Do you remember the game show “The Price is Right”? Contestants were asked to guess the prices of various retail products. The closer their guesses were to the actual sales prices, the better their chances of winning prizes. It was a fun game to play and watch.
I like to simulate this game in the SBM Boot Camp training when we discuss marketing and pricing. I ask for a volunteer and then pose the following questions:
- What is the average price of gas?** Typically, I receive answers ranging from $3.40 to $3.80 per gallon. In reality, the average price is around $3.49.
- What about the average price of a gallon of milk?** Responses usually fall between just under $3.00 and just over $3.00. The actual average price is $2.69
- How about the average price of a loaf of white bread?** My volunteer typically suggests a price anywhere from just over $1.00 to $1.50. However, the real average price is $0.88.
So far, the guesses have been quite accurate. After all, we buy these products regularly, and their prices are widely published.
My final question is a bit trickier:
What is the average price of hot sauce? At this point, the volunteer’s expression shifts from confidence to confusion. “Hot sauce?” they ask, bewildered. Answers usually vary from as low as $2.00 to as high as $10.00. The truth is, nobody really knows what to pay for hot sauce, and a quick Google search reveals that there is no average price for this product.
So, would you rather be selling milk or hot sauce?
What happens when the price of milk goes up? Demand goes down. Why? Because almost everyone knows the price of milk. Conversely, when the price goes down, we tend to buy more.
Now, what about hot sauce? If the price of hot sauce goes up, I suspect it won’t have much of an effect. Why? Because very few people know the “right” price for this product, a price increase often goes unnoticed.
Most small businesses offer products similar to gas, milk, or bread. Many of their customers or prospects have some understanding of the average market price for these items. While these products may not be pure commodities, their demand is definitely sensitive to price changes. As a result, many of these businesses are hesitant to raise or lower prices, fearing the immediate reactions from their existing customers and prospects.
Recently, my wife and I went shopping for a new leather recliner for our living room. It was time to replace our old chair, which had become weathered and squeaked with every movement.
My wife spent weeks checking local newspapers for sales, and finally, we found a great deal at a national furniture outlet. She was well aware of the prices for these chairs and quickly recognized a heavily discounted sale—50% off. We visited the store on a Monday, and the chair was still there at the advertised price. We felt great about our find.
At checkout, the salesperson asked if we wanted product protection (insurance) for the new chair. He was well-trained and provided numerous reasons to purchase the extra protection for a price of $79. While we could have debated the merits of additional coverage, we had no idea what the right price for this add-on was; we were completely clueless.
I opposed the extra purchase, but my wife liked the idea. Guess who won?
The product protection we chose that day was the furniture store’s own equivalent of hot sauce.
I suspect the store made a fair profit on the recliner itself. However, I am confident that they enjoyed a significant profit from the “hot sauce”—almost pure profit after deducting sales commissions.
What are you selling today that serves as your version of hot sauce? It’s a product for which the market is uncertain about the right price, and it could be highly profitable for your business.
Finding the answer to this question might be the key to your financial success in 2025 and beyond. What happens when the price of milk goes up? Demand goes down. Why? Because almost everyone knows the price of milk. Conversely, when the price goes down, we tend to buy more.