Recently I had a conversation with a friend (let’s call her Helen) who wanted to buy a new iPhone, however she was frustrated that the iPhone 8 offers little in enhancements from her current iPhone 6. She was contemplating ordering an iPhone X. When I asked why Helen needed a new phone at all, she said her current battery would not hold a charge. When I said she could simply replace the battery, she responded, “I just want a new phone.” Although her current model has all the functionality she wants or needs, Helen is willing to pay something between $700 and $1,000 to upgrade. Our conversation got me thinking about the age-old problem of value pricing something that is very durable.
Netflix recently announced a 10% increase in the price of its most popular plan from $9.99 per month to $10.99. The price of their highest tier plan is increasing by nearly 17%. Similarly, Apple recently announced the price of the iPhone X will be $999, a 25% increase over their previously highest priced phone. However, most companies are not Netflix or Apple and doubt they have that kind of pricing power. They worry that if their prices were higher, they could cause customers not to buy. They also worry that if their prices were lower their profitability would suffer. These concerns are common, but most often are not correctly addressed. Companies worry about their pricing strategy, but frequently just hope they got it right — or good enough. There is a better way. It is possible to move beyond hope as a strategy and build confidence in your pricing by regularly testing. Read more