A PIR, or Price Investment Ratio, is the measurement used to create the expected market price of a product or service. Most often, however, product price is based on the cost to produce the product/service and the profit expected to be made. This Cost + Profit (C+P) method has been around as long as manufacturing has and is the primary way most prices for wholesale and retail are calculated. Yet it doesn’t always fit – in fact, it often undersells the product or service. It leaves out an important metric: value.
Value is measured by many things, from perceived benefits to expected gains or returns to the customer service or backing offered with the product itself. It’s been proven, time and again, that many consumers will purchase a higher-priced product if the maker’s brand or the promise of a warranty is included. This fundamental works on many levels, but is an important factor when considering the PIR for a product.
Rather than using a direct C+P method for determining the cost of a product or service, businesses have been turning towards the PIR method instead. It’s a combination of C+P which includes value measurements to come to a price. Most often, this is used by large makers of products who have a large portion of the consumer or sales market for their goods and thus can ask a premium because their perceived value to consumers is higher than is the competitions’. We see this is automotive, as an example, with consumers willing to pay for more certain nameplates than they will for others.
Yet it is also at work for small niche and other markets as well. If a supplier has something unique, their price can be determined more by perceived value to the consumer than by actual costs incurred. Similarly, the market itself – what people are willing to pay, auction-style, for uniqueness – can determine price more so than any other factor. This is another type of perceived value. Some consumers will pay more simply because the business selling the item is “locally owned” and thus they see it as having more value than the big box store down the street.
More often, however, PIR is used to determine the price for a service. Often, services are unique within a market – perhaps one beauty salon offers higher-trained personnel or more chairs with less wait than another. This creates different value metrics for what is otherwise, essentially, the same service being offered by several businesses in competition.
For the salesperson, creating value, thus raising PIR, for your clients is based on how you frame things as you approach. Your job is to either dispel or create the “premium paradox” that is created culturally within many buying departments. This paradox is common and comes from three things: the purchaser’s (decision maker’s) need to stay “safe” and thus avoid conflict within the company, the need for the time-savings that comes with going with a “sure thing” (even if it’s not cheaper), and the assumption that the premium buy will mean less likelihood of problems down the line (“reliability”).
Your job as the salesperson is to dismiss these three assumptions by showing that the more premium competition may not be as “safe”, that you provide more time-savings and surity than they do, etc. You do this by building confidence in yourself and your product over the competitor. One way to do this is by marketing yourself as more “exclusive” and “valuable” while creating a more upscale feel to your sales. Another is to show the inherent value in your product/service and the higher customer service level you include. Rarely is it done by “sweetening the pot” with lower prices or “better deals.”
Creating value and thus raising the PIR metric for a product or service is one of the hardest things a sales team can do, but when it’s done, the company will see more profits, better sales figures, and will grow as a result.