He stood in a defiant pose, engaged in a debate with his finance guy. He was right! I mean, this finance guy is good at numbers, but he was the industry expert right? The CEO was adamant that he would not lower the price for the product. Sure, ever since the implementation a few years ago it had not taken off as much as they hoped. And sure, the sales have dipped quite dramatically over the last 12 months. But he didn’t want to devalue the product! This was a high-quality product and so it should be worth a premium price!
The finance guy saw he should step lightly. The CEO was a man who was very smart, but also known to hold his own counsel. So he explained it from the customer’s perspective; “Sure, this product is great! In fact, it is a premium product! But let’s think about this from our customer’s perspective – it is a little-known alternative to a well-known product. In fact, we are charging a 150% premium on it over the well-known item! Our customers are hesitant to buy and it’s absolutely hurting our bottom line!”
The CEO was dealing with 2 major issues – ego and how he perceived the product. While ego is a very common issue in business, the more common issue is actually the latter – an inability to see things like your customers. Whether in product development, pricing, customer service, or in delivery, it is absolutely vital to think like the customer.
When a business sets its price, it needs to be conscious of four major external factors that will affect its sales: complements, disposable income, seasonal movements and competition (which can be broken down into 2 areas: direct competition and substitutes). The only way for a business to fully account for all these factors is to take a step back from how “awesome” they think their product is and think like the person who is actually spending the money.
Ultimately the CEO agreed that the best solution was to drop the price. Not a massive drop, but enough to make it comparable in price to its substitutes. The result was more than doubling the sales volume and, more importantly, an overall increase in profit from the item. The company was lucky that this product contributed a small amount to the bottom line. If it wasn’t, the inability to think like the customer might have sunk the whole company.