One day last week, my sandals broke. One of the straps just came undone at the seams. These were pretty nice sandals; I got them on sale for $75, but they retail at about $200 in Canada, and there were in otherwise good shape. So I decided to get them fixed.
So after work on Friday, I took them to a cobbler. I just love an old fashioned shoe cobbler; their shops often wreak of glue and polish, which makes the experience that much more authentic, and they practice a dying art of repairing things in a society that mostly just throws things away.
This guy is the real deal, and I've had him repair and resole several pairs of shoes for me. But this time I wanted to give him a bit of marketing advice. You see, he fixed my sandals in an hour while I sat at a nearby pub with some friends, and when I went to pick up the sandals, he only charged me $4.50.
Four dollars and fifty cents? The beer I drank while I was waiting was more expensive than that! Let's review: this guy saw that I was getting a pair of sandals fixed on a Friday afternoon before a long weekend, realized that I would probably wear them on the weekend, offered to stop what he was doing and fix them while I waited, fixed the right sandal and reinforced the left one too, and then charged me four dollars and fifty cents.
I would have paid $15 - $20 to have these things ready for the weekend ... $15 seems right, and $20 for a rush job.
I paid him $5 and told him to keep the change, and he thanked me for the tip. But I left thinking that, while I love this guy and his business, he's leaving money on the table! I should have given him a real tip and discussed his pricing model.
Pragmatic Marketing provides a very useful 2x2 grid, with the horizontal axis being "impact" and the vertical axis "cost to implement". My shoe cobbler was charging me based on his own costs, which were irrelevant to me. What was relevant was the impact: my $200 sandals were ready for the weekend, and would last me through another summer. The impact to me was big, but his cost was low.
We make the same mistake all the time in high-tech pricing, but rarely is the example so easy to explain. Next time my cobbler makes this mistake, I think I might give him a real tip and help him with his pricing. ;-)