… Different customers value things differently.

We all value things differently. We all have a different perception of the value of any product or service. So we all have a different maximum amount we are willing to pay for a particular product or service. It’s our personal judgement call – and it’s entirely subjective. “So what?” you might be thinking. Well, this seemingly tiny observation has a profound implication. You see, it means that whatever price you are currently charging, that price is WRONG!

Is that a big enough implication for you? Actually, I probably need to clarify that statement that your price is wrong. Let me be more precise. If you have a single price for your product, then that single price is WRONG… no matter what that single price actually is.

You see, having only a single price causes you to lose out in two different ways....
- For some customers that price is too high – so they don’t buy, and you lose them as a customer.
- And for other customers that price is too low – so you end up charging them less (and earning less profit) than they are willing to pay. Which means you lose again.

Economists call the amount by which you lose in this second scenario the “Consumer surplus”. So one of the keys to dramatically improving your profits is to claw back some of this consumer surplus by charging different customers different prices.

Let’s now look at the maths.

EXAMPLE

Imagine that you sell widgets that cost you £1 each and for which there are three potential customers: A, B and C.

- Customer A is willing to pay £4
- Customer B is willing to pay £3 and
- Customer C is willing to pay £2.

If you set a single price at £2, the all three customers will gladly pay you £2. So you’ll make total sales of £6 and profits of £3.

If you set a single price at £3, then Customer C won’t buy. But the other two will gladly pay you £3 each. So you’ll make total sales of £6 and total profits of £4.


If you set a single price at £4, then only Customer A will buy. So your total sales will be £4 and your total profits will be £3.


The MAGIC PRICE is the price at which you make the most profits. So in this example the MAGIC PRICE is £3 – since at that price you make £4 in profits – which is 33% higher than at any other price.

Now £3 is the MAGIC PRICE… because there is no other single price at which you can make higher profits. But we also know that: Customer A is willing to pay £4, Customer B is willing to pay £3 and Customer C is willing to pay £2.

So, if instead of charging those three customers all the SAME prices, we charge them the full price they are willing to pay, then our total profits will be £6. Customer A will pay £4, Customer B £3 and Customer C £2, so total sales are £9, with costs of £3. Which is half as much again as the £4 profits we made at the magic price.


Now it’s vital to recognise that there is nothing fishy or special about the numbers in our example. YES, I've kept the numbers as simple as possible. And YES, the real world is much more complicated.

But those complications do nothing to alter the fact that if you can find a way to charge different customers different prices – so that they each pay what they are willing to pay – then you will ALWAYS make more profits than you do by using any single price... even if that single price is your magic price.

In our example we made 50% more profits by switching from the magic price to charging each customer the full price they were willing to pay. In your business the impact could be more or less than 50%. But there WILL be an impact. Charging different customers different prices WILL increase your profits… and probably by a lot!

Economists call this “price discrimination” – but we prefer the Plain English description of charging different customers different prices, since that’s what it actually involves.

But how do you actually do it? Because it actually dies work, and it's not illegal, or immoral (maybe fattening)

Well, the key is being much more creative about pricing.

In future blogs) we’ll look at:

- exactly how you create different versions of your products and services,
- how you price those different versions,
- how you present (and explain) them to your customers, and vitally important,
- the order in which you present them to your customers.

New Year, old you?

“There’s no time!”

Well, you’ve got all there is. Yes, all of it. So if you haven’t got time, whose fault is it?

So often I’m at a client, trying to resolve some issue, and this is the reason it can’t be done. “There’s no time”. All these other things to do. No time to even stop to think if these things need to b done..so no one knows they they should be doing these things or not. No time to decide. Too busy doing exactly what they did yesterday, and the day before, and moaning they’ve no time!

Here’s a simple trick I use all the time. I wrote a small book a couple of years ago – Conversations for a Thoughtful Life – to my kids. It includes this little homily.

“Cut the crud

We live in an age of information overload. Added to that, we over think and worry, and find it difficult to sort out what is important from what is not. There are more and more demands upon our time and our thoughts. This is no doubt only going to increase.

What to do? My method is to be as lazy as possible, which will perhaps appeal to you. There’s no point in being a busy fool. You need to be effective rather than efficient. Also the only person's problems you want to deal with are yours. You don’t want half the world jumping on you, with all their issues, which they are sure (!) will be better dealt with by you. After all, you're only responsible for you, not everybody else you might come into contact with during the day.

So here's my simple little visualisation to tidy all this up in your mind. I simply imagine three big pigeonholes -- only three. In the first one are things that I have to do, of which there are only a few and there is quite a lot of space left. In the middle one are things that I want to do. This has a few more things in it, but there's still a lot of space left. And in the last pigeonhole is crud. This is full to overflowing -- it's impossible to cram another piece of paper in it. You know - you’ve been trying to cram more in all these years!

When something else is presented to me that apparently I have to do -- I simply measure it against the three pigeonholes. Do I have to do it? Do I want to do it? Or is it crud? And if it is crud -- which most of it is -- I simply don't do it. I've got enough crud to deal with already. Note the elegance of that last bit -- I'm not postponing dealing with this -- I'm not ever going to do it. If it's crud I don't need to do it. Don't confuse that with things that you will do at some point. You won't. It's crud. Remember? So why would you want to do it ever?

Liberating isn't it? And also quite a good filter for all the things which other people wish upon you. Things which are really their responsibility -- not yours. You've got enough of your own crud - remember?”

It works every time. It clears your mind so you’ve got the time to make small changes that make a big difference. Because those small changes get you even more time, so then you can think, really think, about what you want and need for your business to succeed. And then implement it. It’s what we do. Help clients get the time, do the plan, make the changes.

Here’s another small story to finish with, to help you with your personal time, and what other people may value about you.

Charles Francis Adams was Ambassador to Great Britain during the time of Abraham Lincoln’s presidency. He was something of a workaholic and rarely took the time to do anything with his son as a child.

However he did take time to write in his diary every day. It so happened that his son kept a diary too. After his father died, the son found the diary. The son recalled a day when, as a young boy, he had gone fishing with his father. So important and special was that day for the son that he wrote in his diary; “went fishing went with my father, the most glorious day of my life.”

The son was to refer to it repeatedly in his diary, but when he turned to the same date in his father’s diary, he found; “Went fishing with my son, a day wasted.”

Children spell many things differently to adults, and children spell love like this … TIME.