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The Trap of Customer-Driven Pricing

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So, should the owner just ask the customer what he or she wants to pay for the product or service and then sell it at that price? No. It is wise to pay attention to customers but unwise to be swayed by anecdotal evidence, even if it is firsthand. Only numbers count and having the statistical evidence to back up customer comments is the only valid method I know.

Suppose you invent a nifty new technological solution to a computer-networking problem that plagues most small companies. Should you decide to take this “magic widget” to the market and ask customers what they will pay for it, you will get a wide variety of answers from zero to hundreds. After all, the customer has never seen anything like it before. How do you price it using the concepts we’ve discussed?

This example is laced with a key misconception. You are not selling the widget, you are selling the solution. And if the problem your widget promises to fix amounts to hundreds of dollars worth of frustration, downtime, and lost productivity every year, then the widget sells for a multiple of that number regardless of its production cost.

Just asking what the customer would be willing pay for the item is not enough. As a wily business owner, you must know what problem the customer is buying your product or service to solve.

Again, if the product is a chop saw and the weekend warrior is in your store, the salesperson’s first question has to be, “What project are you planning?” If the project is crown moldings, the cheapest machine will simply not be satisfactory.

“The job of sales and marketing is not simply to process orders at whatever price customers are currently willing to pay, but rather to raise customers’ willingness to pay to a level that better reflects the product’s true value … Low pricing is never a substitute for an adequate marketing and sales effort.”[4]

Pricing Strategies for Small Business

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