By: Zeb Smith, Zebullon LLC
Outfitters industry-wide are willfully addicted to bad pricing. This article discusses the good, bad, and ugly pricing strategies adopted by outfitters. It also provides knowledge to help your outfit better price its experiences.
The Bad Competitive Pricing
Competitive pricing is hands down the most adopted strategy by outfitters. It’s when you cruise your competitors’ websites, whether it be locally or nationally, look up their experiences, and price your trips relative to theirs. You may look at your competition and say to yourself, “We’re better than them therefore we’ll pricing our experiences higher.” Or you may say “We’re not as big as those guys and I bet we spend less on advertising; therefore, we’ll charge less and hope our lower price will attract customers.” You may even say, “We’re a middle of the road outfitter, we’re not the biggest and we’re surely better than those guys, so we’ll price right in the middle.”
This comparison is human nature. There are even bedtime stories on it. It’s also human nature to not stick your neck out too far from the pack out of fear of losing your shirt. We fear that if we price too high no one will purchase our experiences and if we price too low customers will perceive us as cheap. Therefore, we choose a price that is marginally higher, marginally lower, or right in the middle compared to our competition.
Competitive pricing is bad because it leads to pricing cohorts. There are regions across the nation whose prices haven’t changed in what seems decades. This forces outfitters to cut corners, sacrifices customer and guide safety, and forces outfitters to keep costs low which, with wages being our largest expense, has forced the industry to pay minimum wage or slightly higher. This is in my opinion why so much of the industry arrogantly leans on the “We don’t do this for the money” excuse.
The Ugly Cost-Plus Pricing
Cost-plus pricing takes your outfit’s costs and adds a 10% to 70% markup. Cost-plus is widely adopted among outfitters because it is logical, we experience it in other industries, and it is easy to learn.
Cost-plus pricing requires managers to know and understand their experiences’ direct and variable costs. For outfitters, this is guide wages, fuel and other transportation costs, food and lodging if you provide it, and any other costs directly experienced by your customers and variable to customer volume.
Cost plus falls short of the bill as it does not consider your outfit’s overhead and net profit needs. It is also blind to your outfit’s key stakeholder interests including its customers, employees, managers, and owners’ needs.
Cost plus is a very dated approach. Even in the world of accounting, cost plus is dying. Accountants were the ones who masterminded this strategy, it was probably the widest adopted pricing strategy across the globe from the industrial era until the early 2000s, and finally industries and their accountants are bailing on it. I encourage your outfit to bail on it too.
The Good Needs-Based Pricing
Needs-based pricing picks up where cost-plus pricing falls short and carries your business to a healthy and strong finish with plenty of fuel in the tank. Needs based pricing looks beyond the income generated by trip and incorporates the broader needs of the outfit’s stakeholders including its customers, employees, managers, and owners’ current and future financial and non-financial needs, and the current and future financial needs of the outfit. This approach requires management to look beyond the profit and loss and puts structure to the broader needs for the business to thrive today and for many years into the future.
Needs based pricing starts with the owners and managers and says “Hey Mr. and Mrs. Owners and Managers, what do you need? What can the business do for you?” If owners and managers don’t know, it helps them articulate these needs and then looks at then business’s operations to deliver on them. When owners and managers first go through this exercise with me, they discover their financial needs are often double to triple their current income levels. Knowing the components of why this is, and the impacts this additional income has on their personal and professional lives as well as the lives of their employees and key stakeholders, it gives purpose behind the price it charges for its experiences.
Where cost-plus and other best-practice strategies suggest the business net 5-15% of its gross income, needs-based pricing gives managers a specific net profit dollar amount to shoot for regardless of top-line revenue.
What’s even cooler about needs-based pricing is it is specific to outfitters. Because outfitters are so unique and the complexities of our businesses are like no other in the world, this pricing strategy has been built specifically for outfitters by the professionals at Zebulon LLC and can’t be found anywhere else.
The Good Value-Based Pricing
Value-based pricing is the “cat’s meow” of all pricing strategies. Although it’s been around for a long time, probably longer than any other strategy in history, it is hands down the least adopted strategy among outfitters. Many outfitters believe they have adopted value-based pricing, they’ll tell you they have mastered it until they’re blue in the face, but I can tell you outfitters falls short of the bill as evidenced by our websites and the face of our financial statements.
Value-based is pricing your experiences based the perceived value your customers place on your experiences. In other words, value-based pricing is charging your customers based on their perceived value they place on your experiences.
Value-based pricing goes against human nature of being marginally higher, marginally lower, or right in the middle compared to your competition. It requires outfitters to differentiate themselves far enough from the pack for their customers to notice. I’ve asked dozens of outfitters how they differentiate themselves. Nine out of ten will tell me everything that makes them wonderful from their safety record to their guide training program to their multi-generation history. But the real question is: Are these differentiators important enough to a customer that he or she will happily pay for your experiences regardless of the price tag?
Value-based pricing delivers super high-income levels for employees, managers, owners, and the business. Employees, managers, owners, and the business can make big money with this strategy. When executed correctly, your outfit will hit the top dollar threshold for each and every customer, and they will happily pay your outfit each and every dollar.
To properly adopt value-based pricing outfits need to know their target audience profile. This includes age demographics, income levels, heritage, where the customers traveled last, the steaks they buy, and much more. Outfits need to know what drives their target audience, the questions they’ll ask, and the outcomes they desire.
Every person in an outfit needs to know this profile and trained up on how to handle their target audience. From sales to the trip delivery to check out, everyone will be on the same page. This is especially important in a rocky economy. Outfits who adopt value pricing gain operating efficiencies and save money. Customers are happier, employees are happier, and managers and owners are happier. It’s a win-win-win.
Here is a quick first-hand experience to demonstrate value pricing: Last summer I took a dozen former college athletes on a raft trip down Browns Canyon for a bachelor party. When I asked the bachelor if he wanted to do Browns or The Numbers he said, “Let’s do Browns, I don’t want to die.” Here we have a former D-2 wide receiver, totally capable of doing The Numbers, scared to do the more intense rapids. As such, we did the easier option. Because Browns is cheaper than The Numbers, the outfitter missed out on almost $200 in revenue from just one group. Not because of price but because of the bachelor’s fear of the unknown. The owner could have very easily charged the same for Browns, the “beginner” trip, as The Numbers, the “advanced” trip and we would have still done it. Which is likely true for many of your customers.
The value you attach to your trips, is not the same value your customers attach to your trips. So please, “Stop thinking like outfitters and start thinking like your target customers.”
I hope this article brings clarity to the four pricing strategies adopted by outfitters as well as some information to help your outfit better price its experiences.
About the Author
If you want to increase prices, better align price with customer expectations, or generate more income for your employees, managers, owners, and your business, then email the author, Zeb Smith, at zeb@zebulonllc.com. I have helped many outfitters price their experiences which has added hundreds of thousands of dollars to individual outfits’ bottom lines in as early as one season. I have plenty of resources, tools, and knowledge to help you too; just shoot me an email to get started.