My job is business consulting, so I have access to many entrepreneurs.
Some entrepreneurs will ask me for advice when they introduce me to their products.
I read it and said that the products are very good, but it feels a bit expensive.
He said that our product strategy is mid-to-high end, and our products are sold to the middle class.
Listening to him saying this, I want to say: Who is the middle class offended, why should you sell your expensive things to us?
But they usually ask, how should my product be priced?
From a business insight perspective, product prices are determined by the value perceived by consumers.
What value can consumers perceive? - Functional value, experience value, and personalized value.
1, functional value
What is the functional value?
Street vendors selling watermelons, he directly hit the eye-catching billboards (sweetly reluctant to sell) to sell a single watermelon, billboards let us know that this watermelon is particularly sweet, this is the functional value we can perceive.
For example, I went to climb a mountain, especially tired, and I was very hungry after climbing the mountain. After I got down, I quickly found a restaurant and ordered three big hoes. After I ate it, I felt full.
Shantou can eat, this is the functional value that I perceive the gimmick.
By the same token, almost all foods can theoretically satisfy the need for fullness. If you only meet the need to eat, then the price of all food should be the same.
What kind of food do you think is more popular with users?
Of course it is a lower price food.
If the consumer is just to eat, then whether it is eating steamed bread or seafood, the function is the same. So price is a very important competition.
But the word price is not accurate, we use a more accurate word to describe: cost.
What is the price/performance ratio?
The price/performance ratio means that the product is cheaper when the quality is unchanged. Or the product is better at the same price.
Humans have two basic shopping needs: good quality and low price. What is the difference between the two? Let me give you an example.
There is a place in Shanghai called Qipu Road, translated into English is Cheap Road. It means cheap.
In addition, in Xujiahui, there is a very high-end shopping center called Ganghui Square.
Under what circumstances will everyone go to Qipu Road? Usually go shopping during the weekend when I am free, because many things on Qipu Road are cheap, so everyone goes to the cheap and looking for good things.
Under what circumstances will it go to the Grand Gateway? For example, your friend is going to get married next week, inviting you to a very tall hotel to attend a grand wedding, everyone is required to wear a dress.
But you don't have a dress. At this time, you will go to the Grand Gateway, because the items here are very good, but they are usually more expensive. Then you go around and try to find a cheaper one, which is to find cheap from the beauty.
These two needs will never disappear. Whether it is cheap or good, there is a price/performance ratio behind it.
So, if you are doing a functional product, the price/performance ratio may be your competitive advantage.
How do you make a price/performance ratio?
The most basic method is to reduce costs through economies of scale. The larger the scale, the cheaper the price. But when the cost is reduced, it will bring more scale. Compared with the price war, there is not much profit.
Or use technology to reduce costs and efficiency. It is only one product that can only be produced in one hour, and the technology can produce 50 products in one hour. But the difficulty of efficiency is getting bigger and bigger, only a few companies can make it.
What about most companies?
Most companies should not offer more scarce value to the consumer than the price of the same product.
2, experience value
What is the value of experience?
Still selling watermelon, hawkers selling a single watermelon is not selling well, so he launched a new selling method: sell half a watermelon and send a spoon.
When other people are selling a single, his selling method is very different. This new method of selling provides users with convenience, and when they want to eat watermelon. You see, this differentiation gives users the value of experience.
But everyone knows that there is a big problem in the Chinese economy. As long as some people make money from their products, all Chinese peers or laymen will imitate them and cause them to be everywhere.
There are many people who make cheap products, and there are very few people who can provide experience value. Therefore, the reputation of “cottage China” and “Made in China” is as loud as it is.
Americans often accuse the Chinese of saying that China’s intellectual property protection is weak. The Germans also believe that the quality of Chinese products is very bad. But in fact, every country goes through a phase - following others.
Today, as long as any product is labeled "Made in Germany," the price will rise immediately. Because German goods give the impression that quality is reliable.
But do you know how the name Made in Germany came from?
In the eighteenth century, the scissors and knives produced by Sheffield in the UK were very famous and of good quality and were welcomed by the market. Manufacturers in Solingen, Germany, have made this product in the cottage. They are very similar and the quality is very close, but the price is very cheap.
It is precisely because of this imitation, and the violation of other people's brands, leading manufacturers such as Britain and France to hate Germany very much, when German manufacturing was notorious.
In order to solve the product counterfeiting and maintain the power of British manufacturers, the angry British took up legal weapons and attacked German violations.
In 1887, the British passed an insulting bill, the Commodity Law, in Congress. There is an important clause in the Commodity Law. All products from Germany must be labelled "Made in Germany" to distinguish cheap and inferior German goods from quality British products.
From then on, the Germans realized that all efforts and innovations should be condensed on this label, which is the standard for others to choose us. So Germany later became better and better, and eventually got rid of the reputation of low-grade goods.
Many countries have been big cottage countries, and the United States and Japan are no exception. However, it is more important to understand the difference and to provide consumers with a more scarce experience value than to imitate it.
The core methodology for creating experience value is to switch from a product perspective to a user perspective.
But is the user just satisfied with this?
No, there is a sense of value that is more scarce than the value of experience - personalization.
3, personalized value
What is personalized value?
On Valentine's Day, the watermelon hawker has launched a new selling method, "heart-shaped" watermelon. In fact, as long as you cut a knife on half a watermelon, and then fight it, it becomes a "heart-shaped" watermelon.
But when consumers see this melon on this day, they will think of buying a girlfriend and expressing their wishes.
Personalization is the most advanced selling method in the product, that is, everyone can have a personal customization.
Typical red collar suits, for example, mainly make personalized clothing customizations on the Internet.
Their custom process is like this. You measure the size and send the size data to them, then they ask a professional designer to help you with more than a dozen pieces of clothes and mail them to you.
Then he tells you a dozen ways to match, you can try it out by matching. If you like it, you can stay. If you don't like it, it doesn't matter. You can send it back to me.
With this kind of mail order, he can satisfy everyone's personalized value on the Internet, so you don't have to go to the mall to do private customization.
Personalized needs are the most advanced and expensive requirements of this era.
Personalized products are products that allow users to perceive the most scarce products.
We say that product pricing, the most important factor is the user. Product prices are determined by the value consumers perceive.
The value consumers can perceive includes functionality, experience, and personalization.
For example, selling watermelon. You want this watermelon to be sweeter, so the hawker makes a billboard: sweet and reluctant to sell, this is called satisfying the functional value.
You want to eat watermelon at any time. The hawker cuts the watermelon in half and then puts a spoon. This is called satisfying the experience value.
You want to buy a girlfriend for Valentine's Day on Valentine's Day. The hawker spells the melon into a "heart shape", which is called satisfying individual value.
More scarce than function is the experience. More scarce than experience, is personalization.
Therefore, the pricing of a product depends on what value you can provide to the consumer. The more scarce the value, the higher the price.