In the world of sales and especially in the world of enterprise software such as Microsoft Dynamics NAV, Navision and Business Central It is tempting to calculate the price of a product simply as the sum of the costs and a fixed margin. But what if your customers were willing to pay more for your product? Then you could be giving away money.
Why the traditional approach falls short
The traditional approach of calculating sales prices based solely on your own costs neglects a crucial component: the value the customer places on your product. If the customer is willing to pay more than you are asking, you are missing out on potential profit. To avoid this, you should not only keep an eye on your costs, but also on the price your customers consider appropriate.
Peter van Westendorp's method: more than just a gut feeling
Peter van Westendorp has developed a method to systematically determine the price sensitivity of customers. With this method, you can find out the optimal price range for your product by asking potential buyers directly. The questions you should ask are:
- At what price would that be a great deal? (Great Deal)
- At what price would your confidence crumble because it's too cheap? (Too Cheap)
- At what price would you have to think a little longer before you actually buy the product? (Could Justify)
- At what price would you find the product so expensive that you would not buy it? (Too Expensive)
How pricing works in practice
Once you have collected this data, you can visualize the answers in a line chart. For each of the four questions, a curve is created that shows the percentage of respondents who would buy the product at a certain price as a Great Deal, Too Cheap, Could Justify or Too Expensive rate.
Here is the highlight:
- Minimum price 📉: The point at which the lines of "Too Cheap" and "Could Justify" intersect shows the lowest acceptable price.
- Maximum price 📈: The point at which the "Great Deal" and "Too Expensive" lines cross indicates the highest acceptable price.
- Optimal price point 💰: The intersection of "Too Cheap" and "Too Expensive" marks the ideal price at which your product is perceived as neither too cheap nor too expensive.
Surveys as the key to success
Using this method and conducting targeted surveys will not only give you a sound pricing strategy, but will also increase your profit margins - without deterring customers. The findings from these surveys could therefore prove to be extremely worthwhile.
Remember: the right price is not just a question of cost, but also of perceived value, especially for complex software solutions such as Microsoft Dynamics NAV, Navision and Business Central. So don't just set the price according to a formula, but take the time to research the price sensitivity of your target group. Your customers - and your bank balance - will thank you for it!
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