You are pricing your products and service wrong.
Adam Davidson
Created NPR's Planet Money; business writer for the NY Times and The New Yorker; author, "The Passion Economy."
There is one simple idea that could, instantly, transform nearly any small business from a struggling one to a success: don’t set your prices based on your costs. Set your costs based on your prices.
This is one of those ideas that seems, at first, stupid or confusing or just plain wrong. When asked to come up with a price, most businesspeople think of how much the raw physical goods cost to buy, how much time it takes to make a thing, and then add a reasonable profit, and that’s the price. But when you are the customer, you don’t decide whether or not to buy something based on the price of the raw materials and the time it takes to make something. You have a sense — a quick gut sense or a carefully calculated one — of what kind of value that thing brings to your life. Price should be set according to THAT value, the value customers see in a product or service. Once you know what that value is, you can then select the raw materials and the production method that supports that price.
Most of the time, pricing based on value brings in far more money and far larger profit margins than pricing based on cost. But don’t think that means you’re gouging your customer or being unfair. Quite the opposite. By pricing based on the value you bring to your customer, you are creating the conditions that will allow you to produce more and satisfy more customers. Pricing based on value means applying empathy, looking at the world through your customers’ eyes.
From The Passion Economy. Preorder your copy today.
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5 年I just listened to your interview on Hello Monday, great work. I've been a Planet Money fan forever, thanks for all your work with that too. Pricing on value to a customer is an interesting idea. I've worked in tech for quite a while in my career and some of the products and I've seen developed are based on building something which didn't exist previously and as a result the demand for that exact product didn't exist previously. I use the term "exact product" because in every case there's a general need/want that each product served but that need/want was served so differently in the past that the technological solution is seen as a completely new product that is only related to the old set of product/s; not a replacement. It's really hard to capture what value to the customer is because there's often a bunch of other stuff that was/still is solved by the previous product/s. I've seen this "problem" solved by massive marketing campaigns but that's not a solution for any but the largest tech companies. Have you come across this problem in your research? If you did, how did smaller tech businesses solve for it?