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One Size Does Not Fit All

#2 Price Sensitivity & Segmentation, Part 3

This is the next in a series of blog posts that will dive deeper into strategic pricing tips  posted on 8/14/14.  We’ll continue with more detail for #2: Price Sensitivity & Segmentation:

Understanding what your customers care about is really important.  We are used to thinking of our customers as a monolithic block.  We know our customers well, and we know what they care about, but we over-generalize.

One company I worked with manufactured machined steel and aluminum parts across many industries.  They know their customers care about quality, on-time in-full (OTIF) delivery, and price as their primary criteria.  And yes, all of their customers want high quality, 100% on-time and in-full delivery, and low prices.  But all customers don’t care about all of those things equally:

  • One of their customer segments was the oil & gas industry, who used their parts in off-shore drilling.  For this industry, unplanned downtime for any reason cost them thousands of dollars per minute of lost drilling time.  Quality and reliability are by far the most important considerations for this industry.
  • This manufacturer also sold some parts through distributors, whose primary considerations were price and OTIF delivery.

If your are thinking about your customers as one big group, you are over-generalizing.  If you find yourself saying things like, “X, Y, and Z are really important to our customers,” you may have an opportunity to dive deeper.  It may really look more like this:

  • Large customers in ABC industry care most about X
  • Small customers in ABC industry and all customers in BCD industry care most about Y
  • Customers in CDE industry care most about Z

This may take more homework to understand well.  But that homework will be paid back in more targeted (and more profitable) pricing.  It also allows you to target your offering, support services, etc. around the customers’ most important criteria.