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Pricing lesson from Apple

There are many different pricing strategies but by far the most common is cost-plus.

This is where a business looks at the cost of time and/or materials and adds a margin on to work out the price. The problem with this is that you are internally focussed rather than external which is thinking about the customer.

Cost plus pricing works and is low risk but there can be huge opportunity costs because you are not focussed on what the customer wants. You can overlook opportunities to make more sales and achieve higher prices.

An alternative to cost-plus pricing is customer value pricing and Apple is a good example of a business that does this well.

This year Apple launches the Apple Watch with three editions – Watch, Sport and Edition. They are basically the same watch but they are aimed at different segments of their market.

You can do the same by using “Personas”. This is where you create fictitious ideal customers and use them to help you develop your product/service based on your understanding of what they value.

The three Apple watches are aimed at Average Adam, Sporty Sam and Businessman Bill. The product has been differentiated on design rather than functionally. The design is driven by the intended use.

Think about it. It’s not ideal to wear a sports watch into a serious business meeting and who wants to wear a heavy metal watch on a run or into the gym?

Apple wants as many people to enjoy value from their product and they want to extract the maximum possible price from each segment.

You can explore doing the same by using personas.