New designer outfit: $250
New lipstick: $35
Evening bag: $90
The look on your ex-boyfriend’s face: Priceless.
There are some things money can’t buy, but for everything else there’s MasterCard.
Time and time again MasterCard has assured me that there are some things that have an intangible value, particularly the look of misery on my ex-boyfriend’s face. But is this really true? Not to sound like a forty-five year old, cynical divorcee, but: of course not. Everything, even love; rainbows; and kittens, has a cost...and therefore a price.
You’ll Never Add Up All the Costs
Ignoring the material costs that MasterCard alluded to (lipstick, dress, bag, etc.), my love life remains full of overlooked costs. For instance, I’ve been on a number of dates that turned out to be a complete waste of time, and I’m sure I’m not the only one. In many of those cases, my evening could have been used for much better pursuits (cranking on Price Intelligently, washing my hair, etc.). Essentially, my time’s value was greatly diminished with an exorbitantly high opportunity cost.
Similarly, your products are full of overlooked costs that only the customer sees. If they’re using a competitor, then how much time, computing power, and people does it take to switch to your product? If you’re the only one representing the company, then how much time will sign-up and implementation take? All of these “costs” diminish the face value of your product, andcould be the difference between a lead that’s closed won and one that’s closed lost.
To put it quite simply: given numerous customer segments and numerous features/benefits of your product, you'll never be able to map out the costs your customer sees.
Your Customer Must Reveal the Value
Now that I’ve come off like a bit of a spinster, let me redeem myself: I (and I’d argue most of us) value finding “the one”, enough to endure the costs of those not so disappointing or downright dreadful dates. After all, who wants a life of loneliness? In fact, over a lifetime we all spend thousands of dollars and days of our time courting others. Yet, there’s one important distinction here: as a consumer of the world of love, I determine how much I’m willing to take to find “the one.” I determine the value of the ultimate priceless product of love. My attraction to mountain men has left me in a long-distance relationship with my significant other living in a tent in the woods of northern Vermont. Yet, I endure.
When pricing your products, finding the actual value from the consumer perspective remains absolutely imperative. Just as I gauged the value of my time and the costs associated with a long-distance relationship, your prices must be set by the utility and value assigned by your target customer. Their psyche will be the one that gets you to wedding bells or leaves you with the bill.
Keep in mind though, just like I value different dating segments (Mountain men versus gangstas) differently, individual customer segments will value your product differently. The secret becomes finding out what your potential customers are willing to pay, a secret revealed through Value-based pricing. As John Seinbeck said, “Anything that just costs money is cheap,” and in that light, you’re never going to be able to guess all of your customer’s opportunity costs or their willingness to pay. You could test, and test, and test, but speaking from experience, you may want to avoid all those first dates and just head out to the woods to find a man.