Let's move on to the next "P" or "C" in the Marketing Mix: "Price" (from the marketer's perspective) or "Cost" (from the customer's perspective).
Price refers to what the marketer needs to charge to cover costs (direct and overhead) and to make the desired profit. Cost refers to how much the customer must pay to purchase this Product that will solve their problem. Obviously, if the marketer's costs are $75 and they want to make a $25 profit, the customer must be willing to pay a cost of at least $100 for this solution.
What makes a customer willing to pay the cost the marketer wants?
- Value to the customer - Is the solution to their problem worth at least the price? For example, if it's a stain on a fairly new carpet and replacing the carpet costs $1,000, removing that stain for $100 provides value. On the other hand, if the carpet is old, worn and ugly, and the customer was planning to replace it anyway, removing the stain might not be worth $100.
- Options available to the customer - Do other solutions cost more or less to the customer? If the cost of all other solutions are close to or more than this solution, then what the customer is willing to pay matters less. If all of their options are at least $75 and they must solve this problem, then they'll have to get over their desire to pay $25.
- Value & Options combined - If other solutions cost less, does this solution offer more value? In the carpet stain example, the customer has other options, such as store-bought carpet cleaning sprays or even placing a big potted plant over the stain. We all know, however, that carpet cleaning sprays don't always work, meaning a waste of money and effort for the customer. They often leave residues that attract more dirt, so, in the long run, the carpet is worse off. And, obviously, hiding the spot isn't really a solution - unless it's for that crappy rug that's getting replaced soon anyway. So paying a professional cleaner to clean the carpet for $100 has more value than the cheaper alternatives.
What does this all mean to you? The Price you set for your Product is influenced by many factors:
- Your costs and desired profit margin.
- What the customer is willing to pay.
- The market - the price of other products that solve the same problems as yours.
So you can't just arbitrarily set a Price for your Product, especially based on what you need and want...at least, not if you want to sell your Product. You must consider the value you're adding to a customer's life, the problem your solving, the other solutions available and the pricing of those other solutions.
This is not to say you must have the lowest priced solution. That's nonsense. You can even have the highest priced solution. If your Product provides more value than the rest, there's no reason you can't price it higher. But by considering all of those factors above, you have set your Price with a purpose, rather than because that's how much you want to make.
So there's your little lesson on the philosophy of how Price, in general, should be set. Next week, we'll get more specific about your products.
Does this make any sense? Has there ever been a time that you've seen a price on something and wondered what on earth made the company or store set it so high or low? Has there been a time you would have gladly paid more for something because it meant so much to you? How about a time when you had no choice but to pay higher than what you wanted? Do you know how to get nail-polish out of carpet - the inspiration for my examples? :-)