I sometimes wonder why I’m good at pricing (sorry I don’t mean to brag). It’s likely because I ALWAYS put myself in the mind of the buyer to figure out what they think. While advising clients, it surprises me they are unable to do this. It seems so obvious to someone who’s been doing this for years. In the book, Made to Stick, Chip and Dan Heath called this the curse of knowledge. “Put yourself in the mind of your buyer” is easy to say, but helps to have a series of frameworks to apply.
I always start with will I and which one. Surely you’ve seen that in some of our previous content. This simply wonders if there is a competitive alternative in the decision process.
I then jump to value. How does the buyer value your product? How important are the problems you solve? How does the buyer value your differentiation? How important are the problems you solve that your competitors can’t? This is the magic behind really knowing how your buyers make decisions.
Sometimes, I make fun of behavioral economics, but it’s always a consideration. How will the buyer FEEL about your price? Do they perceive it as a loss (like a price increase) or as a gain (like a discount)? Will they think it’s fair? The way you communicate price and value often has a big impact.
I’m also lucky that I’ve been in pricing and in business for so long. That has provided me with exposure to so many different pricing strategies and tactics. Once we understand how buyers use price to make decisions, we have to translate that into actions a company can take to capture more of each buyer’s willingness to pay. Besides the price, the three huge levers companies have to pull that determine how buyers buy value are the market segment, the product portfolio, and the pricing metric.
One fun activity is to look at every pricing situation, or at least the unique ones, and try to figure out why the company is pricing that way? What are the assumptions about the buyers and the competitors that need to be true to make this pricing strategy rational? Do you think they are true? What’s great about this exercise is every once in a while you find something that doesn’t fit in your frameworks. Then, you get to rethink the frameworks.
Pricing may not be easy, but it is incredibly fascinating and fun. It’s different for each industry. Most of all, it’s powerful. Almost every company can improve and the resulting increase in profit can be huge.
If you’re “new” to pricing and want to move toward mastering it, please join our Insider’s program. Yes, you get access to our online courses, but more importantly, you get access to me through office hours. You can ask questions. You can get help on your current projects. You can see me coach others. How much is a promotion worth to you?
Now, go make an impact!