• the comforting smell of fresh-baked bread in a house to
ignite childhood memories of food or family in the prospective home-buyer.
• fresh flowers/produce near the grocery store’s entrance to
encourage impulse buying -- something that’s not “on the list.”
• big sale signs at the back of the boutique to force the
customer to walk by all this season’s trendy clothing styles.
• the offer of coupons or big prizes on a Web site in order
to get the visitor clicks and cookies.
All four of the strategies above involve psychology. It’s a
reality in the business world today. You’ve got to be able to get inside your
customer’s head. And not leave one empty space for your competitor! It’s a race
for “share of mind.”
Pricing is no exception. The “Perfect Price” is that price
that maximizes your profits while building a lifetime customer through value satisfaction.
How do you define “value satisfaction”? By putting yourself
into your customers’ shoes. Simple but often ignored advice. Sometimes a vendor
thinks that s/he knows what’s best for the customer. Let’s call it the
“mothering-smothering effect.” If you reverse your viewpoint by coming at it
from your customer’s angle, then you start to look at your product differently.
(That’s the funny thing about psychology, it works on both sides of the
business fence.)
Price to attract those first-time customers and let the
value of your product “keep” them with you for a lifetime.
Naturally, you don’t decide whether to penetrate or top
price on this basis alone. But once you’re in the ballpark, it helps to have a
keen understanding of human nature. Let’s start with the most well known
example...
1 The right number
Some prices just sound like less money than other prices
that are very close to them in value. Take the price of 99 cents. It sounds a
whole lot cheaper than a dollar -- the same way that $9.99 does with $10.
Humans buy on emotion first, rational thought second. If
they can say “and it’s under $50,” it’s one more plus for you.
Point to take away?
End your price in a 5, 7, 8, or 9 and be on the right side
of human nature. Let’s also consider what Eric Mitchell, involved with the
Pricing Society, observed about the rules of rounding off prices, based on his
market research...
For Prices up to $10... It makes more sense to use $0.99
rather than $0.95. Respondents’ reactions are the same for both numbers. So why
leave 4 cents of profit on the table?
Odd price endings like $0.74 can sometimes cost sales. They
cause some confusion in the customer... $0.74 just doesn’t “sound right.”
For Prices from $10 to $100... “.95” and “.75” price points
are much better received than “.99”. In this price range, there is a resistance
to “.99” because it is often viewed as a “greedy” price point. Think about a
restaurant menu... the special of the day is usually set at $12.95, not $12.99.
For prices above $100... It’s better to deal in “whole”
dollars. From the customer’s viewpoint, $149 is a more acceptable and cleaner
price point than $148.95.
Pricing a professional service? Price in whole dollars.
Choose $50 per hour rather than $49.75. You’re not “on sale”, are you? Reception
(of a price) is based on perception (of that price). Make it positive!
----------
Pricing Isn't All Logic. Discover The Hidden Pricing Tactics You Can Use To Increase Profits!
----------
2 The Value Bundle
Something for nothing. Don’t we all love that? Definitely!
Value-bundle, if possible. What’s “value-bundling”? Simple, really. Group-related
products and set one price for the combination. This works best if the grouped
products have a logical association with one another.
Customers tend to assign value to a bundle, based upon the
probable cost of individual “ pieces.” Value-bundling is a powerful method if
the price of your bundle equals the price of the most expensive component.
Offline example -- You commonly see vacation packages where
air tickets and ground arrangements (hotels, meals, bus tours and so on) are
advertised at one bundle is just a bit more than what your customer would pay
for the air tickets separately, your customer has that wonderful “something for
nothing” feeling!
Online example -- AOL bundles a number of information
products and interactive services together and charges one price for all of
them. And, the company keeps adding to it...all for one low price.
The bigger the bundle, the better!
3 Discounting
You’ll always find Ken over by the... “SALE” rack.
“I love a good bargain.” Most folks do.
On the Net, you start a product launch with a huge advantage
-- you can reach all your previous customers with the click of a mouse. When
you introduce a new product, offer them a discount off the regular price. Send
these supporters to a special discount URL. Do the same for your affiliates.
Both deserve it. They’ll appreciate that you appreciate them.
Quantity discounts are really worth considering, especially
if you are shipping hard goods. Go beyond the obvious reduced “per unit shipping
charge”... offer “three for $20” (or better, $19.95) for that $7 bottle of
wine.
Sure, the margin is a bit less... but your gross is much
better. Your customer saves on shipping, product cost, and gets that “under $20
psychological boost.”
And your competitor?... well, that’s two bottles of wine
that he is not selling to your customer!
Discounting can be used in a variety of other ways... for
seasonal deals, special markets like seniors and students, affiliate (or
distributor if you are offline) network. Whether you use it to build existing
customer loyalty, for quantity savings or for competitive reasons, discounting
can be a strong tool. Define the goal clearly, though, before you discount.
Otherwise, you’re just giving money away.
4 “Reverse Discounting”
“Geez, it has to be good -- look how expensive it is!”
Quality is in the eye of the beholder. And a high price tag
can certainly help create a high perceived value. After all, is Mercedes really
worth three times a Ford? Is a Tiffany’s diamond really worth five times more
than the same one on the Net?
This can work if you are selling the snob appeal of a status
symbol to the wealthy, or a high-priced, big-name service to multi-national
companies. But don’t try this for
most products on the Net, especially if you sell digital
products -- unless, of course, you enjoy... the feeling of your head being
clamped in a vise.
If you simply set a high price for a new product with the
hope of increasing Net sales due to a high-perceived value, you’re headed for
pain. Big time pain. Yes... if your site makes a great sales effort, you will
be able to build a higher perceived value. And that will support a higher
price.
Whatever that value is, when it comes to selling on the
Net... never price beyond the value that your Web site creates and that your
product supports. This is essential knowledge if you want to build a
successful, growing, long term business.
5 The Infamous “Plus S&H”
“Plus shipping and handling”... That famous phrase!
Everyone’s aware of these hidden charges, of course. But somehow S&H are
just not part of the price. Let’s say that you charge $39.98 for a Crocodile
Dundee knife. Plus, of course... Shipping & Handling of $9.98.
So, Mr. Smith, what does that knife cost? $49.96? No, by the
time Mr. Smith has decided he must have the
“That’s-Not-a-Knife-Now-That’s-a-Knife” knife, it only costs $9.98.
Including S&H in the price of your product is a big boo-boo.
It can only mean one of two things...
1) Your product looks $9.98 more expensive… or...
2) You’re losing money. You can only do that for a while. If
you build customers on the basis of price, be prepared to lose them when you
have to start making money.
Naturally, if you’re shipping digital products directly via
the Net, S&H are free! In that case, sure... be generous.
Tell your customer...
“Shipping & Handling Included.”
6 Price Elasticity
If demand for your product drops when you increase the price
by only 1%, you have a product that is very price-sensitive or price-elastic.
If, on the other hand, doubling the price only causes a
slight drop, you have a price-inelastic product -- that means that it almost
doesn’t matter what price you charge because people will still buy it.
Elasticity is largely driven by customer perception of your
product and the competition.
If you are a grocery chain selling your own brand of instant
coffee, your coffee better sell for less than other brand names. Bump the familiar
price up and watch your inventory sit on the shelves.
But if you sell a top-line, in-fashion, gourmet brand of
coffee... it can be a license to print money.
What kind of products are price-inelastic?
Products that...
• deliver important benefits to the customer.
• offer uniqueness that is understood and valued by the
customer.
No comments:
Post a Comment