Pricing lessons learned
Winning through intimidation
What I remember from Robert Ringer’s book “Winning through Intimidation” is different from what I found skimming an online copy (PDF version of the revised edition). My story might be there, but I didn’t want to spend more time looking for it than I already had. So I’ll tell it my way.
Intimidation means getting your way without confrontation. You do this by signaling unmistakable superiority. No one fights when they know they’re going to lose.
Ringer’s (and my) intimidation is not physical: it’s mental. You signal that your knowledge is superior. You don’t try to convince them. That takes time. Instead, you signal superior knowledge.
Since people overestimate their own knowledge and underestimate others’, the signal has to be so strong that neither the signal nor the message can be challenged.
That’s Ringer’s idea of intimidation.
What I remember is not his long and painful education in the school of hard knocks (He’s a proud alumnus of Screw U) but how he ended up positioning himself as the “expert from afar.”
He’s in the real-estate business, and instead of chasing deals like everyone else, he’d decline to discuss a prospective deal until he’d sent a beautiful 16-page full-color brochure to introduce himself. This was in the day that you couldn’t create a 16-page full-color brochure on your PC and have Gecko print it and FedEx deliver it the next day. So it was impressive.
Ringer’s brochure signaled, “Unlike everyone else you’ve ever done business with or ever will, I do not need your business. Don’t think of me the way you think the the guys. You will notice that my beautiful 16-page full-color brochure contains no sales pitch. That’s to demonstrate that—although I respect you enough to present you with your own copy of my beautiful 16-page full-color brochure with no sales pitch—I don’t need you or your fucking business, and I don’t fucking need to explain in the text that you need me, it should be that fucking obvious, unless you’re a moron.”
He pulled other stunts to reinforce his uniqueness, the value of his time, his command of the business's details, why you need him, and he does not need you. He was “the expert from afar.” There was no way to be compared to the local yokels in the same business.
Starting my consulting business
I positioned myself as "the expert from afar." Which was literally true. I had some amigos in DC who needed software help and wanted to hire me. I said no, so they told their customer that the best guy they knew was an MIT educated consultant who lived in Boston and they were going to fly him in to see if he’d be willing to take on the project.
They did have airplanes in those days, but business was more local than it is now, so flying experts were kind of a big deal.
I suitably and subtly indicated my knowledge and when we got to talking money I ramped up the intimidation started. . I may be off on the numbers, but accurate with the principle. Let’s say programmers charged around $10.00 an hour in those days. Lawyers charged closer to $100. I charged like a lawyer.
When my first prospect pointed this out, I nodded and agreed my prices were indeed considerably higher. Pause. He asked me how come I charged so much more than everyone else; I looked him in the eye and said, it's because I'm that much better than everyone else. He blinked.
The guy on the customer side was named Don Honeycutt. He was the customer’s business manager, a good ol’ boy from West Virginia. Eventually we got to be friends and in one conversation he explained how he did business.
“Mike,” he said, (actually it was more like “Maaak“) Ah buy all kinda shit fer the la-ib, and ah don’t know a god. damn. thing about half the shit I’m buyin’. But ah do know how to ne-go-she-ate. I jes’ squeeze and squeeze and squeeze until the otha guy tells me to take mah money and shove it up my fat ass. Then ah back off, ‘cause I know I’ve got a good deal.”
I didn’t know it then, but my refusal to negotiate convinced him that I was worth the prices I was charging.
Mostly I wasn’t as smart as I was that day.
Customers who insist on discounts
Dan O'Dowd, the President of Green Hills Software, where I worked from about 1998 to more-or-less recently—,taught me this: a customer determined to negotiate your price down will always be a bad customer; one who doesn’t negotiate price (or just tests) will almost always be good.
Here’s the reason. Like many thing I learned from Dan, brilliantly obvious in retrospect.
A customer who pushes to get a lower price is not convinced that what you are doing is worth what you’ve asked. When you lower the price you prove their point and the price you agree on is just barely equal to the value of what they imaging you will be delivering. If not, you’d demand a higher price.
What you deliver will almost always falls short of what they imagined—because reality rarely is as good as fantasy. Their imaginings are often grounded in no real knowledge (see Don Honeycutt above.) Consequentially the customer will demand more than you deliver either for no money or low money, if you fight for it.
A customer who doesn't negotiate—or who negotiates just to test and accepts your refusal to negotiate—is more likely to be good to work with. The customer believes that what you are delivering is worth at least what they are paying, or they would fight harder for a lower price. And your refusal to budge if they try to negotiate supports that belief.
As a result, you’ve got enough headroom in the project budget to exceed their expectations, and they are motivated to appreciate whatever you have done to support their theory that they’ve paid for value.
The blink method
I learned another lesson that I’d explain to friends and client I helped with pricing by telling them this story.
An optometrist is teaching a new clerk how to price glasses.
“It's called the blink method,” he says. “You tell the customer that the glasses will cost $100. Then you wait. If he doesn't blink, you say ‘for the frames. The lenses will be an additional $100.’
“If he doesn't blink, you say, ‘Each.’ If he still doesn't blink, you say ‘plus installation’ You keep doing that until he blinks. Then you may find a reason to give him a discount.
“He walks away believing he's gotten a really good deal."
I learned this working summers for my Dad's air conditioning business, Alliance Air Conditioning.
My father was a competent and scrupulously honest man. He would likely have failed in business but for my streetwise Mom who ran the office, and but for some of the savvy people they hired. They protected him from himself. One was a guy named Emilio Toro, who became my Dad's partner and a lifelong friend.
The most common problem in residential air conditioning back in the day was when a customer set the thermostat too high. If my dad went on the service call he’d turn the thermostat down, explain what he did, and bill them for a service call. Customers were always embarrassed and often pissed. Sometimes they tried to avoid paying. Sometimes they succeeded.
If Toro went on a call, he’d diagnose the problem and ask, "Does the air conditioner keep going on and off without cooling?" Of course, the answer was, "Yes." Duh.
Toro would say, "I thought so. It sounds like a chattering relay." He might go to his truck, get a new relay and install it. Or he might say, "A new relay will cost you $20.00 (plus installation!) But I have a used one out in the truck. It's as good as new, and I can save you the $20."
The customer is delighted. Toro gets the relay, replaces the one in the customer's unit, and puts the customer’s relay in the truck to replace the next customer’s chattering relay.
Toro would bill the customer for the service call and for replacing the chattering relay. If he put in a new relay, he’d charge for that. If he’d given the customer a used-but-good-as-new relay, he’d likely get a tip.
Either way, he’d get a happy customer.
Smart enough to charge you more.
Another time a customer pushed back on my high consulting rates.
“How come you charge $X and everyone else I’ve talked to charges $Y << $X.”
I said: “Because I’m smarter than them and I can prove it.”
“OK, prove it.”
I said: “I’m smart enough to know that solving your problem is worth a lot more than what I’ll charge you.
“I’m smart enough to know that you know that, too.
I’m smart enough to know that I don’t have to cut my price because I’m smart enough to know that you’re smart enough see that I’ve just proved that I’m smarter than the other guys.
Well, it didn’t happen exactly that way in reality. I did get the deal, in reality, by saying something like that—but less polished.
I’m smart enough to improve on reality.