Do You Earn What You’re Worth?

by Steven Hourston on May 17, 2012

The answer’s no for many business owners and it’s a major frustration. We’re going to tackle this by checking out the Customer Pricingprice of a carrot.

Why the carrot?

Here’s the story. My frugal, Scottish mother once opened my fridge and discovered a bag of carrot batons. She couldn’t believe a son of hers had actually paid more money to buy peeled and sliced carrots!

Suddenly I felt like the time she found me lighting a small fire, on the church hall roof in a heroic attempt to smoke out a wasps nest. The only difference was that I was 7 or 8 at the time of the “church roof” incident, but in my 30’s at the time of the carrot baton crime. The wasp nest plan would have worked by the way, everything was under control.

She saw the bag of carrot batons as proof of my uncontrolled extravagance, an accusation rarely levelled at me by friends waiting for a drink at the bar.

The point is we all have ingrained, strongly held views about prices. Unfortunately we often apply those views to our business. We tend to think that no one would ever pay more than the lowest possible price for our goods and services. So we charge low prices and sometimes still struggle to get sales.

I want to challenge this common view of pricing and get you to consider different pricing strategies. I’ve yet to find a business that couldn’t immediately get more sales and profits by reviewing their prices. In fact it’s one of the fastest ways to dramatically improve business performance.

Now, how much is a carrot?

Well that depends. I checked for this post and you can get a kilogram of carrots in Tesco for 43p or 74p or £1.34 or even£2.40.

So let’s get this straight Tesco have managed to convince some customers to pay 6x more for their carrots!

Oh yes and their customers happily buy them, because the idea of chopping and peeling carrots is much worse, than the joy of opening a bag of prepared carrot batons, even if they cost 6x more. How much would you pay?

Value is in the eye of the beholder!

Supermarkets are brilliant places to learn about pricing. They are the masters of adding value to the most basic products.  They give their customers a choice. They simply put the different options side by side on a shelf and let their customers choose. And some customers, happily pay massive premiums for the most expensive option.

There’s no selling, no relationship, no discovery of emotional needs, just products sitting side by side on a shelf.

How much would you pay to fly on this?

Price Options

British Airways 747 by lrargerich

Last week I checked my options for a return BA flight from London to New York.

I could choose to spend £247 on a BA Economy flight, £902 on Premium Economy and £1991 on Business. Or I could spend £4559, a massive 18x more than economy, and fly first class. I also have the option of blowing £6312 on an Upper Class Flexible ticket with Virgin.

Who would be insane enough to spend that much money for 7 hours in a jet? Oops there’s one of my pricing prejudices. Someone spending £6312 obviously thinks the insane decision is to spend £247 and be squashed into “cattle class”.

All Virgin and BA have done is to discover what their customer’s value and then give them a range of options at prices they’re willing to pay.

And they make much more money because of the choices they offer and their skilful pricing.

Many businesses mistakenly believe their customer’s only buy on price. So they get trapped in the depressing world of price wars, hard selling tactics, endless offers and hype. And it doesn’t work.

Our role is to discover what our customer’s value and then give them the perfect option at a price they’re willing to pay. If Tesco can do it with carrots, we can all do it with our own businesses.

Customers happily spend their money on the choice they value the most. And it’s not for us to make that decision for them.

Value is in the eye of the beholder. 

Sometimes we’ll need to clearly and compellingly explain the value or each option, so customers understand that what they get exceeds the price they pay.

But we must resist imposing our own price prejudices on others. Too many people price their service as if it were a bag of 43p carrots and forever miss those customers who would happily pay 6x more.

What premium carrots could you offer?

Steven Hourston can help you to attract more clients and more sales with transformational marketing. Click here to watch 4 Free videos and see how you can grow your sales and profits fast.

{ 2 comments… read them below or add one }

Jane May 17, 2012 at 7:55 pm

Love the “value is in the eye of the beholder” and “resist imposing our pricing prejudices on others”. Really thought provoking, thanks.

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Steven Hourston May 17, 2012 at 8:06 pm

Thanks Jane,
 
I keep these 2 points in mind whenever I’m in a pricing discussion. The other point is that it’s usually so easy to test prices and find the value sweet spots. More business should test a little.

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