In a previous post, I introduced the price-band as a way to know what your customers are thinking about when they buy.
Just to refresh your memory, the price band is the acceptable price(s) that your customer is willing to pay for your offering. The price a customer is willing to pay can fluctuate based on a variety of factors, and the overall price-band fluctuates over time because a customer’s willingness to pay specific prices will evolve over time.
At any given time, your price might be on the high end of the customer’s acceptable limit of what they’re willing to pay or it might be in the middle or it might be on the low end. In the example below, I’ve given three price points (although the price-band might be wide enough for many different price points).
Any price higher than this, a customer won’t pay; any price lower than this, a customer won’t pay. When business owners think of pricing, they often take a “set-it-and-forget-it” mentality of setting their price once and then riding that price until no one wants the product any more or it’s no longer profitable.
Here’s an example of a business that sets its price at the higher end of the market but then doesn’t change their price with the fluctuating market…
Notice how sometimes they are making money (the green price points) but sometimes their prices are too high for the market to pay (red price points). The same would be true if the business prices their offering on the low-end. And, depending on the severity of the price-band fluctuation, it could also be true if the business prices their offering in the middle.
Instead, prices should fluctuate with the price band. Here are two examples…
By maintaining dynamic pricing, you’ll always be making money.
But there are other reasons to maintain dynamic pricing. Stay tuned tomorrow to learn how the price-band is a tool to help your business.
As long as you remain in the acceptable price-band (and, of course, as long as you remain profitable), you can decrease the price slightly to take on more business or you can increase the price slightly to take on less business.