Pricing on Purpose

The Reasons for Business

Why is movie theater popcorn so expensive? It’s because the refreshment stand is really a form of customer segmentation that allows those who value snacking as they watch a movie to pay for that experience. Those who just want to see a movie will still purchase tickets, but not buy popcorn. In the same way, your job is to understand what your customers actually want you to provide, be it movies, popcorn or both. You need to know what they want, why you are in business and how you can create value for your customers while capturing a hefty portion of that value as profit. The profit you achieve is a trailing indicator of the value your customers place on your offerings and of your skill in capturing a portion of that value.

Your organization’s worth resides more in the minds of its people and its relationships with suppliers and customers than in its tangible, balance sheet assets. Your goal is to develop, manage and use all three forms of that intellectual capital – human capital, structural capital and social capital – to capture benefits and profits for your business. Andrew Carnegie once said that if you took away his factories and hard ...