June 15, 2018

Can you value price a burrito?

Technically, you can individually value price anything you sell, but there are lots of situations where it probably wouldn’t be worthwhile to do so.

Value pricing works best when your buyer believes that the purchase that they are considering is urgent and that they have few alternatives.

Today, I am going to ignore the “urgency” part and focus on the “alternatives” part.

Here’s an example:

Imagine a typical burrito place in a busy metropolitan area at lunch time. It would be absurd for the clerk to ask each customer, “Why do you want a burrito? Do you really want it right now? Why not get one later? Why do you want our burrito? Why not go to the place next door?”

Laughable, right?


But seriously, why wouldn’t it work?

Here’s why:

It would result in negative ROI for both parties.

The process of having The Why Conversation is very expensive (i.e., time consuming, emotionally draining) for both buyer and seller. Neither party stands to recoup an investment like this on the purchase of a typical burrito.

If the typical burrito place sells an average of 20 burritos per hour at $5 each. Having a 30 minute Why Convo with each patron would mean that they’d serve at most two customers per hour. The restaurant would have to charge at least $50 per burrito just to make up for the drop in throughput.

In a busy metro area, it is implausible to imagine that anyone - even someone VERY hungry (i.e., high urgency) - would be willing to spend 30 minutes ordering a typical burrito and then paying $50 for it.


Because there are too many perceived alternatives.

If we assume that there are lunch alternatives up and down the street that charge a tenth of the price and are ten times faster, our imaginary value priced burrito shop is going to go out of business fast.

Of course, there’s a flip side to this: If you take away the perceived alternatives, everything changes. But how would the owner of the typical burrito place take away the alternatives?

By offering something for which a critical mass of core customers believe there is no substitute.

In other words, don’t be typical.

If you owned this burrito place, what could you do to not be typical?

Here’s are some ideas:

You could be the place that caters to vegans or expats or artists. You could be the place that was on TV or where they filmed that famous movie scene or where that celebrity chef works. You could be the place where mama greets every customer or where they bring cold drinks to customers waiting in line or where kids wearing baseball uniforms eat free when the local team wins. You could be the place that is only open from midnight to dawn or while the daily supply fresh guacamole lasts or when the temperature is above 80ºF.

It could be almost anything, as long as it’s genuine and it’s authentic and it’s remarkable.

Okay, enough about burritos. What can we as software developers learn from this?

Here are three takeaways: