Where Is Your Salt?
#2 Price Sensitivity & Segmentation, Part 4
In two minutes, I can make a room full of business owners change their minds completely about their pricing power with a simple game.
I ask audience members to guess the price of various items, and I use interactive devices to collect the answers.
- I ask the current price of a gallon of regular unleaded gas, and audiences always nail the price within a couple of pennies. Everyone knows the price of gasoline. Why? It’s very visible in the news and on signs on every street corner. It makes up a sizable portion of our household budget. We buy it all the time.
- I ask the price of table salt. Guesses range from 1.5 to 5 times the actual price of table salt. Why don’t we know? We haven’t bought it in forever and it makes up 0% of our household budget. If we ran out of salt, we’d go to the store and buy it. Price doesn’t enter into our consideration because it’s beneath our notice.
Here’s the punchline of the exercise: almost all businesses have “salt” and “gasoline” in their portfolios. Many businesses are treating everything they sell like gasoline, afraid that if they raise their prices that their customers will leave them. It’s only true on the gasoline, not the salt. If you can identify the salt and raise prices there, you can increase your profitability without risking sales volume.
After this exercise, magic happens in the workshops.
Where is your salt?
(This is the next in a series of blog posts that dive deeper into strategic pricing tips posted on 8/14/14.)