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Blink 3 of 8 - The 5 AM Club
by Robin Sharma
Listen to the Intro
The 1% Windfall summary
Rafi Mohammed
How Successful Companies Use Price to Profit and Grow
16 mins
Topics
Table of Contents
The 1% Windfall
Summary of 6 key ideas
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Key idea 1 of 6
When selling your product to a single customer, use the strategy of one-on-one pricing.
How do you determine your product’s price? If profit is your priority, the best way to do this is through value pricing.
Value pricing uses the customer’s next-best alternative as a base price and adds or subtracts cost, depending on the product’s attributes. There are two ways to calculate this: one-on-one pricing and multi-customer pricing.
Which pricing strategy should you use, and when?
To set a one-on-one price, first identify your target customer. Then identify your customer’s next-best alternative product, and the difference between your product and the other product. Based on this calculation, you can then determine your product’s value.
One-on-one pricing is your best option when a product or service is sold to a single customer, such as selling a home. One-on-one pricing is also the most viable option when pricing a new product.
Say that you and your neighbor are renting your homes. The only difference between the two homes is that your house has a pool. In this situation, there are three possible outcomes:
In the first outcome, the rental price your neighbor has set, $1,000, is reasonable. You know that people are willing to pay 20 percent more for a pool, so you then set your price at $1,200.
In the second outcome, your neighbor’s rental price, $2,000, is too high. But you can’t charge above a reasonable market price just because competitors are doing so. Knowing that a reasonable price is $1,000, you add the value of the pool to come up with a price of $1,200.
In the third outcome, your neighbor has set a too-low rental price: $500. You’ll have to accept this low price as a base. But since people can rent your house at such a discount, they’ll be willing to pay more for a pool, say 30 percent more. With this calculation, your price is then $650.
Our next step is understanding how to sell to many customers: Read on for more!
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What is The 1% Windfall about?
The 1% Windfall (2010) introduces the often-overlooked strategy of price setting and shows how companies can grow even further by making smart pricing decisions. How can a firm not only survive but also thrive amid stiff market competition or even inflationary periods or a recession? These blinks will help you find the path to attracting the customers you want and keeping those you have.
Best quote from The 1% Windfall
...the key is to offer customers a variety of pricing options. This strategy is win-win: profits to companies and choices for consumers.
—Rafi Mohammed
Who should read The 1% Windfall?
- Business owners unsure of how to price their products competitively
- Companies that want to reach the broadest possible market
- Customers interested in how exactly product pricing works
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