Concept 2: Different Customers Have Different Valuations

Lessons From an Auction

Think about bidding frenzies that occur at auctions. The opening price is usually low enough to create a fast paced one-upmanship amongst bidders. A lot of people are willing to participate when the price is low. But what I find so fascinating about auctions is the rationale that forces people to stop participating. As auctions heat up, bidders slowly drop out. The price reaches a point where some bidders crumble and say “this is too rich for my blood.” Translated into pricing speak, this means, “It’s not worth it to me anymore.” The item is finally sold to the lone standing bidder, who announces with an air of triumph – sometimes tempered by a hint of buyer’s remorse – that she is willing to pay more than anyone in the room. 

This simple lesson from an auction illustrates the key to unlocking your hidden profits: for any product, some people are willing to pay more than others. This is why some people, for example, willingly pay $278 for a serving of Tsar Imperial caviar while others would not consider eating – let alone paying for – this delicacy. Think about a sale item you recently bought. Why did some people happily purchase the same item at the regular price, while you waited for a sale? They valued the product more than you do.

Embracing this lesson from an auction is the key to pricing for profits and growth.