Aligning Price with Market Demand
This is about the difficult task of maximizing revenue by setting prices, whereby a price is not only a number, it is the sum of the price itself, how it is sold and its properties. A business must avoid over-charging, which drives customers to competitors, and under-charging, which leaves money on the table. Leaders achieve financial optimization by utilizing either a uniform flat price or targeted price discrimination based on a buyer’s willingness to pay. Offering tailored product-price combinations satisfies specific customer segments while ensuring the enterprise captures the full economic value of its products. This pricing is so well explained that customers trust the supplier.
Good pricing means aligning with all of them, and deliver a price with suits the product and its seller. Raising revenue by changing prices has to be in a way that customers do not lose trust into the enterprise, they still have to see value in subscribing or buying.
There is a concept to put the span of prices a human would accept for a product into a model. This is called Latitude of Acceptance. It tells what it is considered as expensive and what as cheap. The WTP is Willingness to pay for a service or product, and it is between lower and higher anchor. It is possible to move the anchors by changing some attributes of the product, for example better explaining to the prospect for what it is good for.
Price confidence is not about believing in your value; it’s about having the data to prove the client’s risk for not buying is greater than your fee.
For thoughtful analyzing and presenting the connections the Assimilation-Contrast-Theory is useful. It uses the level of price acceptance by the customer, and tells the seller where he is.
The Problem: Weak Anchors
Many sellers with problems in having a good pricing structure default to weak, external anchors:
- Competitor Prices (External Anchor): Easy to find, but instantly anchors the WTP low, leading to sub-optimal pricing.
- Trade Association Guidelines (External Anchor): Provides safety, but ignores the consultant’s unique value and capacity.
- What the client paid for similar projects before (Internal Anchor)
- The supplier’s own beliefs about the worth of the product.
These weak anchors by clients result in an unknown Willingness-to-Buy (WTB) and fear of the Pricing Whiplash on the suppliers side – a wild haggling with prices without foundation. This is if an originally called price is too high or too low, and the seller needs to recalibrate his prices without changing the offer fast. This is the fastest way to lose clients trust.
The Cost of Not Buying, Anchoring It and Sharing – We may focus on the Cost-of-not buying. When we have this, we have the strongest argument we can get. The latitude of acceptance for the client is drawn by the clients’share of the cost of not buying. Fortunately identifying the cost of not buying is not rocket science. I do not want to go into details there because it differs between for example lawyers, hairdressers, graphic designers, coaches and real estate agents.