Friday, October 28, 2005

Negative Pricing of a Service

Recall the second question I promised to answer:

"How do you determine the 'negative price' of a service?"

Negative pricing is a technique by which you base the price of a product or service on how much it costs for the customer not to use it. How do you go about determining how much it costs for a customer not to use a service?

Your prospective customers have a current way of doing things that will change when they use your service. Clearly define the problems that these prospective customers face in their current situation. Detail the effects and implications of these problems. Quantify the effects in terms of monetary cost. You may have to define conversion factors that enable you to convert, for example, time to money. Add up the costs, and you have the negative price of your service.

Obviously, this process is not an exact science. Trying to assign a monetary value to a customer's time or happiness is difficult. But the point is that your service is only valuable to the extent it solves customer's problems.

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