How Much Are You Willing to Pay for a Bottle of Mineral Water?
I was at a concert the other night at Avery Fisher Hall at New York City’s Lincoln Center, and decided to buy a bottle of mineral water at the bar. An 18-ounce, medium bottle was $4.00. I really didn’t think twice about the price (hey, this is New York!), although my wife suggested that the water fountain was a lot cheaper.
Intrigued by the ease at which the bar sold $4.00 bottles of Evian, I subsequently checked out a variety of prices for mineral water, from different sources.
Here’s what I found:
Fresh Direct (shipped to home) in a case: $0.29 per bottle
Street Cart at Columbus Circle (NY, NY): $1.00
Joyce Theater (NY, NY): $2.00
Avery Fisher Hall: $4.00
Here it is in a chart:
Think about it: There are few things you can buy that will vary so much in price. The most expensive bottle I could find was 14 times more expensive than the cheapest bottle.
So, why is that? There are many reasons, of course, including:
- Scarcity of supply and the number of nearby competitors.
- Posh-ness of the surroundings. Avery Fisher Hall is more “posh” than the Joyce Theater (upper west side/Lincoln Center versus 8th Avenue and 19th St).
- Affluence of the client base.
- (Related to affluence) The purchase price as a % of the customer’s income.
- We “expect” to pay a lot at the bar at Avery Fisher Hall when we’re attending a concert by a famous musician.
- The degree of your thirst.
This phenomenon applies to your fees as well.
Here’s the connection—one for one against the points above. You get much higher fees when:
- There is a scarcity of people who can do what you do—you are highly differentiated in the marketplace.
- The shopping environment is posh. For example, in terms of web presence, it’s the difference between going to a lackluster, dated website and one that sparkles with thought leadership and sophistication.
- You are targeting successful, profitable companies which are also large enough to pay your fees without flinching.
- You are working with executives whose budgets are so large (e.g., a Division President versus an HR manager) that your cost is a small percentage of their expenditures.
- Because of your brand and reputation, clients expect to pay high prices for your products and services.
- A client has a truly urgent “red issue” (a high level of thirst) that is a high priority for them.
So you see, the 14X difference in the price of a bottle of mineral water is entirely rational. It is explainable by the same conditions you can develop or target in order to charge premium prices.