Contrary to popular belief, the market does not set the price when it comes to highly differentiated, high-technology capital equipment. And a handful of professional buyers does not constitute a “market” in any event—especially when those buyers are trained to mislead and even lie to you.
Despite what these buyers tell you, your products are almost certainly different from your competitors’ products. And those differences make your products more valuable to a certain subset of customers.
If basic consumer products like soap, toothpaste, and cereal can be differentiated, high-tech products can be, too. You might argue that these consumers are not as sophisticated as professional buyers, which is true, but neither are these consumer products. The principle works the same way.
Higher prices are the fastest route to higher profits. A 1% increase in average prices can equal a 10% increase in net profit for a company that typically earns 10% net profit. In addition, higher prices can be implemented right away, with your very next quote.
The key to capturing higher prices is being able to explain and justify them based on what the customer gets in return. In other words, you need to be able to say something to the customer like, “For every dollar you spend with me, you’ll earn [or save] X additional dollars.” If you do this effectively, the decision to do business with you becomes easier and less risky.
Over the coming weeks, I’ll address the following pricing topics:
- How to talk to customers, senior executives, and supply-chain people about prices
- What to say when customers raise objections or challenge your prices
- When and how often to talk about price during the sales cycle
- How to price on the basis of value instead of cost
- How to create versions that allow customers to choose tradeoffs between price and value, long before negotiations take place
- How to price services
- How to determine what customers will pay before you invest time and money in product development and demos
- How to develop an effective pricing strategy
- How to successfully raise prices
We have a lot of important ground to cover, so stick with me—I think you’ll find it’s well worth it.
In the meantime, if you take nothing else away from today’s post, remember this one key point: You are not a passive victim when it comes to pricing. The power to set highly profitable prices is in your hands.