Pragmatic Pricing #3

from Pragmatic Pricing.com 7/13 enhanced by Peter/CXO Wiz4biz 11/13

How much can you Charge for your product? It depends on how much your competitor charges – and more important – how different your product is from your competitors. If your product is significantly better than your competitor’s, the amount you can charge is the price of your competitor’s product + the amount your customers value your product over the competitions. If your competitor’s product is better than yours, then you should charge significantly less than your competitor. Your product then appeals to the “price-sensitive” buyers. Firms who compete mainly on price, focus on keeping their costs as low as possible or they die.

You create Added Value by improving your products & services relative to your competition, or if you are competing on price, by lowering your costs. However, consumers don’t buy “real value”, they buy “perceived value”. What do they think about your product? You may have the best product attribute in the world, but if the customers don’t know or believe that, they won’t pay you a premium for it. Marketing is about making sure your customers perceive the value you offer. The best & easiest marketing plans though are about making sure the customers know your “real value”. In other words, build real value & communicate honestly about it.

Price turns “Perceived Value” into Revenue. Think of it like a Value Scorecard. The more Value you create & communicate, the higher the score. As a businessman, you should spend > 80% of your effort creating “real & perceived” value for your customers and less than 5% of your time on keeping score (pricing). (The other 15% is all that necessary (but boring) bookkeeping & administration stuff we have to do.) One fantastic by-product of studying pricing is it will point out areas where you can focus on creating more value.

Now, take Action: Select one of your products and compare it to your closest competition. List all of the differences both in your favor and in your competitor’s favor. Be sure to include all of the extended attributes like service & warranty. Think of a single customer and estimate how much that customer knows about & values the differences. Now brainstorm some actions to increase your real value. Brainstorm at some actions to increase this customer’s “perception” of your value. Do any of these actions make sense to implement for your business? If not, bring in some other people (ie, key customers) and brainstorm again. If so, just do it !!!

Comments: Are there any recommendations your could share?
How can you add Value without adding significantly to the price?