Here’s something that may surprise you: Companies often severely underprice their products.
What factors influence this? Maybe they’re launching their product late to the market. Maybe they don’t have a strong brand. Maybe most of the competition has a similar offering. Maybe they aren’t particularly known for high quality or good service.
And what happens next? They usually price the product at 20 percent less than the market leader. The truth is, if you are battling any of the above, you’ll usually have to take what the market can give you.
But there are times when you come to the market with a ground-breaking product. Here’s when the question “How much should we charge for this?” can really make a big difference for your company.
Knowing and projecting the true value of your product
Some time ago, we learned one of our clients was solving million-dollar problems at $100 an hour—plus they could do it in a half a day! Let’s stop and think about that pricing for a moment. It doesn’t take long to realize that’s not sharing any value with the customer—that’s practically giving all of the value away to the customer.
You want your pricing to be an equitable thing—if you are providing a million dollars’ worth of value, you need to charge accordingly. To do this, you have to let the customer know the true benefits of your product. If you are positioning it correctly, your customer will know and even appreciate your pricing models.
Often companies price strictly based off of time and materials. They factor in development costs, sustaining costs, and then calculate commission to arrive at a number. If you fall into this model, it only serves to ensure you won’t lose money when you do a job—it does not take into consideration the value you are creating. And just like the headline of this post says: you’re probably leaving money on the table.
Taking a step back and pricing accordingly
Let’s say your product that solves a $100-million-dollar problem costs you 30,000 dollars to develop and roll into the market with a 20 percent markup. Are you short changing yourself? Yes. To garner the true value of your product, you have to frame it properly in the customer’s mind. You have to demonstrate the real worth created and show that your offering is a good deal at a higher price.
A big deterrent to accomplishing this is relying solely on your sales team’s input. Don’t get me wrong, sales are vital to your business, but salespeople are often the biggest detractors for pricing. On their input alone, you could be keeping yourself from charging more. Why? Salespeople are often on the sharp end of the stick when customers complain about price. If the price is deemed too high, they suffer immediately by loosing the sale. Consequentially, they become shy about asking for a higher price because the customer complains to them directly.
When you do proper research and learn from your customer what they value in your offering, you will be able to combine several beneficial features of an offering. Knowing and appreciating these up front, customers will naturally pay that much more for your product.
Position your product for better pricing
The first step in determining your offering’s true market value is to understand what it’s doing for your customer. Here is where we conduct a positioning workshop to get a better understanding of the product, the market, and the competition.
In the second step, we’ll actually take the information gathered in the positioning workshop and develop research questions for the salespeople to ask their customers—focusing on which features customers value more than others. After the survey is complete, we can determine the best pricing. Knowing what each of your customers are looking for enables your salespeople to better sell the new offering because they know exactly what benefits to talk about with a particular customer.
Honing your selling points for more revenue
Here’s an example of how to build your story for your customers:
Recently an O&G client brought to market a revolutionary tool that captured oil samples from the formation. Sampling isn’t a new technology, but this iteration had more functionality: a larger manifold and pump to take the oil samples. This meant faster sampling and a larger volume of oil, all with greater accuracy as it could avoid drilling fluid contamination of the samples.
When we workshopped this, we quickly identified the benefits: one, less time on station with faster sampling; two, chance of getting stuck downhole greatly decreased; and three, better sample accuracy.
The sales pitch for a geophysicist can tout greater sample accuracy, but salespeople can also tell the drillers they will have more drilling time with less chance of the tool getting stuck downhole. From a positioning workshop we found two audiences for the product and the selling points for each. Most importantly: you can charge accordingly—in this case, our client was able to charge for their service three times what they anticipated—what was initially priced, leading to a very large price tag, but one their customers were happy to pay.
Pricing with greater certainty and net: my final chirp
If you are working on a new technology and there is some uncertainty on how much you should charge, take the time first to position your product and then get feedback from your customers to verify assumptions about what you are selling. This works great on products that are innovative and/or have multiple benefits for different customer types. Plus, it pays to find out what your customers really value. You never know, your product could be the key in solving their multimillion-dollar problem!
BlueByrd Customer Value Studies
To truly understand what customers value they must be given choices. Using the conjoint analysis methodology, the Customer Value Study uses research from your actual customers to determine which features they value most, and more importantly, what they will pay you for those features.