Pricing Propheteer: Finding the pricing sweet spot

In my last column, A Pricing Lesson from Richard Gere, I mentioned that the most frequently-asked question I had during a series of in-house workshops was: “How do we know we’re charging the right price?”

As my roadshow for this client rolled into Auckland this week, an attendee told me how he thought he’d found the perfect price for a product he’d launched a couple of years ago with another employer.

He described five textbook steps that contributed to the product’s success in achieving New Zealand market share dominance.

Step 1: Understand the buying process. The product in question here was a domestic building product. Just as important as understanding who the key participants in the buying process are is the importance of understanding the relationships between the players and their value drivers.

For example, architects are interested in great looking (hopefully award-winning) designs, so aesthetics may be a more important value driver than structural integrity, which is important to engineers. Builders, on the other hand, want a product that’s is safe, easy and efficient to work with. And homeowners and landlords are obviously the ones paying the bill.

Step 2: This involves understanding not only your own product, but also critically, your competitor’s products. Ask yourself the following three questions:

> What are the points of similarity?

> What are the points of difference?

> What are the points of contention?

Step 3: This is the logical extension of Step 2. Once you know and understand the value proposition of your product, vis-à-vis the competition, quantify it. Typically in B2B markets, that value can come from one or more of the following three sources:

> The product increases your customers’ revenue;

> The product reduces your customers’ expenses; or

> The product minimises your customers’ risk.

In the case of this particular product, because its useful life was twice as long as anything else on the market, the product reduced the buyer’s risk and saved them money. Sales reps were trained in not only communicating the value proposition, but also how the economic value had been quantified in the process of setting the price.

Step 4: Start from a position of strength. In communicating the economic value provided (eg: we help to reduce your expenses), it is always best that sales reps start from a position of strength. In the case of this home-building product, there’s no point discussing how the product reduces expenses until the benefit that accrues from risk minimisation is explained to the customer.

Step 5: Finally, wear your heart on your sleeve. Once this building product was fixed to a house, so too was a badge that said the product is guaranteed to last for 25 years. Not only does this reinforce the value proposition, and help justify the price tag, it was highly valued buy new homeowners or landlords when the property later changed hands.