We’ve been looking at rural properties.
One near Little Hartley looks special.
Why?
It sounds ridiculous, but it’s the driveway.
It has a long, winding, tree-lined driveway lined with well-established liquid ambers.
As you near the home, the trees open onto a large grass area bounded by a native garden alongside a large house paddock. The views to the north go as far as the eye can see. The place feels very similar to another home I knew long ago, where I enjoyed some great times.
That property significantly differs from anything I’ve seen.
That is a building block for market pricing – significant differences.
PSYCHOPHYSICS
To understand what market pricing is and why the Little Hartley driveway is so significant, an understanding of psychophysics helps.
Psychophysics is the study of sensory perceptions.
Our perceptions of brightness, warmth, weight and other sensors are far more acutely sensitive to differences than absolutes.
We feel a chill much better than we know the exact temperature.
We are better at feeling which shopping bag is heavier than knowing the absolute weight.
We instinctively reach for our sunglasses as the light starts to glare.
Differences matter more than absolutes.
Especially when determining a market price.
THE WRONG DIFFERENCES
Advisers, however, tend to rely upon the wrong differences when considering their market price.
They price their services as if the most crucial difference is how their fees compare to competitors or colleagues across the corridor, town, or country.
That is, they believe the fees and charge rates of a different professional provide a ‘market fee’ for them to determine their prices.
They believe they are pricing effectively if their estate plans, statements of advice, hourly rates, insurance commissions, or asset fees are similar (or better) to those of their professional colleagues and competitors.
Other advisory teams build their market rates based on the differences in their services.
These firms believe their price premiums are due to their reputation as ‘estate specialists’, ‘ underwriting experts’, ‘ investment gurus’, or ‘award-winning SMSF providers’.
Differentiating upon price or specific expertise are relative differences to an uncontrollable marketplace.
Comparing the ‘differences’ of their specialities is understandable.
But these differentiators are not the same as those at Little Hartley.
The right differentiators are the client’s differentiators.
RIGHT DIFFERENCES
The benefits advisory teams sell are less about their price or service differentiators and more about the valuable consequences and options that will ensure better financial lives for clients.
Therefore, a firm’s market pricing is best based on its clients’ valued differentiators rather than the differences between the prices or services of different advisory firms.
The establishment and maintenance of effective market price is more of a perennial experiment based upon the significant value clients seek (i.e. the Little Hartley driveway) rather than a price based upon hours of effort, products under management, or the comparable fees charged by competitors or colleagues.
Market pricing needs consideration of effort, products, expertise, and comparative rates. However, setting a price purely upon these factors aligns price, and long-term destiny, on an uncontrollable factor – how others price and perform.
Setting a price on the client’s valued differentiators is the better gauge of a market price.
What do you reckon?
Photo credit: Shutterstock_500518306
ABOUT JIM STACKPOOL
For over 30 years, Jim has influenced, coached, and consulted advisory firms across Australia. His consulting firm, Certainty Advice Group coaches, trains and builds advisory firms delivering comprehensive, unconflicted advice with fees priced purely on value. He is growing a solid and collaborative community of advisory firms aligned on Australia’s only Certification Mark advice standard for comprehensive, unconflicted advice – Certainty Advice. He has authored four books regarding financial advice, with his latest – What Price Value – available now since its release in March 2022.