Pricing

The Dentist and the Petrol Station

By James Marland
June 21, 2011

gaspump_thumbnail-resized-600There was a craze a few years ago for Business books with random nouns in the title: “The Lexus & the Olive Tree”, “Guns, Germs and Steel”, “The Cathedral and the Bazaar”.

So I give you “The Dentist and the Petrol Station”. I just got back from the dentist today, and like most Brits I endured a costly hour of pain and humiliation (“You’re not flossing enough, Mr. Marland”).

While handing over my credit card for the second time that day, I considered the pricing model of the dentist compared with my first port of call today, the petrol (gas) station.

 

At the Dentist

  •  There is very little price discussion
  • My Dentist chooses treatment plan
  • High customer loyalty
  • Price is used to indicate quality: no-one advertises “cheap dentistry”
  • Little feel for “market price”

At the Petrol Pump

  •  Prices prominently displayed
  • Station chosen on basis of price
  • Difference of 0.05 = gouging!
  • Low customer loyalty
  • Everyone knows what a gallon of petrol “should cost”

Of course if you have dental insurance, you may not be so price aware, but there are other professionals with similar pricing power: lawyers, tax accountants and of course, funeral homes. Pricing power gets us all in the end.

You have both “Dental Patients” and “Petrol Buyers” in your business, but who is who? In order to maximize your margin you need to know who is just cruising for the best deal, and who has real pain.

– James Marland

  • base price , customer loyalty , market price , pricing model , Pricing Strategy , pricing variation

    James Marland

    James Marland is the Director of Business Consulting at Vendavo based in London. In this role he helps diagnose Pricing Opportunities and develops business cases for pricing projects with ROI models. James has been in the pricing software space for many years, both on the customer and supply chain side: so he has a view from “each side of the table”. Prior to his pricing career he was VP of Solutions at Ariba and has also spent 5 years at SAP America. He has a Bachelor of Science degree in Mathematics from the University of Southampton.

    Post Comments 1

    Anthony Lazaro Jul 1 2011
    I've been thinking a lot about gas prices lately, and while everyone likes to complain about them, I find that most people do not drive miles away for the cheapest station. For example, I live in Santa Monica CA and within a 5 mile radius gas prices range by roughly $0.40 cents a gallon. However, whenever I drive by the higher priced gas station there are always people there... I'm sure some buyers choose to never go to the high priced station, but convenience reigns for many as saving 5-10 minutes offsets the extra $4 per tank. Perhaps this just further illustrates your point that some customers are not price sensitive. I like the analogy and hope there is a follow-up post on how to determine your price sensitive customers in a BtoC environment. Posted @ Wednesday, June 22, 2011 12:24 PM by AnthonyLazaro Good point, Anthony: what you are seeing is consumers who have placed a premium on convenience. Your calculation says 5-10 minutes to save $4, or say $32 an hour. Santa Monica will have a considerable demographic who value their time at more than $32 an hour. My tax attorney just charged me $300 an hour to file a simple 4868 extension: maybe it was him you saw. Posted @ Thursday, June 23, 2011 3:25 AM by James Marland