Jose Palomino

Pricing from the Vendor’s Point-of-View: What’s Your Customer Profile?

January 15, 2013

It’s not enough to ask, “What do we want to make on this product?” to establish pricing. First, you have to understand what you’re worth — and by that I mean: what are you worth in the customer’s mind?

Image credit: evinella on Flickr

Bottom line: figuring out pricing for a new product or service (or re-pricing an offering) should start with your customer’s point of view. The market (your customers) is the ultimate arbiter of pricing. Having said that, there are internal drivers that help shape final pricing. We call these the “Vendor POV” on Pricing.

This is where many marketers start — from their own perspective.

So, while we strongly suggest starting with your customer, you still need to take into account some internal drivers.  Once you’ve tackled pricing from the customer’s perspective, it’s time to get into some nitty-gritty details about your business.  (Please note that this is a “sneak preview” of Price Framing — our Pricing Methodology which will be published in a forthcoming white paper.)

Remember: if you’re not asking the right questions from your own perspective, then your pricing will be off.

Your Specific Target Customer Profile

The first step in looking at pricing from a vendor’s perspective is to analyze whether or not the vendor has a very specific target customer profile.  You, as the vendor, may indeed have a target consumer, but how specific is it?

Not only do you need a specific customer, but you need to understand the psychology of your buyer and his/her buying habits.  Chris Brogan admits that it is tempting to generalize our customers in order to get the cash flowing in.  He writes:

Look, when we’re hungry for business, we just want to see the cash register ring. I’ve been there, and I’ll be there again. But when we do have the opportunity to consider our ideal client, it’s important to take a moment and work through that, to really determine what it is that will help you qualify who works with you or not.

For Example, Amazon…

Realizing this is very theoretical at this point, I would like to offer you a real-life example of how knowing your specific target customer can drive your pricing.

Let’s take a look at Amazon.  Last year, Amazon released a new product on the market with a surprising price.  The Kindle Fire was Amazon’s answer to the iPad and the growing tablet market.  Whereas the iPad goes for the premium rate of about $500, Amazon arrived very strategically at the low price of $199 (And yes, I realize the Fire wasn’t exactly an iPad in function – but it was close enough, with web browsing, movies and more).

It was a bold move: so what were they thinking?

A lot, actually.  In fact, you can view this strategic price from all angles of Price Framing to arrive at the exact same price.

Specifically, in regards to how a specific market affected their pricing, here’s how it worked: Amazon has a specific target market, even if at first it seems broad.  They are appealing to people who are readers, yes — but even more than that: their specific target customer profile is their existing Amazon fanbase and users.  So Amazon went at their target from the Kindle angle more than the tablet angle, and the results were fantastic.

The More Specific, The Better

It seems risky to focus too narrowly on a specific target customer profile, but it will save you money in marketing, as well as drive your pricing (whether that is up or down).  Mandy Porta of Inc Magazine writes, “Targeting a specific market does not mean that you have to exclude people that do not fit your criteria from buying from you. Rather, target marketing allows you to focus your marketing dollars and brand message on a specific market that is more likely to buy from you than other markets.”

To determine the specificity of your market, answer the following questions (this list is by no means exhaustive):

  • What is the geography of your buyer?
  • What is the size of the company to which you’re selling?
  • Which industry/industries are you selling to?
  • What is the position you need to sell to?
    • CEO? President? Owner?
    • CFO?
    • Project Manager?
    • Individual?

These are the things you need to profile.  The more specific — the tighter and narrower the profile — the better, and the more specific your price range.

(NOTE: We’ll look at other Vendor POV Price Framing Drivers (whew!) in subsequent posts and the Price Framing White Paper.)

  • How have you seen customer profiles drive pricing — either in your own business or someone else’s?
  • Have you factored in your target market when arriving at price?
  • What’s the biggest factor you consider when pricing your offerings?

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