Price is omnipresent and omnipotent. Everybody and everything has it's price. Sometimes price is monetary, sometimes it is non-monetary, but it always corresponds to value.
That last statement might seem arbitary, but it is precise as there is a relationship between price, value & benefits, known as Price Benefit Equation.
The equation is breath takingly simple in it's lay out, but sufficiently sophisticated to help explain and exploit your pricing.
V = B / P
V is for Value, and reperesents the relationship between benefits and price. This is an arbitary approach, one that goes on most in individual's sub-concious but is sometimes expressed, usually as "It's not worth it" or "That's a bargain". Basically buyers will only see value when the equation states that perceived benefits outwiegh price.
B is for Perceived Benefits, in other words the elements of the product or service that best meet the thoughts of what thebuyer thinks he or she needs. The perception distinction is important as the benefits are solely related to the individual buyer and not homogoneous. The more unique and the more beneficial the item or service is, the higher price that can be charged keeping the
P is Price, that is to say the amount you are willing to exchange in return. This may be in the form of money, but Price can take on many other forms such as time, energy, academic grades, skills and other items or services you may be willing to barter for.
The funny thing is that each element in this equation is always open to change, every minute of the day, depending upon the perception the buyer has of the benefits and the price, relative to what is going on in the buyers life and what the competition are doing. For example a tired parent may be more willing to see value in an expensive baby soothing product at 3am when the child is crying through the night, than it would be with a whimpering child at 4pm.
Also it depends upon the competition, and how they position their product / service benefits. Any change by them can affect your market share, should their value equation change.
One rule of thumb to consider in all of this is that if and when you are able to demonstrate a change in perceived benefits, then you should also change the price, otherwise one of two things might happen.
The first is that over time, buyers think that any added benefit is "free" and therefore don't appreciate the added benefit as having extra value. This may be a killer issue for you, if the added benefit is more costly to you than the previous product and without any increase in value, then you will be making less per unit.
This can be compounded by the second thing that might happen. If you don't change the price with an added benefit product / service, then you should see an increase in your market share as buyers start to see a "bargain" and jump ship from your competitor products. So you could end up selling more volume of a product / service that makes less money. However, it depends on the elasticity of your product / service within the category (I'll bore you with that another time!).
So pricing isn't that difficult at the end of the day... just remember the more benefits you can realistically claim, the higher the price you can charge...
Posts
