June 1, 2014
Political interviewers have a favourite question of politicians who claim to be family people. They ask them a few questions about the price of everyday groceries. Things like the price of milk, sugar, bread and other commodities.
Most politicians then go on and make total idiots of themselves. They miss a golden opportunity to disprove a law of econmics and make a name for themselves. If, as business people, we also lose sight of the insight I’m going to reveal, we stand to miss out on a way to make extra profit with very little extra effort.
Back to the politicians. You see they hate to say they don’t know what bread costs. So instead, they try all sorts of tactics to answer a question where they haven’t a clue what the answer is. Perhaps that’s the definition of a politician! Some are even stupid enough to have a wild guess on a price and get it totally wrong. They live with these mistakes for years as every reporter repeats them to show the how out of touch the politician is.
The smart answer would be to say, my partner and I divide household chores between us and they do all the shopping while I do the DIY and cut the grass, so I don’t actually know. What I do know is that the price of food is something that concerns the electorate.
What will people pay for bread?
Another answer is to demonstrate how even what we normally think of as commodities, things like bread, break all the rules and people will pay much more for them than most of us would expect.
In my local supermarket bread like that in the at the top of the page costs £1.30. It went up 10p last year when wheat was in short supply.
When I saw the price my first reaction was that no one would pay it. But then someone reached over and put a loaf in their basket.
So the price for bread can inflate over 300% and people still buy it.
So what does the price of bread mean for every business in the world .. including yours?
What people will pay for a simple product like bread provides some real clues to what you can charge for your products or services. You see it was once thought that there was natural ceiling to the price of products like bread. Yes when bread is in short supply we might have expected the price to go through the roof, but I’m talking about normal circumstances where bread is plentiful.
You see for every product or service there is a top end price. Or more to the point a series of top end prices. With bread people some will pay more for an artisan produced loaf. This doesn’t mean that everyone wil pay more.
Maybe it is just 20% will pay a little extra where locally grown stone ground flour is used. Of these people maybe 20% of them will pay even more for this wonderful flour when the loaf is made in a woood fired oven. This is the Pareto Principle in action, it what what many people call the 80:20 principle or Pareto Law. And in this case we can see that bread can go up at least 300% in price and some people still buy. Maybe in some circumstances it can go up 1000% .. I don’t know but here is always someone that will pay more for something special. Maybe even billions!
Who would pay billions for products and services?
I know that billions may sound like an exaggeration but in reality it isn’t. People do pay billions for the things they like. Take football for example.
If you love football you may watch it at home and the cost is just the satellite or cable subscription.
Some people want more and will pay for a ticket to the game. That might cost them, say, £30 per game.
A season ticket will cost them £hundreds.
If you are a real fan and want a box for you and a dozen friends, one club I’ve just looked at will charge you £72,000 .. but of course you can spend a lot more more if you want.
Then of course if you really love football, and want the ultimate possession, why not buy a football club. This is where you can spend billions for the team of your dreams.
Everything has a perceived value
So you see both bread and football can be purchased in different ways and cost vastly different amounts.
The secret to learn from this is that anything can be sold in various formats and at various prices. All bread is virtually the same but some is hand crafted by artisan bakers, using the best flour, and baked in wood fired ovens. At the end of the day it is just bread .. but people’s perception of it and what they will pay goes through the roof.
So which of your products or services can you add perceived value to? What can you charge more for.
Like the bread example I also charge different rates. If you want to employ me as a consultant or coach I have base price and it’s pretty good value. But if you want the ability to phone me in the small hours of the morning and expect answers from me, despite the time, it costs considerably more (I’m reassuraingly very very expensive after midnight).
Which level of service do you want to buy from me?