Pricing Utopia – Value Sorting Hat

In the Harry Potter books, every new student at Hogwarts dons “The Sorting Hat”.  This hat reads the essence of the student and then declares in which house that student best fits. 

Pricing Utopia would include a Value Sorting Hat.

Imagine a customer walks into your store and is interested in buying one of your products.  You ask the customer to put on the Value Sorting Hat and the hat tells you exactly how much this customer values your product, exactly how much this customer is willing to pay.  You can then decide whether or not to sell it at that price.  (Of course in our utopia you can charge different customers different prices without ill effects.)

The Value Sorting Hat takes into account the amount of inherent value your customer will receive.  Will your product solve a major problem?  Will it bring them happiness?

It considers the other options your customer has for that money.  Which competitors, if any, are they considering?  How do they value your product compared to your competitors?  What do they know about your competitors features and prices?

The Hat processes your customer’s level of uncertainty.  How low of a price do we need to make them act now?

This is utopia.  No demand curves.  No conjoint analysis.  No statistics.  We can maximize profit and make every customer happy.

Why should you care about this pricing utopia?  Because you want to be moving closer and closer to this vision in real life.  Our customers, our competitors, and even simple economic issues keep us from reaching this pricing utopia, but by occasionally looking toward utopia we can see the direction we should be moving.

For example, customers do not tell us how much they value our product over our competitors.  But do we ever ask them?  You interact with customers every day.  In normal conversations you can learn a lot about how your customers think.  Have those conversations.  You may not have a Value Sorting Hat to know about each individual customer, but by having conversations with individual customers you will develop a picture of your customers as a group.  You will learn new ways to segment them for products and for prices.

Move toward pricing utopia.  Become your own Value Sorting Hat.

Action:  Talk to your customers.  Ask them about their decision processes.  Don’t interrogate them, rather have conversations and ask curiously, because you really want to know.