What Is Water Worth?
Wednesday, July 22, 2015
It's not always obvious what a given item should cost. I was recently given a bottle of water. Obviously, I should be grateful for any gift, but how grateful should I have been to my benefactor in this case? How much money is a bottle of water worth? What is its proper cost? Was a simple "thank you" enough to demonstrate a suitable level of appreciation? Or did I need to provide something more substantial? After all, I wouldn't want to offend my benefactor.
Research led me nowhere. A bottle of water from a no-name brand, purchased in bulk, would probably cost around 30¢, but some of the more prestigious brands cost a handful of dollars for what is essentially the same exact product: clean, potable water.
The truth is that the price of water depends upon many things including competition, the nature of the buyer and the branding of the product. There's something else that matters too: the goal of the producer. That's right. Firms aren't always trying to maximize their profits from each and every transaction. A beverage that costs two dollars at a fast food restaurant might be free at a high end car dealership.
People are shocked when I tell them that not every sale has to generate profits. Sometimes it's a great idea to sell a product below market in order to build a relationship with a customer (tripwire pricing). Once a customer has come into your store and made a purchase (however small), he'll be more likely to buy other products in the future. Consumers representing tremendous lifetime values can sometimes be ensnared at miniscule costs.
Free items have the potential to generate enormous quantities of good will. A local business that rents out conference rooms provides free beverages to those who tour the space. In this case, the water is complementary, and helps to foster a positive image during the walkthrough of the building.
Days after I received that bottle of water, I decided that a thank you was sufficient for the transaction. Besides, it would be horrible to present a tangible gift of thanks, only to force the gifter to run through the same business analysis that I had worked through. By not giving him anything, I had actually done him a favor and saved him many hours of pondering. Perhaps I should send him a bill.
Are you having trouble assigning prices to your products? Why not contact me for a consultation or take a look at the best software pricing book on the market?