Mary Schmidt Marketing Troubleshooter

This morning, as I read Raley’s grand opening circular with all those low, low prices, I got to thinking about - yep - pricing. Now, I’m a big proponent of value pricing (versus cost plus, which is what a lot of people still use), but it’s tricky to do. And, it doesn’t mean that you can charge premium, regardless of how you perceive, measure your value. It’s the market’s perception that counts.

If I’m going to buy asparagus, I’d much rather pay $1 a pound than $4, since supermarket asparagus is all pretty much the same. And, the organic stuff doesn’t taste significantly different. So, it’d be difficult to pitch “artisan asparagus” to a mass market.

And yet, the small organic/artisan farmer spends much more on their crops than the factory farms. So, there Farmer Bob is, trying to make a living on asparagus, which costs him $3.99 a pound to produce. Of course, he can (and does) sell such at farmer’s markets and co-ops, where customers will pay more, but that’s a pretty limited market space (and Bob has to spend time driving, selling, promoting, all of which further increase his costs). The big high-end market chains, such as Whole Foods, will take a big bite of that pound’s dollars, which likely makes it a loss for Bob. He only has so much asparagus (so “can’t make it up in volume”); it has a finite shelf life; and his costs are the same, regardless of whether he sells direct at the farmer’s market, at the co-op or to Whole Foods. No wonder Bob also holds down a full-time job at the phone company.

All of which brings me to: the producers’ value doesn’t automatically and profitably translate to customer value. The farmer thinks his asparagus is worth six bucks a pound since he put blood, sweat, and often tears into it, handpicking the beetles by moonlight and using sustainable farming methods. The shopper sees a a bundle of stalks that looks just like the much cheaper asparagus. Further, the shopper only has so much money to spend on groceries, much less asparagus (even if they want the $5 stuff). And so it goes with everything from computers to professional services.

Here’s one of the big blind spots in value pricing. All too often, people think that means “I can charge a premium because my product/service/expertise is so great.” The kicker is that value goes both ways, up and down. You may have the best darned widget on the planet, but it’s still a widget and your competitors offer a very similar thing (at least it appears so to the market) at a tenth your “value” price and for far less that it costs you to even produce yours.

Value pricing is directly related to the market’s perception of that value, not what you think it is or should be. And, it’s not your customers’ job to make you profitable.

Tags: enterpreneur sanity check, marketing, marketing troubleshooting, pricing