The Three Needles
Sent by Jonathan Stark on May 31st, 2018
Yesterday, you learned that Paul Newman’s “Paul Newman” Rolex Daytona wristwatch sold to an anonymous buyer for more than $17 million dollars.
Why would someone pay that much money for a watch?
I think this selling price - and perhaps all selling prices - can be roughly expressed as a function of three considerations:
( BUYING POWER * DESIRE ) / AVAILABLE OPTIONS
In the case of Newman’s Newman, the buyer’s buying power (e.g., personal wealth, access to capital) was clearly very high. The buyer’s desire was evidently pretty high. And the number of available options was exactly 1.
Given this formula, we can posit three situations in which prices will stay relatively low:
- If you’re offering something to someone who has little buying power, they can’t pay a high price even if their desire is very high and the number of available options is very low. Example: Trying to sell an original Picasso to an art student who works nights at a Starbucks.
- If you’re offering something to someone who has little desire for the thing, they won’t pay a high price even if their buying power is very high and the number of available options is very low. Example: Trying to sell your kid’s original “one-of-a-kind” finger painting to Jeff Bezos.
- If you’re offering something to someone who perceives that there are many available options to your thing, then they won’t pay a high price even if both their buying power and desire are very high. Example: Trying to sell art classes to tech billionaires who are dying to learn how to paint.
If you want to increase your prices and still close deals, you have three needles you can try to move:
- Attract prospects that have more buying power
- Become more desirable to prospects
- Differentiate yourself from the available options
I’ll talk about each individually over the next few days.
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