“Perhaps the reason price is all your customers care about is because you haven’t given them anything else to care about.” —Seth Godin

Pricing often seems like a tactical, mundane sort of topic. Prices are usually set according to what already exists in the market: slightly above or slightly below a competitor. Most small businesses price this way.

Here’s something to think about: pricing communicates what you, the seller, think of yourself and your product and how you position yourself against the competition.

Pricing also tells the buyer the minimum amount of value they’ll get. The minimum.

Buyers (customers) make a purchase decision when the value they think they’ll get exceeds the price. In other words, customers always want to get more than they paid. Makes sense, right? Think of yourself: are you happier when you pay your maximum budget for something or when you get it for a little less? That extra little bonus of value creates goodwill and a feeling of a good exchange for the customer.

On the other side of this transaction is the seller. Sellers would prefer the price be at the highest level of value possible, so that all value is paid for. But that rarely happens, and so a good price averages the value of all potential customers and kind of hits above average or average. (A lot of calculus goes into this – we don’t need to worry about that right now.)

So how do you price so that you’re getting the average or above value that your customers perceive they will experience with your product or service? If it’s not just your competitors’ prices plus something, what is it?

You need to understand the value to your customer of having or not having your product. What is possible for them with your product? What do they risk without it? What is that worth in their life? You can start by describing that possibility or risk in qualitative terms, rather than financial. Maybe they miss getting a promotion or well-being in their life or a new client. You can ask some of your customers or prospects why they buy to find out – what was the motivating factor for them? And then you can ask them what that’s worth to them financially (or you can estimate it yourself, but much better to ask). Now, your price isn’t going to equal what the worth is to them – you want to take into account the contributionyour product makes and not assume that it’s the total reason for something happening as a result of buying.

If you do that investigation, your pricing will start lining up closer to value. You’ll not only get more profitable; you’ll understand your customers a lot better.

In my next essay, I’ll talk about how you can increase the perceived value your customer has of your product. And that way you can raise your prices (!)

“Price is what you pay. Value is what you get.” —Warren Buffet

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