Profit from the Psychology of Pricing

It is often said “You get what you pay for” with the perception of quality of product being linked to the price you pay. More often than not, this turns out to be true, cementing the belief that the amount you are willing to pay does reflect the quality of the product or service you receive.

When setting prices, business owners are often misguided in to setting a price based on what they think their customers are prepared to pay. Generally, this is lower than necessary to deliver sufficient profits resulting in the business owner working long hours with very little, or no reward.

Adopting a pricing strategy which positions your brand as delivering quality and value-based products presents the product or service as an attractive option, often gaining more customers and sales.

This is evidenced in the case study from Robert Cialdini’s “Influence”, which discusses how a local jeweller managed to sell out of turquoise jewellery because it was accidentally priced at double its initial price, instead of half (which is the price she had intended).

The inflated price now made the jewellery irresistible to buyers, who had before ignored the colour over all others (which was the initial reason for the intended price cut).

Now that the price had been raised, the context of turquoise jewellery had a “high value” in the buyer’s minds, even without an explanation!

How do you increase your prices without scaring your customers off in droves?

If you are innovating a new product or service, customers do not have a price point to reference to and are more likely to accept any price you nominate.

However, if you are competing with others in the marketplace and choose a high price point you need to give them a reason to choose your product over others by standing out from the crowd.

Apple is an example of a company which has established its brand as a high quality, yet highly priced product with people lined-up to purchase its product.

Apple has created this image through the use of its high-quality packaging so that the experience of opening the item out of the box is a thrill to the customer. Further, the product launches create scarcity by limiting the number of sales per day.

How do you amplify your product or service to gain market appeal?

Quite simply, to position your product or service at the top end of the market is to make it look fabulous.

You do this by:

1.      Creating a story about your brand which attracts interest as well as fulfilling a need

2.      Understanding the desired outcome of your target market, and ensuring the product not only delivers, but is how it delivers is communicated

3.      Articulating the benefits of the product or service to the customer

4.      Providing testimonials and case studies from existing customers

A final point for consideration, buyers are irrational and tend to believe that the most expensive option is the best. Let’s face it, if there is nothing setting off their alarms, why wouldn’t they?