June 3, 2018
Max Price Formula: The Third Needle
A few days ago, I presented you with a formula that describes my mental model of the three things that dictate the maximum price a buyer is willing to pay for a product or service:
( BUYING POWER * DESIRE ) / AVAILABLE OPTIONS
Yesterday, I talked about the second needle, DESIRE. Today I’m going to talk about the third needle:
AVAILABLE OPTIONS
Let’s say that you have identified your ideal buyer. They generally have high BUYING POWER and your marketing materials appeal to their DESIRE by connecting the dots between what you do and how it can get them what they want.
So far so good, BUT... if your buyer believes that you are just one of many available options, you’re going to have a hard time commanding a high price.
For example, if you’re a Rails dev and your buyer can’t tell the difference between you and any other Rails devs, then the buyer’s perception is that they have a LOT of available options.
When a buyer perceives that s/he is faced with lots of available options, they will try to shorten and simplify the selection process using the one thing that is easiest for them to understand: price.
You might know in your heart of hearts that you are the best Rails dev on planet Earth, but if your buyer doesn’t recognize this, you’ll at best be able to command garden variety prices (aka “market rate”, whatever that means).
And so begins the race to zero. The commodification of your business. The more interchangeable you appear to your buyers, the smaller your profit margins will be.
The solution?
Stand out from the pack. You have to be different from the available options in a way that is meaningful to your ideal buyers. You have to create a meaningful marketing story.
Here’s what I mean by “meaningful to your buyers”...
Let’s say you’re looking for a fast spaceship to escape from Imperial soldiers. You meet with the pilot of the Millennium Falcon and tell him you need a fast spaceship (i.e., any fast spaceship will do, as far as you’re concerned).
In reply, the pilot (let’s call him... oh, I dunno... “Han”) says indignantly:
“You’ve never heard of the Millennium Falcon?... It’s the ship that made the Kessel Run in less than twelve parsecs.”
What Han is doing here is marketing. He’s telling you a story meant to differentiate the Falcon from any other fast ship. The extent to which the story will differentiate his ship from any other fast ship is your knowledge of the terms “Kessel Run” and how fast “twelve parsecs” is.
Han’s tone implies that it’s an impressive feat, but if you don’t know anything about how many ships have made the Kessel Run, whether or not twelve parsecs is a good time, or heck... even if “parsec” is a unit of time, then his story will not impress you one bit. And even if you do know that 12 parsecs is an amazing time for the Kessel run, you have to believe that Han is not lying.
Note the inherent subjectivity at play here: The effectiveness of this story hinges entirely on whether or not the listener is familiar with the terms used to tell it.
To stand out from the pack of competitors, you need to tell a credible story in your marketing that meaningfully differentiates you from everyone else. You must use terms that your ideal buyer understands, that they care about, and that they believe is true.
The crux of your persuasive marketing story could be based on almost anything... your worldview, your mission, your big idea, your purpose, your integrity, your specialization, your background, your personal interests, your guarantee, your unique point of view, your communication style, your client list, your focus, and so on.
But remember, you can’t just pick some arbitrary difference between you and the other alternatives. Your story will only be effective if your ideal buyers understand it, care about it, and believe it.
Yours,
—J