The price-band: How to understand what customers think about when they buy

Most businesses price their products or services backwards: They decide on a price almost arbitrarily and then slap a real or proverbial price tag on their offering and move on. As long as there is some profit built into their price, they feel like they can now move forward with their marketing.

But when businesses do this, they put an obstacle in the way of success.

  • They might leave money on the table
  • They might not be competitive in the marketplace
  • They might accidentally lose profit (because some expenses are not fixed)
  • They might spend most of their marketing energy trying to justify their price rather than talking about benefits

Setting a price shouldn’t be an arbitrary judgement call. And once set, that price shouldn’t remain static. Rather, setting a price is a dynamic part of your business that you should be willing to adjust over time. (You might also want to read my blog post Prices and pricing strategies: How to price your products more effectively and How to price a product or service.

Here’s a new way for you to think about the pricing of your products or services:

Rather than just setting a price, think about it from the other direction: What is your market willing to pay? The amount they are willing to pay will fluctuate over time within a narrow band.

I’ve illustrated this very simply in the blue band below. If you think of the vertical axis as specific amounts of money and the horizontal axis as time, you’ll see how your market is willing to pay different amounts over time (but always WITHIN THIS BAND).

I’ve purposely left dollar amounts and time periods off of this graphic because the specific amounts and time periods will change, depending on what is being a sold. A buyer of airplanes will be willing to spend millions over several years while a buyer of coffee will spend a few bucks in one short transaction. The amount of money and the time periods will differ but the concepts I’m explaining below are true for retail customers or business customers, no matter what you are selling.

Let’s take a fictional example of a coffee drinker to introduce the price-band concept. They are unwilling to spend $15.00 on coffee (that would be outside of the band on the upper end) and they are unwilling to spend a quarter on coffee (that would be outside of the band on the lower end). Their reason not to spend $15.00 on a coffee might be that they don’t have $15.00 to spend. Their reason not to spend $0.25 on coffee might be that they perceive twenty-five cent coffee to be too nasty to be worth drinking.

But within the price-band, they might be willing to spend anything between those amounts — For example, $12.00 for a grande-cafe-frappa-mocha-whatever at Starbucks or a thirty-cent discounted coffee with a fill-up at their local gas station. Any price in between those points is something they are willing to spend.

In the example below, I’ve shown 3 price points (in green) at one period of time in the price-band (although I think there are probably many more price points within price-band…

Again, the price points within the price-band are those price points that the customer is willing to pay. There are price points outside of the price-band that the customer is unwilling to pay.

What a customer chooses to pay or chooses not to pay depends on a variety of factors. Some of them include:

  • How much money the customer has available right now
  • How much money the customer thinks they will have or need in the near future
  • How desperately the customer needs the product or service
  • How closely the product or service addresses their needs
  • Peer pressure (to buy the product or to spend a certain amount)

Each individual buyer sets their own price-band but if you think of several individual price-bands on the same chart there would be some overlap. Some of your customers would have higher price-bands, some would have lower price-bands but in general those price bands would overlap.

Not only do prices with the price-band fluctuate, but price-bands fluctuate over time. To use the coffee example, again: A college-aged student might have a narrow price band that hovers around the lower-end of the market because they don’t have a lot of money. Later in life, when they are earning an income, their price band might grow. But then they make friends with someone who only drinks high-end coffee and they have peer pressure to pay even more. But then they lose their jobs and cut back on their coffee consumption to save money.

So what does this mean for you?

Well, there’s a lot I can say about this (and I’m going to write more about it in the coming week) but I wanted to first introduce the concept of the price-band so I could build on it in future blog posts.

Here’s why Facebook’s biggest threat to its existence is its own users

A few years ago, a couple of friends had to convince me to join Facebook. There were three people in particular that worked hard at convincing me.

Although I like to embrace new and useful sites, I was reluctant at the time because I didn’t see a lot of my own peers on there. Facebook was still pretty new and the demographic of the userbase was much younger than I was. But my three friends — a guy my age and two girls in their early twenties — convinced me to join and I relented.

Fast forward several years: I’m a frequent Facebook user now and most of my peers are on Facebook too, so it’s a great connecting point of current and resurrected friendships. I sign on multiple times throughout the day; I post statuses, comments, private messages, and chat with people. As someone who works at home, Facebook really is an integral part of my social life and its functionality has largely replaced the phone and email. I like Facebook for its ability to keep me connected.

But the userbase has changed. I first noticed this when a few of my friends admitted to me that they only signed up to keep tabs on their teenage children. Then my aunts and uncles signed up. Then my parents (who are the most Luddite of all of my relatives). Then my grandma. Many of THEIR peers are on Facebook now too.

It’s convenient to have EVERYONE on Facebook and for the most part, it’s pretty good (except when a relative posts a picture of me as a child!!! haha)

Because of its convenience and connectivity, Facebook’s userbase has grown… and aged. Not only has its userbase aged because of the passage of time (we’re all 6 years older than when we signed up, and 6 years can put you into a new demographic) but the sign-ups in recent years (the masses and the late adopters) are older.

So when I signed up, I was in my early thirties and on the older end of my Facebook friends. Today, I’m in my late thirties and in the middle or, perhaps even on the younger end of my Facebook friends. And the three people who convinced me to sign up? The guy who is the same age as me still uses it sometimes but the two girls who were also part of that conversation are almost never on it. My nieces and nephew never use it. Some friends who are early adopters of social media have deleted their accounts.

Yes, this is my a slice of my own life on Facebook but I think I’m a pretty typical person. So if I’m noticing a rapid aging of Facebook users, it’s likely that it’s probably happening to approximately the same degree elsewhere.

Facebook’s demographic will continue to age, obviously in part because time is passing, but even more so, I think Facebook’s average user demographic will age faster than the passage of time because older users are joining and younger users are leaving in favor of newer ways communicating (i.e. texting right now and then whatever else is around the corner).

So Facebook’s userbase has aged faster than Facebook has aged, and although Facebook’s pre-IPO valuations talked about how important its massive userbase was, I’m not sure that its userbase uses Facebook today in the same way it used Facebook in the early days. Yes, people are still connected but are they clicking ads? Are they liking pages? Maybe they are. Maybe they’re not. I don’t know. This older demographic uses the web far differently than younger users. Today’s older users are way more skeptical of the internet, reluctant to share information about themselves online, and struggle with knowing what to click and why to make something happen online. My older Facebook friends use Facebook very differently than my younger Facebook friends.

The key is: With a changing userbase, Facebook’s business will likely need to change. Functionality will need to shift more slowly for this group of slow adopters. Yet, if Facebook wants to survive and avoid becoming deserted like MySpace, they’ll need to also stay relevant to the younger group.

Interesting times are ahead for Facebook.

7 ways I use Twitter (and 1 way I don’t)

People ask me all the time why I’m on Twitter. “What’s the purpose of Twitter?” they want to know. Naysayers wonder why I’m on Twitter. Skeptics can’t figure it out. And sometimes clients ask me to help them get new clients from Twitter.

There’s a lot of confusion around Twitter and there are many ways that people use it. I certainly don’t profess to be a guru but I’m happy with my Twitter experience and my business has been positively impacted by it.

7 WAYS I USE TWITTER

  1. I use Twitter to stay up-to-date on general news, weather, sports, and industry-specific news. Twitter is in real-time so with properly chosen people to follow, I stay informed.
  2. I use Twitter to meet interesting people and businesses: I’m fascinated with entrepreneurs, equity and real estate investors, and innovators and Twitter is a great way to listen to them.
  3. I use Twitter to do market research. I pay attention to what my target market is tweeting, retweeting, and commenting on, and it informs my business decisions pretty regularly.
  4. I use Twitter to get outside of my bubble: I work from home and I’m focused on only a couple of niches. It’s easy to stay within that little world. But Twitter helps to get me out of it.
  5. I use Twitter to share myself with the world. I try to do that on my blog a bit, too, but my blog has a focused formality about it that Twitter doesn’t have. Twitter lets me relax a little and share my excitement over a NASCAR race or what I’m reading or eating or doing right now.
  6. I use Twitter to establish my expertise by listening to experts in my field, interacting with them, and sharing thought-leadership that I’ve written or found online.
  7. My favorite way to use Twitter is to have conversations and network with other people. I’ve met some pretty great people on Twitter who I would never normally connect with… but I’ve been able to connect with them on Twitter and then subsequently I’ve connected with them off of Twitter (and even in person). It’s very rewarding.

1 WAY I DON’T USE TWITTER

  1. I never use Twitter to solicit business from a potential client. I don’t ask people to hire me to write or consult for them. I don’t offer my services on Twitter.

In my experience, everyone has a slightly different take on Twitter and some people are totally cool with selling their services or products on Twitter. I’m not there. I love that Twitter is a lens to a larger world of awesome people that I wouldn’t get to connect with in any other way.

One Twitter skeptic asked me if I ever got business from Twitter. Some people who have become my clients have checked out my website, my Twitter account, and other online profiles of mine before hiring me. And I have built some pretty amazing relationships with smart people who have made my business better (through ideas or joint ventures). But no one has ever tried to hire me exclusively because of my Twitter account… and I’m just fine with that.

How do you use Twitter?

How to handle ongoing projects in GTD

I’ve been using David Allen’s GTD system for a few years now and I’ve been very happy, less stressed, and extremely productive. (I use Evernote to manage my projects, project support files, and for incubation, and keep my Next Actions list on my mobile)

But one area I’ve struggled with has been how I handle the ongoing projects that I have to do.

By GTD’s definition, a project needs to have a specific, achievable outcome. If there’s no outcome, it goes against the philosophy of GTD and it will feel like you never accomplish something because the project is never crossed off your list. I like this philosophy and embrace it, and most of my project have a specific, achievable outcome… and it feels GREAT to cross them off of my project list when I complete them!

But I also have ongoing projects that need to be done and don’t have a specific, achievable outcome. Specifically, I try to blog daily in my business and I have a dozen or more client content commitments to write each week (like articles or blogs, etc.). These are multi-step activities that often require some research, brainstorming, a first draft, editing, and publishing… and sometimes a bit of time to think about them.

I have been happy with GTD overall but have struggled with handling these ongoing projects because they never feel like they get crossed off my list.

I researched for an answer online about how to handle ongoing projects in GTD. I found 4 solutions that haven’t worked for me…

WHY ONGOING PROJECTS IN GTD AREN’T EASILY DEALT WITH

Solution 1: Schedule them in your calendar: Many of the uber-GTD superstars have said that there is no such thing as an ongoing project — it’s an action that needs to be scheduled in your calendar. Some were quite adamant in their assertion that any ongoing activity needs to be scheduled.

Yes, for any ongoing activities that require me to show up and do something, scheduling them into my calendar makes the most sense. That’s how I handle activities like working out, doing my weekly GTD review, and invoicing clients. The note pops up on my calendar and I do it. And it will pop up again in a couple of days or at the end of the month or whenever I’ve scheduled it. Easy; and I don’t have to think about it. But these activities are generally one-step activities that are done on a specific date and don’t require preparation.

But it doesn’t work for all ongoing activities because not all of my ongoing activities are one-step actions that can be performed on a specific date. The content I write each week requires some preparation, several next actions, and it needs to be done plus-or-minus a few days; I can’t always do it on a specific day.

Solution 2: Make it an Area of Focus: Another solution suggested by the uber-GTD supestars is to make my blog and each of my clients an Area of Focus and then make each piece of content its own project.

This doesn’t work either.

Of course my blog and my clients are each Areas of Focus. But it goes against the philosophy of GTD to create as many as 20 or more projects each week on individual pieces of content. I’ll spend more time creating projects than I want to and GTD will cease to be useful to me. I don’t want to fill my project list with “AaronHoos.com blog post – Monday“, “AaronHoos.com blog post – Tuesday“, “AaronHoos.com blog post – Wednesday“, etc.

And I would be screwed if I ever wanted to work ahead or if I’m pre-writing a bunch of content prior to taking a vacation. The number of projects I would need to create for that would not be practical.

(Clarification: I actually do like this idea of creating projects for individual pieces of content, and if I wrote less ongoing content each week then I would definitely do this. And I do use this method for my one-time projects. But the sheer volume of content I do each week makes this impractical because it fills my project list with more detail than I find useful).

Solution 3: Leave them on one list as ongoing projects: This was my default method for a long time but I ended up only ever cycling through 75% of my project list. The other 25% never felt “completed”. Since I love to cross stuff off, and I get really motivated to put new projects onto my project list, this kept me from enjoying a sense of productivity.

Solution 4: Create 2 project lists: Another solution (often suggested by the GTD upstarts who hack their own methods into GTD) is to have a list of achieveable projects that can be crossed off when completed, and a list of ongoing projects that are never crossed off. I tried that for a while but wasn’t as happy with handling two project lists. I prefer one list with everything on it… and again, I love to cross things off, so the ongoing project list isn’t as appealing to me.

HANDLING ONGOING PROJECTS IN GTD

The solution I desired needed to accomplish a few things:

  • Be handled as projects instead of scheduled activities because of the complexity of the task
  • Be handled in a way that didn’t overwhelm my project list with individual content pieces
  • Help me to work ahead without overwhelming my project list
  • Kept everything to one list
  • Be achievable — I want to be able to empty my project list!

The solution that has worked really well for me is to create a content-related project in which the desired outcome is a number of pieces of content tied to a specific time frame. The time might be weekly, monthly or quarterly. Here are some examples…

  • 7 AaronHoos.com blog posts for the week of December 9th-15th
  • 4 articles for ABC client for January
  • 6 articles for ABC client (2/month for January, February, and March)

The desired outcome is a quantity of content for a specific time period. It’s really a group of small-ish projects. Basically, you’re creating a project from an Area of Focus and even though you might do a similar project in the future, you are placing a measurable limit on your project to make it achievable.

Of course, you might have a different type of ongoing project that isn’t related to writing but I think this solution could work for other professions as well.