8. Why Guess or Presume? Go To The Source!

There are many different ways that business owners go about trying to figure out what price they should use. Depending on the nature of your business, you could try the following strategies...

• Evaluate product features and customer benefits

 

• Consider the size of your target market

 

• Evaluate your channel of distribution. High or low cost of entry?

 

• Mark up x% over your cost of production

 

• Factor in your capital costs (ex., R&D, equipment) over the expected volume/product life cycle

 

• Factor in marketing and overhead expenses, distribution costs, sales commissions, discounts, and finally, of course, your desired profit

 

• Undercut competitors’ prices

 

• Ask key (friendly) customers

 

• Consider the value perceived by your customer

 

• Get feedback from sales people

 

• Weigh typical customers’ “disposable income”

 

• Solicit advice from consultants or business associates

 

And if you simply mixed all these factors together, you could come up with a “number” (i.e., price) that you hope proves to be profitable. Right?

 

Wrong... unfortunately.

Even if you do every single one of the above, the data is just too soft. Too imprecise. Too biased. But more importantly, it’s incomplete. You still don’t know how the customer will react to your price.

Sophisticated companies develop very involved spreadsheets to factor everything in. They’ll use it to figure out the break-even point. A price is set that covers all the variable expenses associated with that product (cost of production, marketing, etc.) and a part of the company’s fixed costs (ex., overhead). When enough units are projected at the right price, break-even is achieved. Any price above that break-even point is profit.

Here’s the flaw... they haven’t factored in customer value satisfaction. The company has no idea how much the customer values the product – how much it’s worth to him or her. If the company gets only half the volume at a price that is, let’s say 10 % above break-even, what’s the point of that beautiful spreadsheet?

Solution? Go directly to the source and ask…

A well-written online survey can give you the information you need… directly from your prospective customers. They will tell you their perceived value of your product and what they would be willing to pay for it… as long as the wording of your questions attracts and encourages a response.

When you are preparing your survey, ask only for information that is absolutely essential to the pricing process. The more questions you ask on the Net, the fewer people answer.

Start with a list of questions that you would like to ask. No need to censor yourself at this point. Think about your target customer and let your creative juices flow. Once your list is complete, begin to weed out the non-essential questions. It may take several rough drafts before you are satisfied that you have identified the few key ones.

Develop questions that are easy to understand and make your customer think clearly, yet easily. You want to avoid lazy thinking and loose answers.

 

Your whole survey should look inviting and easy to answer… the pychological keys to getting a response. Keep it short and to the point!

Formulating the questions for your survey will not be a two-minute challenge. Figuring out what and how to say it effectively will take time and effort… as you revise, delete, add, tweak until you get the wording just right!

The MYPS! survey questionnaire was linguistically crafted to pull precise answers from your respondents. It has six questions that are geared to pull each person’s perceived value into the MYPS! database.

These six pivotal questions are divided into three pairs... and each pair comes under a certain category...

1) Product Impact -- how important and how unique the product is to your respondent. Pretty clear here -- give me prospects who rank it tops in importance and uniqueness!

2) Net Buying Habits -- how often your prospect buys this type of product, and how much she usually spends. Obviously, you’d rather have a customer who buys in your product category frequently and for big bucks!

3) Price Points -- what she considers a fair price for the product and where her Teeter Point is. The higher the numbers, the better!
The questions are carefully mixed so that each one doesn’t influence its “ pair partner.”
The whole survey takes less than 60 seconds to complete.

 

http://myps.sitesell.com/

 

Why so much attention to a questionnaire? Your final analysis relies on the strength and appropriateness of the questions you asked.

 

Poor questions… poor responses… poor results.

 

Make productive use of your time and your customer’s. Lay the proper foundation, the first time. Develop worthwhile questions.

 

OK. Let’s continue with the next part of the course…data collection…