Concept 1: It’s All About Value

Street Vendors in Washington, D.C.

With its great culture, monuments, and excitement of being the heart of our government – Washington, DC is one of my favorite cities to visit. From a pricing perspective, what really makes Washington distinctive is the way its street vendors prices their umbrellas. These savvy sellers understand that customers base the price they are willing to pay on the value they receive from a product. As a result, at the first hint of rain, these vendors double their umbrella prices. This increase has nothing to do with cost; it’s all about the increased value customers place on an immediately available haven from rain. 

For many managers, the moral of this story represents a shift in the way they think about price. The insight of the fluctuating value of an umbrella is not just relevant to street vendors; it’s applicable to every company in the world. No matter what product or service you sell, every pricing decision should be based on the value customers place on your product. You have to understand how customers value your product (as well as optional features). Even minor features (e.g., custom or rush jobs) that may not cost you very much more to offer are like thunderstorm clouds on the horizon, signals that customers are willing to pay higher prices.