This week’s Misfit Entrepreneur is Per Sjofors. Let me ask you something…How do you know how to price your products and services? How do you know which customer segments to focus on that will pay your top dollar for your product and services?
For most, it is a shot in the dark. They either price based on their costs and build in a margin or do what they “think the market will want or be in the range of the competition.” But is that reality? What if there was science behind pricing that could help you know exactly how to price your products and services and the best market segments to sell to with pinpoint accuracy?
Well, that is what Per has dedicated to better part of his life to doing. Per is a serial entrepreneur creating businesses that have gone from $0 - $72m/2 years, $10m - 28m/3 years, 0 - $15m/2 years. His methods have helped over 700 businesses all over the world and has been featured everywhere from the WSJ to the Street. His latest business is called Atenga and it is a culmination of all his work on pricing into a AI powered solution that shows companies how to price their products the best way and the best markets to sell to.
I bet you can guess why I’ve asked him to be on the show and that is to share his wealth of knowledge about what he has learned on how to price products and find target markets.
Per had a chance to run a couple of companies in Europe before coming to the U.S. to run companies and build them here. Pricing products and services was always a challenge and hit and miss. Everything per studied was very academic and theoretical that is couldn’t help them understand why some pricing strategies worked and others didn’t. Per saw a gap in the market in helping companies not only price their products and optimize the market fit, but to also find the right target markets to drive the highest sales volume and profitability.
He started a consulting firm providing those services.
What is the #1 thing companies get wrong when it comes to pricing their products and determining their target markets.
- The first mistake is that companies guess or price on “what feels good.” Doing this leaves money on the table.
- The second mistake is looking at your competitors and price based on them. But companies have no idea how their competition arrived at their pricing?
- The third mistake is to price based on the cost of the product. The buyer doesn’t care about the cost – they care about the value they get or perceive to get.
At the 11:40 mark, Per goes through his method for pricing…it’s best to listen
- It starts with market research that allows prediction of sales volume at different prices. This gives the base.
- Then, the prediction needs segmented with anything about the buyer to get the persona of the buyer that will buy at the highest prices and see real value. (Attributes that describe a customer – age, net worth, industry, where they live, interest areas, etc.)
- You then look at the features and benefits that generate the highest sales volume at the highest price. Some things may need developed or created based on the buyer’s need.
- You will also look at all sales channels and marketing messages to see what works and what doesn’t, so you can focus in on just what works in conjunction with the other areas above.
Can you give some action steps in each area that an entrepreneur could take on their own?
- Go talk 2 dozen potential customers and present your product or service.
- Then ask them 2 very simple questions.
- What do you think is a price for the product or service that is so low that you don’t think the product or service can continue to deliver the benefit that you expect?
- What is the price that is so high that is so high that it doesn’t matter, however good the benefit, that it will just be too expensive and you would not buy it?
- Once you have these answers and data, you can take the averages and you will have a good range where your pricing should be.
- This gets you in the ballpark and let’s you know where your price should fall.
What goes into increasing a customer’s willingness to pay?
- There are tricks you can use to increase sales volume and value perception.
- We as humans are fallable.
- When we make buying decisions, we are influenced by our environment.
- We also make decisions based on emotion first.
- Whenever we make decisions, we are always making it in context.
- Every time you sell something you have to make context.
- One of the most effective ways of doing this is by price anchoring. This is where you present price in context.
- For example, start by presenting something very expensive and then from there provide options that are less expensive and what you really want to sell.
A great example is the gold Apple watch for $17,000 when Apple really wanted to sell the $349 watch. The press was covering the $17,000 and made the $349 look very affordable.
- You should have a “good, better, best” strategy. You start by presenting the best, then the better, and then the good.
- The idea is to make the option you want to sell your product at look inexpensive and the best value in context to the other options.
At the 28 min mark, Per talks about how buyers lie in giving feedback…
- Buyers lie because they know the next time they are going to buy from this company, they want a better deal. They want more features and want a better price.
- This typically ends up with a product having too many features and benefits at a price that is too low.
- This is why buyer feedback should be done by a 3rd party and anonymously.
- A great way to think about it is when you go and buy a car. You don’t come right out and tell them the one you want, and you’d be happy to pay a little more to get it. Instead, you act more reluctant and work to get a deal and cheaper price.
- When working to figure out pricing, you have to put your own buyer hat on.
What advice can you give on starting and growing a business?
- The hardest part of the entrepreneurial journey is really to understand the customer.
- Customers may not think like you or see the need or problem like you. Remember, that a customer is not you and you really need to work to understand your key customer types.
- The #1 thing is to get sales. If you cannot sell, you cannot survive.
- You must focus on creating a sustainable sales operation in your company
- Make sure your investment in the company really helps drive sales results – especially in the beginning.
- Another thing that is really important is NOT TO DELAY! Get started and going. Beware of the “we just need to do X to get going…” There will always be the “X”, Get going!
Any other advice for entrepreneurs?
- People are the most important asset in any company.
- The one thing that is most important for people is to feel that they have a role in the company.
- Management needs to open to share successes and mistakes and include your people in your process.
- It’s about everyday inclusion and appreciation for the people in your company.
Best Quote: Buyers lie when giving feedback, because they know the next time they are going to buy from this company, they want a better deal. They want more features and want a better price.
Per's Misfit 3:
- You are going to make a difference. Only you can make your difference for your business, your personal life, and those around you. It is only through your actions that you can do this.
- Data makes the difference. Gut feel is not going to get your business to its best place. You must have data and need to focus on meeting objective you set based on data.
- Hire the best, give them leeway, include them, and reward them when they do good. Work with them when the screw up, because like you, they will.
Believe in People:
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