To build a business, you must know your customer. But when setting prices, it’s easy to get caught up in what you think makes sense rather than what the customer prizes most.
Many entrepreneurs compute prices using profit margin projections coupled with an analysis of what rivals charge. For Jaynie Smith, however, the starting point for effective pricing is customers’ priorities.
“Very few companies do their homework on pricing,” said Smith, co-author of “Relevant Selling.” “They’ll shoot from the hip or find out what competitors are doing.”
Based on her research, she has found that price is rarely a top customer concern. Shoppers might pay more for reliable quality, a wide assortment of items or exceptional service. The challenge is unearthing what they crave — and demonstrating that your firm delivers what matters most to them.
As an experiment, convene your sales and management team and ask, “What’s most important to our target market?” Have the group pick the top three attributes that customers care about.
“If you get 20 people in the room, I guarantee that you’ll get 20 different answers to the top three things customers value,” said Smith, chief executive of Smart Advantage, a consulting firm in Fort Lauderdale, Fla. “The data scatter is frightful.”
She suggests conducting double-blind market research to learn customers’ top values. The results often surprise entrepreneurs and their management team.
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