TapRun Consulting

The Pricing Newsletter

June 2019 issue

Hello Pricers!

Every year I look forward to the sixth of June, because I get to celebrate National Yo-Yo Day.

What? You don't celebrate that holiday? Maybe you don't enjoy seeing things go up and down.

I get it. I really do. But do you know what's worse than watching a bit of hard plastic on a string go up and down? Seeing your profits go up and down.

It's time to focus on the economics of your business.

Pricing Question from a Reader

Today's question comes from reader T. A.

My partners and I started a small service-based business. As we've continued to specialize, we've been able to raise our rates by quite a bit. How do we know when we've become so specialized that any additional narrowing of focus will hurt our pricing power?

Specialization seems to be a recurring theme when it comes to pricing. It wasn't all that long ago that I tackled the question of too many concurrent specializations. It seems only natural that I'd eventually come back and consider the possibility of too much specialization and its effect on pricing.

As you've learned, and I've often pointed out, there are many advantages to pursuing a course of specialization: fewer competitors, a greater ability to stand out, and, of course, the ability to charge more are some of the most obvious. In fact, one's first steps toward specialization often result in such strong returns on investment that many have come to push specializing as a panacea.

What many fail to realize, however, is that specialization can often prove quite detrimental. One reader discovered this fact as a result of tailoring his services to the needs of a poorly chosen demographic.

Let's consider the case of a hypothetical typist.

Typists are masters of a few dozen keys, representing the twenty-six letters, ten digits, and handful of symbols used in professional writing.

What if a typist decided to specialize? What if, instead of focusing on every possible key combination, he focused only upon one in particular: the key presses necessary to type an uppercase Q.

Though this degree of specialization is clearly absurd, it serves as the basis of an enlightening thought experiment. Why would this specialization prove to be an undesirable overspecialization?

Here are a handful of reasons:

Yes, specialization is a powerful tool that can lead to greater profitability and higher degrees of pricing power. That said, it rarely makes sense to take this concept to the extreme. Business owners need to take note: specialization for specialization's sake isn't always the answer.

Questions come from readers like you. If you'd like your questions answered, send them my way.

Pricing in the News

From the Blog Archives

Notable Pricing Quote

"If you think it's expensive to hire a professional to do the job, wait until you hire an amateur." -- Red Adair

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