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Come on down!!! You are the next contestant on the Price is Right! I grew up on this game show. Not that I was any good, but I can still hear Rod Roddy’s voice in my head.
In this game show, there was a correct price. The producers knew the number an item sold for, and the contestant had to guess it. However, in the pricing world, we try to choose the optimal price based on a customer’s willingness to pay. And we are wrong. Pricing people are extremely valuable to a company, but they are just never right, or at least completely right.
Why? Because it’s impossible to read someone’s mind. We never know how much an individual is actually willing to pay. We use techniques to get close, but we all know that what a buyer tells us isn’t necessarily how they will act. Besides, buyers’ attitudes, and therefore their willingness to pay (WTP), change.
WTP is extremely dependent on context. I’ll pay more for water on a hot day. I’ll pay more for a coat on a cold day. I’ll pay more for fine clothes when going to a fancy ball. I’ll pay more for cybersecurity after my competitor was hacked. The examples here are endless. Think of any item and there are situations in which someone would pay more.
Even if the context doesn’t change, every buyer has a different WTP for different reasons. Some are solving different problems than others. Even if they have the same problem, some buyers consider it more severe than others. Now, we have to think about market segmentation and price segmentation. There is always room for another segment.
And don’t forget about changes in the marketplace. Competitors aren’t static. Technology evolves.
The fact that you’re never right, may sound depressing, but it shouldn’t be. Instead, it’s your get-out-of-jail-free card. It’s impossible to price perfectly. That means your goal is simple. Price better tomorrow than you are today.
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Now, go make an impact!
Tags: price, pricing
