Issue link: http://psai.uberflip.com/i/1398793
22 I PSAI Association Insight, August 4, 2021 The Value of Proper Pricing (continued from page 21) I am only guessing here, but one of those mistakes might be attributed to the above quote. Prior to his ignominious tenure at Penney's, Johnson was a brilliant businessman and retail superstar credited with making Target hip and turning the Apple store into a monster success story. Regardless of Mr. Johnson's history, his quote above flies in the face of previous quotes I've mentioned and may hurt your profits if you follow it. Great pricing is all about figuring out how much your customers perceive is value your product. They will not pay more than their perceived value, but they will often pay more than the thing is strictly worth, more than Johnson's "true value." In fact, if you think about it, the difference between your costs (true value) and what people perceive your product or service is worth is known as "profit." And that is why you are running your company. Now, finding the customer's perceived valuation isn't easy—but it is also not impossible. You have to do the work. This means undertaking activities that are known in school as "market research," though it doesn't have to be so formal that it costs millions. You have to talk to customers, understand what they value, compare what your competitors offer and charge with what you offer and charge— under what conditions will customers in your market pay more? When will they refuse to pay more? By not trying to figure this information out, you may end up experiencing the same fate as Mr. Johnson had with JC Penney. "Pricing is the exchange rate you put on all the tangible and intangible aspects of your business. Value for cash." — Patrick Campbell In my research on pricing, the word value comes up most often; it is obviously the backbone of sound pricing decisions. This quote is from a miscellaneous CEO of a random internet company. Even though he is not famous, I found the quote captures the essence of why pricing is critical to all sorts of businesses. You spend all the time, energy, and money developing your product, and in the end—without the research and strategic thinking I've been discussing—your pricing decisions are basically means that you are using to convey your perception of the value of all your efforts. Whether the customer will pay it remains to be seen, unless you have done your homework as I described above. If not, you'll likely lose time and money learning by trial and error. In many companies, pricing is overlooked or just guessed at. Don't shortchange your efforts developing and preparing your products to go to the public by ineffectively pricing it; put some real thought into how much value you think you've created for your customers. Of course, the quotes and information above do not capture all of the intricacies of pricing. No article, book, or dissertation can. The best "schoolbook" thinking still requires you to take your local realities into account. But taken together, the quotes I've offered do give you a sense of how to go about developing a great pricing strategy. If reading this article has piqued your interest in taking a new look at your pricing, remember to take into account the full value of what you are offering. Only then, will you reap the biggest benefit and financial gain will be possible.