Of course you do. You are a founder, owner, C-level exec with years of experience. You know your product and your consumer base inside and out. You have tested all that could be tested so, of course, you definitely know the right price for your products. Plus if your know-how and experience aren’t enough then you could always see what your competitors are doing and copy them. One way or another your bases are covered.
But, in 2015, you realized that you were wrong about pricing. Wait a minute! How could you be wrong? Sure, you didn’t nail the price every time for each customer but you were pretty damn close, right? What if I told you (and here is where we all have to take a leap of faith together) that your pricing today was not even close to being right. Crazy talk! Why should I even continue reading this babble. Well, because you could be where they were in 2015: wrong and wrong a by a wide margin. Solving this problem could be one of the most productive things you can do for your company in 2016.
Mitch: Allow me to invite you on a trip to New York City. Yep, the trips on me so let’s go.
Mitch: How about Central Park.
You: What are we going to do?
Mitch: Believe it or not we are going to walk from one end of Central Park to other. Along the way we are going to stop in different markets and buy one gallon of milk in each one.
Mitch: Yep one gallon in each market and we are going to take note of the price of each gallon we buy.
Now if we actually did this, and we have, would you be shocked if I told you that in almost every case the price of one gallon of milk was different in each market we visited. Why?
Now here is where it gets interesting and here is where it gets a little personal to you and your product. Let’s start with a simple question. Why would markets along a 2.5 mile stretch of the same park all charge a different price for the exact same product? What if I told you that the average individual income from one end of the park to the other goes from $118,000 to $29,000. True story! Crazy right? How could wealth change so much in such a small distance? Believe it or not it happens everywhere.
Now, let’s imagine you own all the markets along the length of Central Park. Yep, you are now the milk selling king of New York. Let’s also assume that you want to make as much money as you can for selling a gallon of milk. How would you price? Would you charge everyone the same price for a gallon of milk? Heck no! You would never do that knowing the variance of wealth from one end of the park to other. Well, of course, if you wanted to lose money you would charge everyone the same price. But, you don’t! So you charge differently. On one of the end of the park you would charge less where people make less money so they would buy your milk and ideally keep buying it because you are offering a price that makes sense to them. On the other end of the park you would charge more because people would be willing to spend more. By doing so you would give yourself the chance to sell as much milk as possible at the price that will make you the most money for each individual market. Of course, you will have to do some price testing in each market to find the best price but in each market it will be different.
Now, I know what you are thinking. Thanks Mitch! You just gave away the secret sauce to pricing. Wealth! So now you are going to go run out and adjust your pricing strategy and charge people in areas with more money more and people with less money less and 2016 is going to be an amazing year. Well, before you rush out and make that common mistake and cost your company probably even more than you might be costing your company now by serving the same price to everyone let me break it down for you.
In our above example we use wealth as a factor to adjust price. At Vendo we call these factors dimensions. A dimension is a factor that could contribute to someone’s purchasing behaviour. In other words a dimension is something that could influence the price of a product when a consumer is about to make a purchase. So what other dimensions besides wealth could you think of that could influence the price of your product when tied to an individual consumer?
- How about time of day?
- What about day of the week?
- What about device?
- What about historical purchasing patterns?
- And on and on and on….
Wow! Yep…. those are just a few but you can see where I am going. There are tons of dimensions that could influence price per consumer. They allow you to make the most money per consumer. Awesome!
Ok so now I feel like you might be warming up to the idea of making pricing a priority for your company in 2016. So how do you do it? Well, for you type A personality leaders out there you have probably already stopped reading and are now Slacking your team and barking out orders to your spreadsheet jockeys to start running tests and to start changing prices to find the right price for your product. Ole! You figured it out or did you? Remember, we are not talking about finding the right price per product but the right price for combination of product and individual shopper. A massive and important difference. A difference unfortunately that not even 200 spreadsheet jockeys could solve. There are literally billions of combinations of prices, products and visitors that impact conversion and lifetime value.
So how do you do it? Well, let me tell you how we do it at Vendo. We have invested millions and millions of dollars to build a platform that uses artificial intelligence, to gather information from all incoming dimensions in order to take the pricing decision for us. Let’s face it there are just too many factors for a human on a spreadsheet to calculate and take decisions. And what is more we are talking about real time decisions.
Artificial intelligence? Yep. It is not science fiction but the same algorithms that mainstream companies like Amazon, Marriott, American Airlines and major software companies use for their pricing and it is the same thing that drives Google search.
Now for the good news. Our platform is available for everyone. Just hit us up and we can talk about how pricing will be the best thing you can do for your company in 2016.