If your maximum price is determined by the perceived differential value of your offering, how do you know what value customers perceive. Many of them won’t tell you, especially if they think you’ll use that information to jack up the price.
Here’s an example of a product that for many buyers has a really high perceived value, with little demonstrable “objective” value compared to much cheaper alternatives. Those who believe they “can hear the difference” may happily pay over $100 for a cable, while those who don’t can buy an equivalent option for less than $10.
How does Monster create the perception of value? First, especially in the days before digital connections, there may have been some merit to their claims, especially if you had a lousy cable. Second, the product looks better. It’s bigger, badder, a monster, if you will. It looks more heavy-duty than your typical cable. Does it make a difference? Not for most buyers, but it sure looks good. Third, they position a premium offering that still looks cheap compared to the overall purchase. Someone buying a new high def TV and a surround sound system may be dropping several thousand dollars. At this point, the notion of spending an extra $100 to “make the most of your investment” seems to make sense. Which leads to what be the most important point. The sales rep at Best Buy urging you to make the most of your new purchase. Best Buy might be making more profit on the cable than the TV.
Personally, I’m not a big fan, but you have to hand it to them for breaking free of commoditization. If you’re a small business owner, how can you help customers perceive the value you deliver?