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Issue #78 Avoid pricing disaster

Ever struggle with pricing? Well, you aren’t alone.

Coca-Cola once tried to set its price based on the weather. 

It was a disaster, but also a lesson worth learning.

More on that in a second.


First, some Updates:

  • 💰 Want to learn more about pricing? Here is a blog post that covers pricing theory and strategy. And our product design and pricing tool is very useful when designing your valuable products.
  • 💬 We’ve captured the LinkedIn training and put it into a playbook, so if you missed the summit or just want to relive the glory, the playbook is here.
  • 📣Podcast: Think your network is secure? It isn’t. And these guys will find every hole. Learn how crucial identifying the holes are to keeping customers happy.

In late 1999, Coca-Cola had an idea

The maximum price of everything depends on the perception of value (demand) and price.

(Yes, everything and no diamonds are not an exception.)

At one point in the 90s, Coke realized that people valued soda more in hot weather. So they put thermostats in their vending machines and jacked up the price when it got hot.

It makes sense – those willing to pay a high price for a soda will be able to get one, and those who don’t value the soda as much won’t buy one.

What this means for you

Define your value.

You want to be as in demand and special as a soda on a hot day. Not everyone will pay extra, but the people who are hot and thirsty – will have no problem paying.

Value all comes down to the problem you solve. If you get squeezed on price, ask yourself:

  • Do you solve a valuable problem for somebody specific?
  • Is that problem as clear as quenching thirst on a hot day?


The more precise and specific the problem is, the more pricing power you have because you become the only one who can supply it, and there will be more specific customers than you can serve.

A couple of notes here.

First, Coca-Cola sells to everybody. You can’t do that. Why can Coke do it? They are the most recognized brand on the planet. Once you are the most recognized brand on the planet, you can sell to everybody too.

Second, this pricing strategy didn’t end well for Coca-Cola. At first, people didn’t mind, or notice. Then the CEO, Doug Ivester, said in an interview that the strategy was the best way to squeeze every last penny out of customers. (I’m paraphrasing.)

They didn’t like that.

So, Ivester quickly rolled back the program amid cries of price discrimination from mad throngs of customers waving pitchforks (or something like that).

But wait, I thought I could charge for value.

You can. Just don’t rip people off. People pay for value; they don’t like being ripped off.  

So don’t rip them off. Honestly, even Ivester could have said, “We do this to ensure sodas don’t run out on hot days,” and people would have thanked him.

Charge a high price, deliver exceptional value, and reinforce that value constantly.

Jeff


🙋🏽Have Business Questions?

Ask them here: register a question, we’ll do our best to find an answer, and we’ll talk about these questions on June 9… at 11 AM.  

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