You can listen to the full audio version of this blog we call — Blogcast.
In elementary school, I learned the five Ws (and an H): who, what, when, where, why, and how. In a recent conversation with a colleague, we started exploring how the 5 Ws could apply to pricing and provide a simple way to remember some really important concepts.
Who
Who is the target market you are pricing for? Who is this individual buyer you are quoting? The tighter your focus, the better you can set a reasonable price.
What
What are you offering? What is your differentiation relative to competitors? Have you crafted a product portfolio that is easy for each buyer to understand while capturing more revenue from the buyers that receive the most value?
When
Are the products perishable? Is there seasonality of demand? When is demand the highest? You should consider dynamic pricing, even if your price changes aren’t in real time. Slow price changes are more profitable than no price changes.
Where
One of your pricing drivers is where your buyers shop. Are they shopping where there are several alternatives? Or are they only shopping on your website? Is your channel incentivized to promote your product over your competitors’? Think through the value and decisions your channel makes to maximize its own profits.
Why
Why is the most important of the 5 Ws. Why will they buy? Why will they buy from you? You must think through your buyers’ decisions and especially understand how they think about value. You must master both inherent value and relative value. Inherent value is the value of solving the problem. Relative value is the value of your product relative to the competitor’s.
How
How consists of all the different techniques and frameworks you can use to set prices. Among many others, I recommend committing to value-based pricing, using price segmentation, creating product portfolios for well-thought-out market segments, and using good, better, and best within a portfolio. And, of course, mastering value with the use of value tables.
These 5 Ws may have been created for journalism students but apply very well to pricing and other business decisions. Use them frequently. What have I missed in the above list? How would you modify them?
Share your comments on the LinkedIn post.
Now, go make an impact!
Tags: pricing, pricing foundation, pricing skills, pricing strategy, pricing value
