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The Price of Popcorn: $8 or $0.25?

#2 Price Sensitivity & Segmentation, Part 2

In the last post, I shared that price sensitivity is not constant by customer, product, or order.  In addition, price sensitivity is context-specific.  Here are a few examples from everyday life:

  • You will spend $9 on a beer at the ballpark, $3.50 on that same beer at your local dive bar, and $1 on that same bottle of beer pulled out of a twelve pack bought at your local grocery store.
  • You’ll spend $8 on a tub of popcorn at the movie theater that would cost you $0.25 at home to make.
  • Several years ago, my air conditioner broke when my newborn daughter was four days old in the middle of a record heat wave.  Normally a very careful shopper for home repairs and improvements, I hired that day the very first contractor who answered his phone and said he could be there within an hour, no matter the price.

When have you been willing to spend a premium on something under certain conditions?  Your customers have those times too.  Maybe it’s a rush order inside of standard lead times.  Maybe the quality standards are much higher than usual or the risk tolerances lower than usual. Maybe the customer needs extra service or support compared to their normal needs.

Context matters for price sensitivity.  Failing to examine and consider this will cost you opportunities to increase profit through pricing strategically.  It may also cost you an opportunity to be a better partner to your customers.  When customers are willing to spend a premium, this often indicates a risk or fear they are trying to mitigate.  Understanding that risk or fear is the first step in solving problems for your customers that will deepen your partnership.

(This is the next in a series of blog posts that will dive deeper into strategic pricing tips  posted on 8/14/14.)