September 10 2014

How to price your product or service

Imagine two completely different customers walk into a store looking to purchase the exact same product. Now, does this mean that these products should have the exact same price?

Before jumping into any conclusions, ask yourself these three questions:

– Will this product bring the same value to these two customers?

– Did both products cost the same for the company to sell?

– Will the product really generate the same amount of repeat business?

Most likely, the answer will be no, no and no.

This is when you start to think that one of the customers should actually pay a higher price than the other – even if the products are identical from a production and delivery perspective.

Unfortunately, this is something that we just can’t do. What if the customers realize that they paid different prices – they’ll probably be upset, right? Especially the customer who paid more.

The subtle art of price differentiation

If you think about it though, this kind of price differentiation is actually already among us. It's just hidden behind a misleading name – 'discounts'.

If sales knows their offer isn't superior to the competition, there will be discounts offered to compensate. So why not turn this around?

Let’s have a look at how successful companies work with pricing. How do they turn the pricing around? How do they understand the value they deliver?

They identify that when a product is more useful to a certain customer it’s possible to sell it at a higher price. Start to identify these situations and get it into your price list.

It’s basically a situational customer perspective.

How to get the customers to pick your product

For a brief moment, try to ignore if the product’s sell-able or not; the more important question is whether it’s buy-able. This is a better perspective to understand how your product is received by the customers.

Don’t pay too much attention to the production cost at this point. Of course, you can’t sell with an insufficient margin, but other than that – pricing has nothing to do with cost.

If your pricing is a recalculation of the production cost, your formula simply isn't ready for the future. So don’t make your pricing standard. Some of your included services deliver significant value to certain customer segments. For others, it might not increase the value at all.

Do you really understand what part of your product offering generates business? It might not be the core product at all. It might not be your patented technology. It could actually be something else that makes the customer pick your solution.

When your products deliver superior value, there will be a slightly higher price. And online we know more about situational contexts and customer intent and identity than ever before. This makes sense — and it’s a fair game.

We’ll be back with more posts on this subject.

Stay tuned!


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