Source: Journal of Accountancy

In this article Ronald J. Baker (www.verasage.com) discusses pricing leverage and emotions. Here are some excerpts from the section on emotions:

Clients experience three primary pricing emotions at various times throughout the purchasing cycle:

1. Price resistance
2. Price anxiety
3. Payment resistance

Price resistance is the proverbial "sticker shock"--an initial reaction to your price. The best way to overcome this emotion is by educating your client as to the value you provide. Before consulting firm McKinsey & Co. begins work for a client, it claims it has to provide at least three times as much value as the price it charges. If CPA firms used this approach, they would have to focus on value before any work was performed. Sticker shock is a healthy emotion that reveals a client's price sensitivity. Failure to induce sticker shock means you are probably under-pricing services.

Price anxiety is also known as buyer's remorse. Mitigate this emotion by staying in constant contact with clients. Assure them that they made the right decision in hiring your firm by managing and exceeding their expectations, and offering total quality service. Offering a 100 percent money back service guarantee dramatically lowers buyer's remorse.

Payment resistance is the client's unwillingness to pay the invoice. Overcome payment resistance by involving the customer in the design, price, scope and payment terms of your services. Once committed to a fixed-price agreement, customers are more likely to act in accordance with that commitment. This lowers accounts receivable, financing and collection costs, and negative feelings that result from slow payment.

For the complete article, click here and read "Price Psychology."

From Journal of Accountancy, American Institute of Certified Public Accountants, http://www.journalofaccountancy.com/Issues/2009/Jun/.

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