Option Pricing

The other day I was talking with a good friend of mine about option pricing. Before I get into that, I will give you a brief background in what my friend did for a living.

He retired from contracting but like a lot of people after some time passed, he got bored. So he decided to get a job as a maintenance supervisor. After about six months of working, he was promoted and was responsible for 150 schools, and I believe he had 100 to 150 employees he had to manage. So much for retirement.

The men and women that he had to manage were made up from all the trades. Plumbing, HVAC, Chiller Techs, Electricians, Painters etc. But his previous life as a successful contractor gave him the tools that he needed to be successful running his men.

So here we are at a restaurant at 8:30AM drinking coffee talking about our careers. I began to tell him about option pricing.  I was telling him that it was my belief you shouldn’t offer your customers too many options. If you give them too many options, it will give them what I call “sales overload” and they won’t be able to make a decision.

So John joins in and says “absolutely. When I was in the contracting business, we did the same but it’s not just for contracting. I dealt with this in the school board as well.” So I asked John to give me a little more details.

So he said, “well James, anytime I had to work with a principle or higher-ups, and they wanted some services such as painting or new blinds for the windows. They would get three choices of paint or three of choices of window treatments.

I learned a long time ago if I gave them any more than that, they couldn’t make a decision either, or if they did make a decision, it would take months. If I gave them three choices, they would choose one of the options the same day or the next day.”

With that said, I’m not saying there are times that you can't offer more than three options. However, I do not recommend going past five or six. Keep this in mind when you’re building options for your customers.

So today’s assignment. If you offer option pricing. Take a good look at it. See what’s working and what’s not working. If you find that there are tasks with too many options, reflect on this story and see what you can do to simplify your pricing.

To your success, ~ James Brush.

 

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