When you’ve spent as long in product management and marketing as I have, you realize that some of the most valuable insights come from places you’d never expect.
Just recently, I was either bold or crazy enough to say ‘yes’ to my daughter’s invitation to go backpacking in the Rocky Mountains near Aspen, Colorado, (you can let me know which is correct). Assuming the ‘bold’ scenario, the allure of seeing the mountain tops and valley below from 12,700 feet is very compelling, and partly offsets the ‘crazy’ part that includes carrying a 40-pound pack up and down three mountain passes!
“So, what does this have to do with pricing?”, you may ask.
Well, after agreeing to the trip and coming back to my senses, I became vividly aware that the last time I went back-packing in the mountains was almost ten years ago. Needless to say, I was very motivated to keep my pack as light as possible for a five-day excursion into grizzly bear country. With the help of some high-tech gear and some disciplined packing, I was feeling good about having only 34 pounds to carry... until the day of the trip arrived and I learned about BEAR KEGS!
It turns out that the DNR decided that hanging food from a tree to avoid any bear trouble wasn’t good enough…we were now required to put it into a 5.5 pound barrel of fun called a Bear Keg, and lovingly haul it up and down the mountain passes. Now, if you haven’t been back-packing, trust me when I tell you that carrying one extra pound in the mountains is about like carrying another 15 pounds on level ground! :-(
Here’s where the lesson in pricing comes into play.
As tempting as it was to ignore this requirement, to be good citizens (and presumably to avoid being eaten on the trail) we went in search of a Bear Keg. With a quick internet search from the car, we learned that to buy one of these 5.5 pound monsters would cost at least $65 for the 5.5 lb. plastic version, and up to $250 for about a 3 lb. version (which I’m pretty sure must be made of titanium approved for a space mission). Since we didn’t plan to go back-packing that often, we agreed that we’d probably be much better off renting one. And, since we had already driven five hours to get to Aspen and the next city was at least two hours away, we decided to limit our search to the local area.
After finding the only place in town with Bear Kegs available, we headed to the rental counter.
(Me): “How much to rent a Bear Keg for 5-days?”
(Clerk): “Let’s see, that’s $40 plus a $5 cleaning fee and tax, so your total comes to $48.00.”
(Me thinking to myself): “That’s CRAZY…I can buy a new one for $65, why would I pay $48 just to rent it?”
(Me saying to the Clerk): “I’ll take it.”
By now, most of us product management folks already know that pricing should be based on the market’s willingness to pay, which is driven by how much they value the product’s ability to solve their problem. But how do you know how much they value your product?
Of course, the answer isn’t as simple as a few bullet points in an article, but here are some helpful hints to consider.
Lesson #1: URGENCY MATTERS
We found out that we needed a Bear Keg early afternoon on the first day of our trip. Our schedule only allowed for a five-day hike, and our trail was a 22-mile loop. Delaying the trip by a day would have meant having to cram extra miles into what were already going to be grueling days of climbing. Our need for a Bear Keg was definitely urgent, and we were highly motivated to solve the problem.
Lesson #2: SEGMENTATION MATTERS
I think it’s safe to assume that unless you’re camping in an area that requires Bear Kegs, you’re probably not going to value them enough to spend your money on one. It makes sense then, that this sport shop would set their pricing based only on the needs of this very specific segment.
Lesson #3: PERVASIVENESS MATTERS
Assuming that we didn’t want to meet a Grizzly the hard way (we didn’t), or break the rules (tempted, but overridden by the above), we had to solve this problem. And, so did every back-packer in the Colorado Rocky Mountains, so it was certainly a pervasive need for this targeted segment of buyers.
Lesson #4: ALTERNATIVES MATTER
We didn’t want to drive to other towns for an alternative, and even if they were slightly cheaper elsewhere, it wouldn’t make up for the lost time and gas money. I thought about just buying it, but was on the fence because I would rarely use it. And, even if I did decide to buy one, I wouldn’t want the heaviest model. This would lead me to a purchase costing well over $150, compared to the $48 rental fee. In short, I didn’t really have a very attractive alternative to renting at the time.
Lesson #5: PERCEPTION OF FAIRNESS MATTERS
Although I didn’t like the rental price, it at least seemed logical given the circumstances. I didn’t think that this shop was unethically taking advantage of the situation, and they were very friendly and helpful in providing tips for our hike in the area. As a result, if I have a friend who wants to repeat the same trip, I’d probably refer them to this shop in Aspen unless they decided to buy one in advance.
So, what do you think? Was their pricing crazy or smart?
My view is that they were ‘crazy like a fox’. As smart business owners, they actually priced them about right given the circumstances, based on their target market’s willingness to pay to solve the problem in that situation.
John Hanson is an experienced Product Management and Marketing leader with over 23 years of experience in technology companies. He is also Managing Director of MarketView Consulting, LLC, which helps companies monetize more value with a repeatable product management process for discovering & delivering what the market wants and will pay for. For more information, please contact John via e-mail (firstname.lastname@example.org), or by calling 651-261-0344