Know The Highest Price Customers Will Pay

Do not leave money on the table

Previously, I discussed and illustrated price calculations using mostly the cost-based pricing method to arrive at profitable prices when selling directly to distributors, wholesale buyers and or  retail customers. However, a major limitation of this approach is that you may be leaving money on the table by not adopting a 'customer value-based pricing' strategy. In other words, you are not charging the highest that customers are willing to spend based on their perceived value of your product. Read an overview of customer-based pricing.

Specifically, your cost-based pricing method is likely to arrive at a price that falls below the highest that your target market is willing and able to pay. As mentioned in that pricing for the cottage industry article, your customers' perspective transcends your costs, of which they are oblivious.

Solution: Market Research helps with most profitable pricing method

Prepare your questions and props beforehand. Here are some noteworthy considerations.

• Survey your target market or brainstorm to position your brand within the demand matrix (illustrated below). A demand matrix is similar to attribute-based brand positioning and perceptual mapping exercises. It is a positioning tool that plots sales channels where your and the competitor's brands may sell your products to achieve the most suitable level of demand. 

Notice how different brands fall within different industries, like the food industry or for finding scientific research information. Each quadrant carries certain consumer expectations regarding various marketing mix elements that influence customer value perceptions like sales channel types along with associated purchase experience, levels of personalized customer service, packaging and associated unboxing experience and so on. You can  therefore alter these factors appropriately to affect the price.

High                      PRICE  é                        Low	.HIGH END. .High price, few customers.   luxury products > Eleven Madison Park (fine dining) > 1-on-1 consultation, Rolls Royce,	.GOLDEN GOOSE. .High price, many customers.  status products > Starbucks              > Peer reviewed research journal, Apple computers,
	.LABOR OF LOVE. .low price, few customers.  'inferior' products > Old fashioned preparation from scratch > influencer blog post	.MASS MARKET. .low price, many customers.  habitual customers > McDonalds,  > textbook
	Few              CUSTOMERS è   Many

Golden Goose is any marketer's dream. Products that apply are associated with status, have a unique niche or speciality quality for unique problems. 

High end sales channels

• speciality stores like comfortable stores specializing in  a narrow product mix like cosmetics, high end car parts and so on. (NOT discount locations, supermarkets, or other volume-driven inventory) Example(s): Toys R Us,
• brand-specific stores. Example(s): Sephora; 

Services

• Personalized, trained customer service personnel, samples (NOT self-service). Example(s): ...., 

Packaging

• Packaging for consumer goods focus on evoking emotional responses (versus needing clear packaging that allows leads to review products pre-purchase and prevent theft).  Example(s): high end cosmetics often use boxes and bottles that conceal the products unlike lower end products that rely on the transparency of blister packaging much more. Features that are subconsciously perceived as having higher quality in cosmetics packaging include: heavier packaging; metal or metallic looking trim; snapping sound for closing the package; uniqueness or creativity. Furthermore, research has also shown that the the more high end a sales channel, the greater application of luxurious finishes were used for the packaging.

Product samples, add-ons, etc

• Add-ons are more likely in higher end products. For instance, cosmetic products may include application tools, brushes, tote bags and so on. 

• Use as many open-ended questions as possible to get deep insight. 
• To receive valid answers, present the survey as being focused on value creation and satisfaction. Marketers have seen that the market often minimizes the price for their benefit.
• Know your customer. 
• How does your market form self esteem? For instance, if social stratification is extremely important because they compare themselves with others to establish their own personal social value, a product that burnishes their reputation is valuable, regardless of whether they perceive themselves as having a lot of money.
• Key characteristics of your market. For instance, do mothers of young children value and will buy products that save time while older empty nesters value luxury more?

• How does your target perceive value in your niche regarding each element of the marketing mix?
• Trying to establish the things for which your market will pay a premium, ask about what is very valuable re matters like quality of the product and associated services, convenience (payment methods, how they get the product, etc), how hassle-free the product is, does the customer need to personally relate to the owner or like the business' people to want to support it, etc.
• What kind of price differences do not matter because the market is preoccupied otherwise in life and will consider such differences too negligible to care. For instance, if your price is higher than the competition's but your product carries a perception of being more eye-catching, hassle-free, easier to get and keep, etc and y your market perceives $5 as a negligible amount, the market will pay for your higher price without giving it much thought. 
• What are the target market's preferred competing products? The more fussy the market is over different competing products, the more price-sensitive the market is likely to be. Conversely, if the market is not loyal or has an alternative, this indicates an opportunity to charge higher than otherwise. 
• How will they like to be served better than what the competition is already doing? ... by what you are already doing and so on?
• How does your target define the unique value proposition for your competition?
• Does your unique value proposition match that perception of product value? Consider honing and remaining true to your unique value proposition if not.

Do NOT

• Start out with a direct question about the most customers will pay. This has been show to provide understated prices that customers use for their personal benefit.

CONTENT RELATED TO KNOWING THE HIGHEST PRICE YOUR CUSTOMERS WILL PAY

• See how to calculate prices for distributors, wholesale buyers and retail buyers.
• The demand matrix should not only help marketers to know where customers will buy their products but also allow marketers to look at competing brands in the desired quadrant for packaging design ideas in order to price accordingly.
• Internal links: demand matrix;
• Case studies
• cosmetics industry