Everybody struggles to set prices. You are not alone. But it turns out that there really is a single perfect price. That price is (drumroll please) what your buyer is willing to pay. If you charge more, the buyer won’t buy. If you charge less, you leave money on the table.
Now you know the single perfect price. Well … not really. Because you can’t read your buyer’s mind. You don’t know what they are willing to pay. Oh, and different buyers are willing to pay different amounts. Oh, and any one buyer is willing to pay different amounts depending on the situation he or she is in.
However, for a specific buyer, in a specific situation, there is a perfect price, even if you can’t know it for certain. So how is this knowledge useful to you?
You should build a framework to help you think through a buyer’s willingness to pay. We call this framework a value architecture because buyers trade money for value. Willingness to pay is highly dependent on value.
At the top of the value architecture are your market segments. Think of these as the types of buyers. The most effective approach is to segment based on the high level problems these buyers are trying to solve.
The next layer of the architecture is your product portfolio. You should offer a set of products for each market segment you aggressively pursue or serve.
The last layer is your pricing. You can put a price on each product, but be ready to move it up or down based on your buyers’ different situations.
All of this fits together in a single strategy we call Context Driven Pricing: Charge what a buyer is willing to pay. It’s not easy, but it is the most profitable pricing strategy available. If you want help making sense of your buyers, products, and pricing, give us a call. It’s what we love to do.
Now, go make an impact!
Tags: pricing foundations, pricing skills, pricing strategy, pricing value, value, value-based pricing
