time-poor customers prepared to pay a premium for the best quality combined with guaranteed delivery, following the traditional rules of supply and demand.
Originally published in The Financial Times: www.ft.com Copyright ©Mike Southon 2011. All Rights Reserved. Not to be reproduced without permission in writing. Mike Southon- Co-author of The Beermat Entrepreneur & Business Speaker- www.mikesouthon.com
Mike is one of the world’s top business speakers, a Fellow of The Professional Speakers Association. Mike is a Visiting Fellow in Innovation and Entrepreneurship at London South Bank University. He has made frequent appearances on television and radio, has a monthly sales column in Real Business magazine and is a regular commentator in the Financial Times.
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