The Final Word this month has been inspired by what the Foreign O ce would call a “frank and open discussion” during a Mastermind session last month around price.
Most business owners start their thinking about selling with what they have to sell. In other words, ‘This is what we have – wanna buy it?’ From there, they try to work out what price they can sell it for, usually based on two things. Firstly, the value or cost of what their thing is and, secondly, what price competitors are selling comparable things for.
But if you’re interested in maximising profit, then there are two other important contexts for price:-
- Who is buying?
- Why they’re buying?
The biggest problem with the “This is what we have” approach is that, well, pizza is pizza.
Of course, you can argue that there are better ingredients or faster delivery but the truth is that all too often in that business, priced based offers drive buyers’ choices. But it doesn’t have to be that way.
There’s an independent delicatessen near me that sells “homemade gourmet pizzas” for more than twice the price that I could get one from Dominos or Pizza Hut – and I still have to cook it myself.
They can charge (much) higher prices because it’s not actually the pizza I’m buying. I’m buying the sense of worth that comes with feeding my family ‘home-made’ quality gourmet food, the aromas I get when it comes out of the oven, the feeling of warmth and well-being I get because we’re eating healthily and continental.
The secret of selling is to appeal to your prospects’ motivation which means that your first task must therefore be to find out what that motivation is.
The price someone will pay for the fulfilment of a motivation is usually a lot more elastic than the price that same person will pay for a commoditised product or service.
This is explained really well in Sidney Barrows’ book, ‘Uncensored Sales Strategies’ (see Nige’s Notes from January 2015 with the explanations of her long ago escort services clientele (CLUE: they weren’t buying the sex) and we see it in the consultancy arena right now, today, in the UK.
Most sales are lost because the salesman presents his products before he knows what really motivates his prospect.
Car manufacturers learnt this a long time ago. Your motivation or desire to buy the car you want is much more about how you want the world to see and perceive you than it is about getting from A to B.
So, in short, two big pointers on price to finish up this month:-
- Firstly, make sure you’re selling to people that have the ability to buy, i.e. they can write the cheque to pay the prices that you want;
- And then make sure that you truly understand what motivates them and therefore what you can/must do in order to create the willingness of them to buy.
I don’t pretend this is easy.
As with most things it will require considerable thought – but the reality is that there are many EC members who will never be able to extract higher prices whilst they continue to ply their trade to their current customer base – because their target market doesn’t have the ABILITY to pay higher prices (which can be okay – but does put a limit on what your business can do).
Secondly, precious few business owners really, truly understand the motivation of their customers and therefore what they can do to stoke the willingness and therefore release significant price elasticity.
I hope that’s not too deep for you – because there’s gold in them there words…
That’s the final word.