Way too frequently business leaders set the price for their products or services based solely on their own perception of the value of what they offer. They do not look at things from the perspective of what the customer wants, needs or values.
Consequently, they price too high, which limits their ability to grow. Or, they price too low and leave “money on the table.”
What Does History Teach Us About Price?
Thousands of years ago the Romans came up with the Latin word “pretium” which means both price and value. Pretium combines the concepts of the seller’s perception of a product’s value and the buyer’s perception of what the product is worth into one word.
Essentially, the Roman’s were linking price and value together into one word because they are inextricably linked. As business leaders, we need to truly understand the value of what we provide from the customer’s standpoint before we set a sell price to it.
This is a very similar concept to one explained in The Cost of No Change. Here Ron Karr explains that “your customers will only buy from you if the cost of them continuing in their current state is greater than the cost of what you are selling.” Essentially, their perceived value must be greater than the price of your product or service.
In his book “Confessions of the Pricing Man”, Hermann Simon lays out three principles for the business leader to consider when they are pricing their products or services.
Three Principles for Setting Price
- Create value – Innovation, quality and performance combine to drive the perceived value of customers. If any of these components is lacking, the business is failing to create the value that it should.
- Communicate value – This is the branding, marketing, packaging and selling proposition. It is all about positioning what you are offering to the customer or marketplace in a way that truly demonstrates value.
- Retain value – This is what happens after the product or service has been purchased. Does it meet or exceed expectations? How long does this perception last?
Take some time to review these principles within your business and review The Cost of No Change post. Do you understand the value that your customers are seeing from your products and services? Are you pricing your products and services correctly in the marketplace? What can you do to create value, communicate value and increase retained value?
“Now, if you want to get rich, you have only to produce a product or service that will give people greater value than the price you charge for it. How rich you get will be determined by the number of people to whom you can sell the product or service.” Earl Nightingale
What experience do you have with setting prices that may provide value to other readers? Leave your comments below!
Download a free copy of my new Ebook: 12 Steps to Business Transformation. If you would like a business assessment to help kick off your business transformation, contact me at email@example.com or at 587-227-5179.
Be sure to sign up at www.thinkingbusinessblog.com for weekly blog updates delivered to your inbox.