Value Pricing & Business Models for Creative Entrepreneurs

Lesson 4 of 33

What is Your Customer Willing to Pay?

 

Value Pricing & Business Models for Creative Entrepreneurs

Lesson 4 of 33

What is Your Customer Willing to Pay?

 

Lesson Info

What is Your Customer Willing to Pay?

If you are following along in the workbook and I highly recommend that you do, we are on page seven and the title of this segment is What is your customer willing to pay? What is your customer willing to pay? In the first segment, I talked about two kind of misconceptions that creative entrepreneurs have about what their customers are willing to pay. One misconception is that you need to be able to create affordable products to get any sales. And for a lot of us this comes from, for me gosh, this comes from shopping the sale rack. My momma taught me you do not shop in the front of a store. You walk to the back and you start looking at the sale rack. Oh my gosh, when I started making better money in my business and feeling like I have more money to spend on clothes, the idea of shopping in the front of a store was outrageous to me and I felt a little sheepish about it the first couple of times but really, there are lots of customers who shop in the front of the store and don't shop on t...

he sale rack. And so if you are a sale rack girl like me, it can be really hard to get past this idea of affordability of what people are willing to pay for something. That's misconception number one. The second misconception was that people aren't willing to pay what you need to charge so in other words, if you think about your products and think about a sustainable price for those products or services, there are lots of mental barriers that we have to thinking about the fact that customers aren't maybe willing to pay that price. But a sustainable price isn't a price that people are willing to pay. Why is that? Well one of the reasons that we think that is because well, we wouldn't pay that price for it. I wouldn't pay... Well no, I'm not a good example. (laughs) But if you're a life coach and you are charging 300 dollars an hour, maybe you wouldn't pay 300 dollars an hour to have someone answer the same questions that you answer on a daily basis or deal with the same issues that you deal with on a daily basis. And that's understandable. Why? Because you have a whole set of tools to be able to do this for yourself. Maybe you wouldn't spend on jewelry what you ask others to spend. Maybe you wouldn't spend on leggings what you ask others to spend. However, other people are willing to spend that because they don't have those tools. They don't have that ability. They don't have that creative vision. And you know for a lot of us, a lot of us who are pretty comfortable with the prices that we charge whether it's for jewelry or leggings or life coaching services or business coaching services or graphic design, it's because we have an appreciation of quality in those areas and we're going to talk a lot more about quality later on in this segment and about why that's a value that causes people to spend more. But before we get into that, we have another opportunity to share. And I'm really looking forward to hearing the answers to this particular question and the one that follows this. So I want to know, when do you happily pay more for what you buy? In other words, every market has different products at all different kinds of levels. So there's low-end products, there's middle-level products, and there's high-end products and everything in between. And we all make choices on a daily basis about where in whatever market we want to purchase. Do we want the five dollar earrings? Do we want the 50 dollar earrings? Do we want the 3,000 dollar earrings? We make choices that reflect what we care about and what is important to use about whatever it is that we're buying. So I want to know when do you happily pay more for what you buy? I know you guys really well and so I'll tell you one thing that you pay more for that you don't even think about probably on a weekly basis and that's organic produce. (laughs) How many of you all buy organic produce? Okay. Most of the hands here are up. And I bet online most of your hands would be up, too. And it's okay if you don't buy organic produce. I am not here to shame you. My point is that largely, there is one thing that this audience purchases on a weekly basis that you pay 25, 50, 100% more for. That price is absolutely not the deciding factor on that particular purchase. And I bet there are many, many other things you buy that you could spend less money on as well. So tell me, get on Twitter, get in the chat room, tag it with Tara Live, when do you happily pay more for what you buy? Let me ask you guys first. Robin? When I love it. When you love it. Like what? Like if I see a piece of clothing that I just fall in love with. Price is not an issue 'cause I'll wear it. You gotta have it, right? 'Cause I'm wearing the wrap right now I bought that was very expensive (laughs). Fantastic, I would also spend a lot of money on that so you're going to have to tell me where you got it. Yeah, absolutely. When we love it. Which I think is something we forget about in our own businesses. It kind of goes back to that idea of creating small stuff 'cause small stuff is easier to sell. When was the last time you gave yourself the permission, the time, the mental capacity to create something somebody just had to have. When it was something so fantastic you knew there'd be at least one, two, five raving fans of this thing. When was the last time you took the time to do that? So many of us don't. This is what I was alluding to earlier. I had that problem for so long. I would make small stuff and forget the big stuff. I'd forget the stuff that people would love, that they would have to have. So thank you for that and I think clothes are a great example, and a great example. What else do we spend more money on? Yeah Shauna. For me, when it's an experience. So I just went out to this great dinner and we paid for the other couple. There's great restaurants in the city and you can a big range of money and it's not how I normally eat but when it's a great experience, when there's an art to it, when there's the connection with our friends, I'm so more willing and it's so funny that I say that because I know much of my work is experiential and it makes me very hesitant to know how to price it and yet that's what I pay for is the experience I get out of it. So definitely makes me think. Absolutely. What do we have online? When do people happily spend more? Scott says I pay a premium to go to my crossfit gym. And I think that's probably a pretty common trend. Absolutely, that's a great example. And you know, I think there's a example too of that being very niched. Crossfit is a very particular type of exercise that some people are willing to spend more money on. Same thing goes with yoga. We were talking about Zumba earlier. These are things that because they are a particular thing that particularly fascinates, excites, and makes you happy, you are willing to pay more for it. Great example. Dcakes says skincare products that aren't full of harmful chemicals and Hollywood says there are coffee snobs so they will pay more for good coffee. I saw a lot of that in here. A lot of coffee people. (crowd laughs) Oh well you are in for a treat because coffee is going to play very largely in our afternoon discussion because it is such a fantastic example of when we choose to pay more and when a lot of us pay different things for different reasons. You know, you may pay seven dollars for a cup in the morning and 99 cents for a cup in the afternoon. Why do you make that choice? When you start to understand why you make your own coffee choices, you can start to understand how your customers make choices as well. So let's take this further. I want you guys to really dig deep on this particular topic. I want you to list the things you've purchased in the last week that you could have paid less for. List the things you've purchased in the last week that you could have paid less for. And this is right in the workbook on page seven. You can write that down. What are the things you could have paid less for? One thing I could have paid less for is my airline ticket down here. I fly out of Portland down to San Francisco. I made a choice a couple years ago, a few years ago, to stick with one airline. I used to be the Priceline shopper and whoever could get me where I needed to go cheapest was what I was going to do. I thought that's just what you did and then, I found out that if you stick with one airline, they start treating you better and better and better and better to the point where for Christmas, I flew first class back and forth across the country and didn't pay a red cent for it. Well I paid for the ticket but I didn't pay for the first class. I get to board earlier, I get to jip lines. There was an enormous line at TSA in Portland yesterday. I was shocked. That never happened. Somebody starts coming up the line and saying is there anyone premier in here? And I was like yeah, yeah I'm premier. Oh you can go over here! Great. I got through TSA in five minutes. Now, say what you will about that. There's all sorts of things you can say about that. But I knew travel was important to me. I knew convenience was important to me. And so I made the choice two years ago to stick with United. And United now takes care of me. I get all sorts of great stuff for them and so I'm happy to spend five, 10, 20 dollars more and sometimes that's all the difference in these choices are. It's not necessarily well I'm going to pay 10 dollars instead of 1,000 or I'm going to pay 1,000 instead of 10. Sometimes it's just a little bit that we make those choices around. So that's one thing I've purchased in the last week, well I didn't purchase it in the last week, but I used it in the last week that I spent just a hair more money on. I could have made a decision based on price and I chose instead to make a decision based on experience. It's a really great question because we've also got does experience also tie into exclusivity? Scott again is asking I set my prices really high because I want to brand myself as very exclusive and it's like also if you're buying a Mercedes as opposed to a Toyota. Again, you're looking at that exclusivity. Absolutely and actually, that's a great segue into the next thing so thank you for that. The question is why were those things more attractive to you than their less expensive counterparts? And exclusivity is absolutely one of the reasons that expensive things can be more attractive to us. Another question for that is when is exclusivity important to you and when is it not important to you? There are some things I don't care about exclusivity about and there are other times, that's what I want. I want to be treated like a rockstar. I want to be treated like somebody special. At the airport is one of the times I want to be treated like someone special. (laughs) That is important to me. Those places can be awful, right? And that extra little bit of experience, that extra little bit of exclusivity means that I am going to make a choice to buy something more expensive than something less expensive. So from you guys, I'd like to hear one thing that you paid more money for in the last week than you could have and why was that more attractive to you than the less expensive version? Yes. Well you mentioned coffee so I definitely spend more on coffee because I prefer lattes but also because I know what to expect whenever I go to the same place. Yeah, and do you go to some place local or do you go to a chain? A chain. Okay which chain do you go to? Pete's Coffee. It's close to my house, too. Okay, fantastic! So there's all sorts of different reasons. There's convenience. There's some quality, right? And for you, the difference isn't even necessarily between buying brewed coffee and buying a latte, but you could buy a latte at oh gosh, this is very east coast of me. But you could buy a latte at Wawa now, right? Hey Philly! You could buy a coffee at Wawa now which is a gas station for those of you who don't know. (crowd laughs) And they even make it on a machine. They steam the milk. It's not like this is coming out of just a dispenser but it costs a lot less and the quality perception is a lot less and it's not made maybe with hormone-free milk or whatever whereas at Pete's, it is. I'm sure it's made with hormone-free milk. There's a lot of training that's involved with each of those people so you know that when you walk there, not only is it convenient, but it's high quality and, another really strong value point here is consistency. You know that when you go to Pete's every single time it's the same. Same thing with Starbucks. It's something that they pride themselves on a lot. Consistency. It may not be the best latte in town. But you know when you go there what to expect. And even though I am a proud local coffee shop connoisseur, I will still go to a Starbucks over some place that I have an inkling of suspicion may not be very good. If I think the Starbucks will give me something better (laughs) or might give me something better, I'd rather go there for a consistent experience. So that's my value point there. Something else, what else have you paid more money for? Yes. [Curly Haired Woman] Water. Water? Ooh, tell me more about this. Well, and this may not be a reality, but for whatever reason I believe that bottled water is cleaner, safer, than using a Brita because I see what's coming out of my facet and I can't imagine this little filter is actually making it cleaner. And it could be an illusion, but I just choose to believe that buying a bottle of water is better than that. Yeah well and you know what? It doesn't matter if it's just an illusion or if it's just what you believe because you believe it. And with pricing, perception is a huge part of it, right? Price tells a story and for you, the story that bottled water is telling both with its price and its marketing and its packaging and all of this has changed the way you consume this commodity such that you're willing to pay a much higher price to get your water in a bottle than through the tap where you could get it almost for free, not quite but almost for free. So that's a great example so you might think about that. What kind of beliefs do your customers have about products in your market? What kind of beliefs do your customers have about products in your market? You know a friend of mine, Andy Hayes, I forget if it was on Facebook or Twitter but he mentioned the other day that he's kind of become the web design strategist or web design solution for people who have had bad relationships with web designers. Now, nothing against web designers. Web designers, I love you, but we also know there are a lot of web designers who end up giving their clients really bad experiences because everyone and their brother can become a web designer nowadays and everyone and their brother is a web designer. How many times have you heard that? Oh, my brother's building my website. Or my cousin's building my website, right? So Andy realized that there was this whole perception around web design and what the experience of getting a site designed is and so part of his branding, part of his pricing, part of the way he's positioning himself in the market and his values the he's choosing to use in his marketing is all about helping people who've been burned before or at least empathizing with we know you feel like you might get burnt in this experience. You believe you might get burned in this experience. We get it. That's not us. And then you price appropriately, you position appropriately, you communicate appropriately, and suddenly you've got a client life. One more. What's one more thing you purchased in the last week that you could have spent more on? Yeah? My hair. Your hair, great example. Tell us about this. I spent like 300 dollars on my hair and I don't easily do that but at this point in my life it's worth spending that kind of money. I could go to a school to get it cheaper, I could do it myself. So you say at this point in your life. Tell me what that means. Why is it important to you to have this 300 dollar hair job? Quality and convenience. It's just easier to have somebody else do it and I don't have to get it done twice if I pay for it at a higher price point. I imagine there's probably an element of experience as well in the salon. Absolutely. Tell us about your experiences between a higher end salon and maybe a lower end salon. I mean I got like coffee and sparkling water yesterday. (laughs) That was really nice. And the salon itself, the design is good and makes me feel good. And that's important to me. And then just the quality of the training of the stylist is different like their level of expertise is different than Super Cuts or a chain. Absolutely, absolutely. And again, that may or may not be reality but it doesn't matter because it's what you believe. And your customers believe things about your products as well, right? I totally agree on hair, too. My hair is very important to me. For me, my hair is part of my brand. People recognize me by short, red hair. So it's important to me that my short, red hair looks really good and that it's consistent, that it's always a certain way. My hair also grows very fast. So I get my hair cut and colored all the time, like once a month. It's not cheap. I could do it myself. I used to do it myself. I used to cut my own hair like this in the mirror. I was good at it, too. However again for convenience, experience, consistency, yes. I like to spend good money on my hair, making sure that that looks good for a number of different reasons. So what we're really talking about here is personal values and we mentioned beliefs too and I think that is really huge, too. Personal beliefs, personal values, the way we see the world, what is important to us, greatly affects what we buy and why we buy it and what we're willing to spend on it. So what personal values do those purchases that you've spent more money on this week reflect for you? Organic produce tends to reflect values around health. It tends to reflect values around the environment. Maybe it's sustainable labor that's really important to you. Just sustainability in general. So those are values that I know we all share, or most of us share, and all to varying degrees of course. But they're values that we share. So we talked about hair. There's personal values there for me in terms of my business and branding. For you, it's experience and convenience and consistency. In terms of the airline ticket that I mentioned earlier, the personal value there is that I like being treated well and I will spend a little bit more money to be treated well, to be treated consistently, to know that if I have a problem, I am first in line. So those are personal values that are really important to me. What kind of personal values do you guys have that affect the way you spend? Sasha, you're a coach so I'm going to pick on you on this because coaches always love to talk about personal values. (laughs) Learning, probably. I mean if it's something that I really want to learn and that I feel like will really excite me and expand my life. Like traveling to take tango lessons? Yeah, or I mean when I was thinking about the price thing, if there was a tango teacher who I felt just had the essence and the key of the thing I needed to learn, okay I would spend more money for that person because she would open a door for me. Excellent. Learning I think is a great personal value and definitely something again that the whole creative live audience has in common. Whether you are just valuing being here and taking the time out of your day to watch live or whether you've decided to pay for the course or whether you've paid for other courses in the past whether here or on other platforms or with other teachers. Yeah, man. We spend a lot of money on learning, right? Because we as a community have high personal values for learning, for curiosity, for personal growth, and we're willing to spend money on it. Not everyone is willing to do that. And so if it feels like everyone's willing to do that, it's all 'cause we're here. We're in a particular market, we are a particular community, this is what keeps us together, and that's what your customer base reflects as well. Your customer base is brought together by the set of values that they share. You will not have a customer base that has varying degrees or diverse personal values. They will all have a very similar set of values. So if you look at your offerings, if you look at what you're selling right now, are there things in your product spread maybe that do reflect maybe a diverse set of personal values and could you focus that more to tell a more consistent story. Does your price reflect the personal values that your customers have? Susan, do you have a question? Yeah, regarding that. So it's interesting because as a personal or I'm vegan and in regard to price I obviously spend a lot more money on things like that because it's more expensive. Now my jewelry has nothing to do with that so I'm torn whether I say that anywhere like in my bio or anything because I know some people hate vegan. (crowd laughs) So I don't want to put people off but I know that people who are also vegan would relate to me. Yeah, so that's a really great question. So unless your veganism affects the design of your jewelry I would leave it out of your branding and any time you're specifically talking about your product. However, then let's say that that's on your website or that's when you're at a trade show. A buyer doesn't come up to you and say hey I'm Susan, this is my jewelry, and I'm a vegan. (laughs) Not that you would do that. So in that particular sphere of talking about your work, you don't need to bring those two things together. However, personal values are important and people do choose to buy from local businesses or businesses that support certain causes or business owners who have certain personal values and this is where social media can really come in where you can tell almost an auxiliary story about you, your brand, what you're about in a way that you know maybe it doesn't affect your pricing, maybe it doesn't affect your brand, but it can affect the way your audience is relating to you and that could make them more amenable to your pricing or more amenable to your brand or the design of your work. So yeah, you have an opportunity to kind of play with that without making it center stage. And you know I'm sure there are other products or businesses that you can think of where the company has a particular value that you share that may or may not have anything to do with the product itself. TOMS comes to mind. TOMS is a great example of this. They have a personal value, say what you will whether it works or not or whether it's good or not. I know there's debate on that. But I love TOMS because when I know I'm buying too many pairs of shoes that that means more kids get shoes, right? And I like that that's the way they think. I like that that's what's important to them. I like that from my own perspective. That's a good reason for me to shop there despite the fact that I like the shoes, that they're comfortable, part of the reason we gave those shoes a shot to begin with wasn't because they were so super styling but because of that and now we're hooked or at least I am. (laughs) So absolutely. But I think that's more of an auxiliary story than the thing that your brand is really about, yeah. Yeah, Robin? I was going to say I bought a car and when I bought my car, they recommended a certain gas, a certain place, and that it had to be premium and all this and I just thought I am going to do that so I seek out this particular brand of gas every time I go fill up. Gotcha, yeah! Because I want my car to run. Exactly, exactly yeah. So these personal values and these personal choices that we make over price bleed into all sorts of areas as well. You probably paid more for the car and you're now paying more for gas and while you could look at that as a negative way of eating away at your budget. Let's not look at it that way. Let's look at it as these are positive decisions that you make because of what's important to you. And that car is important to you probably for lots of different reasons, what it represents, maybe what the brand is, maybe you love the way it looks, all of that stuff. Cool. Great example.

Class Description


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