Value Pricing vs Nickel and Diming

Friday, December 18, 2015

Many pricing pundits love to extol the virtues of value-based pricing. They see it as the universal answer to just about any pricing question. Charge for the value you provide. It sounds so obvious.

I take a much more nuanced approach. Sometimes other pricing strategies make more sense. Sometimes customers get upset when they are charged for each bit of value delivered. Have you heard the phrase nickel and diming? While many people are willing to pay for value, almost everyone hates the feeling of being nickeled and dimed.

Where is the fine line between value pricing and nickel and diming?

This very question occurred to me after a recent business transaction. I had purchased a membership to a professional organization. The very next day, I received an email asking where my membership materials should be sent. This presented a bit of a predicament, as I was in the process of moving to a new apartment and did not want my card lost in the move. As a result, I asked the representative to hold my materials until my move was complete.

Should the organization have charged me a fee for this favor? After all, I was requesting that they provide me with some additional value.

The answer is almost certainly "no."

Had the firm charged even a single penny, I would have been outraged. Even as a pricing expert, I would have felt the charge improper. There must be some criteria that we can apply to decide whether a charge is appropriate or an instance of nickel and diming.

If many of the below apply, you might be alienating your customers:

Don't just think about what you should charge. Also think about if you should charge too.

Pricing is hard. Fortunately, I can help. Not ready for a pricing consultation? Not a problem. You can learn quite a bit from my book on software pricing.