What is pricing?
It’s a question we often ask when we are invited to speak or host a workshop. It’s not a trick question. And contrary to the responses we get, it’s not that complicated.
Pricing is the pursuit of understanding people; your customers. These customers who will support your company, brand and product. The people who get the value you offer. That understanding is the foundation from where you will price your product or service. Unfortunately, many companies do not know who their customers are. They have surface level information about who they would like their customers to be, but do not know who they are.
This is a lost opportunity, especially for companies still in their early stages. They might not realize it, but they’re trying to boil the ocean. This is expensive, time consuming, and for too many companies fatal. By digging in and learning who your real customers are, you can help create empathy and connection in way that builds long-term value and identify growth opportunities many miss out.
What is vital is the work to learn not just who they are, but to learning what they value early on in the relationship. This takes a conversation. Yet many companies we come across rarely if ever, talk to their customers. In more extreme cases, some companies have NEVER talked to their users. NEVER.
The real struggle is not that customer insight is undervalued by these companies, but a struggle with what to ask; how to have the conversation. When we’re not sure what to ask and why, we’re left being reactive to what information we’re able to get and not zeroing in on insights pushing the relationship forward.
For those still on the fence on whether it is worth the effort to dig in on customer insight research, here are three benefits that will help you reconsider.
If you have heard of value-based pricing, you will know that the basis of this pricing approach is to create prices based on the value – real or perceived – your customers get from your product or service. One popular examples of value-based pricing is Apple and the premium price they can charge due to the value they offer customers through their product’s technology and brand association. But it’s not just upmarket where value-based pricing works. More ‘value’ brands like Warby Parker have successfully used price as part of their growth strategy. Instead of going higher for their modern and cool eyewear brand, they went lower for their digital-first customers willing to buy glasses online.
In both examples, what helps these companies price effectively is they are pricing for their customers. Despite their massive success, they still win the loyalty – and spend – by specific customer segments. In the case of Apple’s flagship product, the iPhone, they have held a largely second position in global smartphone market and often less than 20% of the market. In the case of Warby Parker, while well known, in the market of online eyeglasses, they are far from the market leader Zenni Opitical who hold a 50% market share.
What these examples can teach us is that if we know who are customers are, what they value and why, we can make more informed pricing decisions that align with who those customers are. If we take a boil the ocean approach, it becomes increasingly difficult to gauge whether the value proposition or any element of value, is resonating with customers and the market. For many entrepreneurs, this noise causes them to turn to price – often through price decreases and discounts – when they did not have to otherwise.
Target your market more effectively
While the goal of many companies is to be product of choice for all customers, the reality is only a segment and often sub-segments of customers are going to value your product. More so early on in the life of your company.
That means, rather than trying to create a general proposition for all customers, it can be more effective to target specific customer segments and in stages. To execute this type of go-to-market strategy, you have to know more than customer demographics and data offered by your competitors. You need know about your customers.
Knowing your customers means you can not only identify them – demographics – but you understand where and how they derive value. You understand why they making seemingly irrational buying decisions. Why they seem to be willing to pass up offers to save money, save time, be happier if all they have to do is buy your product or use your service. By getting to this level of understanding will help you target your market more effectively and take a lot of the guesswork out of how your company is going to market.
Improve customer engagement
We hear it all the time from companies with a loyal, if not die-hard followings, “Our users/customers get it.” This is not by chance.
Companies who know their customers can create channels to better engage with them. This can range from marketing communication to customer service. It is far more difficult if the base you are trying to service is identified as just ‘customer’. Customers expect more from companies they buy from, and with more personalized services and messaging, knowing your customer is even more important.
There is also a more passive benefit improving customer engagement. The more you can better engage with your customers, the more you can learn ways to improve your product, your service, future opportunities is different markets. Just like our customers who take cues from reliable sources they trust, the same can be true of the signals your market is sending to your company. The first line should be from customers you know and trust.
We often overestimate our understanding of our customers and this makes decisions across pricing, go-to-market and customer engagement sub-optimal. Many times we take cues from our competitors and conclude equivalence. Other times we make generalizations or assumptions about a group of customers and make conclusion from that.
Too often both loses out of the important fact is you need to take ownership of your customers which starts by knowing who they are and what makes them tick. By doing the work to research our customers, which includes actually talking with them, we can close the gap in the vital business decisions that need to be made each day.
This is not easy, but the time and money saved and the new opportunities create will help this an investment worth making.
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If you or your team is interested in having a hosted session on your pricing strategy and monetization model, please contact us: firstname.lastname@example.org