Let’s Set some Basic Pricing Ground Rules:
The first is that Heidi, your customer is not buying a product or service per se, but is paying to get a job done. If what you offer doesn’t help with that primary objective then you get nowhere regardless of your price. Yet Heidi will pay more if she believes you can help her get the job done perfectly, and more again if she believes you can help her better than your competition.
The second element is the emotions you evoke in determining value, and the biggest, brightest emotions have to do with fear, sex, and greed. I hate to say it, but it has been true over the centuries and nothing has changed in this one.
Value (as seen by Heidi, not you) is what determines your selling price. So you need to discover what Heidi’s real needs are, and as most business people don’t know, when you learn this you are way ahead of the pack.
Heidi has two fears in her buying spree -– fear of change that the product or service represents and fear of being cheated on price and result. You can overcome these two obstacles by showing Heidi HOW the product will help her get the job done, perfectly. You are increasing her gains and reducing or eliminating her pains.
Sex sells. Popular men’s magazines have experimented often to check the impact on sales. Overwhelmingly, when a sexy, semi-naked woman appears on the cover, it outperforms an image of a male star. Because sex is so powerful in advertising, when used with the appropriate products it can improve the value of your brand and so command higher prices.
Oscar Wilde famously said, “A cynic is a man who knows the price of everything and the value of nothing.”
Price is certainly a key attribute that consumers consider before making a purchase – but even a cynic can be moved away from price alone. Let me give some examples.
Pricing Display Tips
Bracketing – a tested example in selling beer showed that best result was offering 3 options with the price you wanted people to buy in the middle. Set third option very high, some people will buy the highest-priced item regardless.
|Set||Options||Super Bargain||Bargain||Premium||Super Premium||Avg Price||Increase|
Do the math. A 32% sales/profit increase became possible just from a pricing option.
Decoy Pricing – offer different options with similar or almost similar prices for two of them. Of these two, one is a decoy and the other is the more attractive choice you want people to pay. Dan Ariely (a behavioral scientist) conducted a study offering three different subscriptions for the Economist magazine to 100 MIT students: web only ($59), print only ($125), web and print ($125). 16% bought at the $59 price and 84% bought the web and print offer. When he took out the decoy, the ratio changed to 68% for the $59 web only, and 32% for the $ 125 combined offer. Decoy pricing gave a 43% increase in sales/profit return. Go figure.
|Set||Options||Web Only||Print Only||Web & Print||Avg Price||Increase|
No Dollar / Rupiah Sign – remove the currency symbol from your products, this appears to reduce the pain of paying, triggered by the currency symbol. This was tested on a menu by a restaurant in New York, where items with no currency symbol outsold currency items with or without decimal points.
The Magic 9 – The University of Chicago and MIT tested selling the same dress at three prices, $34, $39 and $44. The $39 price was the biggest seller.
Size Matters – when you have a sale, show the discounted price smaller than the normal price. This is counter-intuitive, but it works.
Setting a standard markup on costs is easy but lazy, and potentially leaves money on the table. It doesn’t happen in the Pasar, as we all know. Set your price based on a value from the customer’s viewpoint, about how well your product meets her needs. Is an umbrella worth more on a rainy day? Is a product’s setting (packaging, store ambiance) influential on my perceived value?
Smart business owners understand Heidi’s pricing needs differ in three primary ways: pricing plans, product preferences, and product evaluations. Pick-a-plan, versioning, and differential pricing tactics serve these diverse needs.
Pick-A-Plan – If Heidi has a problem with your pricing plan, provide options. Examples are rent, lease, prepay, all-you-can-eat, happy hour, or quiet-day promotions. Provide ownership options, reinforce value, and overcome financial constraints.
Product Preferences – we covered an aspect of these in Pricing Display Tips above.
Versioning – Offer good, better, and best versions. These options allow Heidi to choose how much to pay for a product. In our health foods shops chain in Australia, we reduced our offerings for vitamins to only three options based on price breaks. Sales increased once the choice was narrowed, and customers found the price point that suited them.
Differentiated products – Water is a great example of a commodity transformed into a differentiated product. You differentiate your product relative to your competitors based on three factors: price, quality, and service. If you want to signal high quality, you should probably be priced higher than most of your competition. The product includes its packaging in setting a quality position. For example, I just bought a jar of Big Tree Farm’s cocoa nibs and there is no doubt in my (emotional) mind that this superb new packaging delivers better value for money than the cardboard carton I previously bought from them.
Service Pricing Tips
What message do you want your pricing to communicate? There is a market for goods and services at all price points, and your pricing is a key part of your positioning. The concept that “you get what you pay for” is ingrained in Heidi’s consciousness.
Price Services According to Value – Cost and value should not get confused in setting your price. Don’t set your price based on the value you see in the work involved in providing the service. Instead, discover the value to Heidi in getting a job done perfectly; your price should be directly related to the amount of value you deliver.
Your Form of Offer – clients often pay a higher price for reasons other than quality. Mostly it’s about what you offer, and how you’re offering it, that makes a difference. Your offer to Heidi needs to focus on what value your services will provide for her in getting the job done. If you itemize tasks and hours then you distract Heidi from what is important to her. You are throwing up multiple pain points, your tasks imply commodities, and you’re inviting her to pick apart your estimate and go comparison-shopping. Pain = Loss = Price. I used to price on hours as a basis of being “fair” and I had as many pain points from it as Heidi did!
Bundle Your Service Price – The bundled pricing technique is one of the most effective ways of communicating value when presenting your fees.
- Give a lump sum amount for the solution offered, with no hours mentioned. List the deliverables in your solution that help Heidi gets the job done. This suggestion alone can offer a 36% increase in approvals over the task invoice approach.
- Offer options that improve the solution you have provided; Heidi can easily understand these and doesn’t need to be resold. Limit your options. Research by Bidsketch on 25,000 proposals and estimates shows limiting options to just one or two of the right type increases revenue by 32%.
With Pricing, many of these concepts are easy to implement and can start producing profits almost immediately. So what can your business work on today?