In the Harry Potter books, each new student who enters Hogwarts is placed into one of four houses by “The Sorting Hat”. This animated hat reads the student’s mind, learning their character, then declares which house the student should be placed in.
If ever there was a Pricing Utopia, it would include a Value Sorting Hat.
Imagine: a customer walks into your store, interested in buying one of your products. You’d ask the customer to put on the Value Sorting Hat, and the hat tells you precisely how much this customer values your product; how much this customer is willing to pay. You can then decide whether or not you’ll sell it at that price. (Of course, in our utopia, you can charge different customers different prices without ill effects – imagine that!)
Creating Your Own Pricing Utopia Based on Value
The Value Sorting Hat takes many variables into account, such as the amount of inherent value your customer will receive. Will your product solve a major problem? Will it bring them happiness?
It also considers the other options your customer has for their money. Which competitors are they considering – are they even aware of your competitors? How do they value your product compared to your competitors? What do they know about your competitor’s features and prices?
Lastly, the Hat processes your customer’s level of uncertainty. What price level do we need to influence them to buy now?
This is utopia. No demand curves. No conjoint analysis. No statistics. We can maximize profit, and make every customer happy.
Why should you care about this pricing utopia?
Because you want to move as close as possible to this vision in real life. Customers, competitors, and even simple economic issues keep us from reaching a pricing utopia, but by occasionally thinking about what it would be like, we can know what direction to take to approach it.
For example, customers don’t tell us how much they value our product over our competitor’s product – but do we ever ask them? You likely interact with customers every day. In thoughtful conversations, you can learn a lot about how your customers think, so have those conversations. You may not have a Value Sorting Hat to know everything about each individual customer, but by having conversations with intentional, strategic questions, you can develop a picture of your market’s preferences overall. You will also learn new ways to segment your market for products and for prices.
Think about what pricing utopia would look like for you, and move toward it. Be your very own, albeit less than perfect, Value Sorting Hat.
The action you can take today
Ask your customers about their decision processes – why do they buy from you? What do they love and not love about your product?. Don’t interrogate them – rather, have conversations and ask curiously, because you really want to know.