Most people believe that pricing is as simple as what you charge. But when it comes to marketing, it’s a lot more complicated. It’s actually about the value you offer customers and how you fit into the market. If you don’t get the whole package right, it can have detrimental effects on sales.
When was the last time you really considered your pricing? What made you decide on the prices you sell your products or services for? Are you cheap, in the middle ground or expensive?
There is a place in any market for cheap, middle and expensive items. There is rarely a right or wrong. But what you need to do is make sure that whatever market you choose to pitch your tent in, the whole experience matches it. This is the perception of pricing.
Whenever we pay for anything, we automatically assess the value of the price. Do we feel we’re getting a bargain, or do we feel we’re being ripped off? Whatever end of the scale you look at, there are negative and positive connotations.
At one end of the scale, whilst we all love a bargain, we’re also wary of things that are too cheap. Cheap is often associated with poor quality. I once worked with a company that was struggling to sell its cheapest product. It was a new product in the market and it had literally been designed to cut out all of the unnecessary bits and leave a good quality product at a much more affordable price. So a no bells and whistles approach, but it did the job it was supposed to do. However, after six months the company had barely sold a single item.
We had a meeting and we decided to put the price up. Not extravagantly, just by a few pounds, but a product of this quality at this lower price had never been in the market before, so we wanted to see if the perception of the cost was putting people off.
Within a week of the price being elevated, we started to sell the product. And it ended up selling well. You could argue it’s great that we ended up making more money, but the truth was it didn’t feel right. The market was literally paying more for something simply because it was too cynical to believe that a good product could be that cheap.
Concorde is a more famous example. For the first few years, British Airways was making a loss on Concorde, and they needed to turn it around. They did some market research and asked travellers what they thought a Concorde ticket cost. Most of the businessmen who were asked had never bought a ticket themselves, their secretaries did it for them. So they could only answer with their perception. And their perception was vastly higher than the actual price.
So Concorde upped their prices. They simply began to charge what people thought they were paying anyway. No one had an issue, sales were sky high (excuse the pun!) and British Airways ended up making a fantastic profit. Perception is everything.
The lesson we can learn here is: even if you can afford to do things at a cheaper price, sometimes inflating your costs is the right thing to do. It’s not about the actual price that things cost, it’s about how your customers perceive the value.
There is a flip side to this, however. Be warned that if you put your costs up too much you can price yourself out of the market. If people don’t believe they’re getting a return on investment then they may be put off, even if they could afford the higher price.
This means that alongside considering what you’re charging, you also need to think about how your prices come across to your audience. If you’re selling a high ticket item, but the packaging is poor quality, the customer service is a bit shoddy and the brochure is clearly a homemade Word document, then the perception is all wrong. It might be that the product in itself is worthy of the higher price, but if you don’t connect the dots with the whole experience then it will deter your customers from spending.
It’s just the same with items at the cheaper end. We get suspicious about things being too cheap. We think there’s something wrong. So if you are going in at the budget end, make the experience feel budget. It doesn’t have to be a poor experience, but quick, no frills and just getting the job done is what we align in our minds with cheaper pricing. If it fits, we all feel more comfortable about it.
Ultimately, you need to make money, so your prices need to be right for you. But don’t ever underestimate the power of perception. Charge whatever you like, but if the price doesn’t fit the whole experience of working with you, it will make everything harder to sell.