Pricing your products and services is a critical element of a well-conceived marketing plan and appropriate pricing is integral to the development of a successful business venture. The burgeoning field of behavioral economics reveals why certain pricing tactics work and how you can incorporate some of them into your pricing strategy.
Have an anchor baby
Your “anchor baby” can result in a positive outcome for sales and billable hours. A cognitive bias called anchoring can cause us to perceive a lower-priced item as reasonable when it is viewed after we first see a higher-priced version of a similar item. A $2000 item is perceived as a relative bargain after one has seen a similar version priced at $5000. A prospect could be moved to envision him/herself purchasing that “bargain-priced” item.
Therefore, placing premium-priced products and services in proximity to the similar but lower-priced offerings that you hope to sell can potentially lead prospective clients to perceive the lower-priced items as providing real value, once they know that functionally similar items can be much more costly.
Zeros kill sales
In a previous post I discussed why, especially in retail sales, it is standard practice for merchants to list prices that end in .99 (or .98 and .95) and never .oo, because prices that end in zeros are often perceived by customers as being expensive, according to a study that appeared in the journal Quantitative Marketing and Economics in 2003 The Less Than Zero Pricing Tactic. Yes, we really do think that $5.99 is cheaper than $6.00 and there’s still more downside to zeros— when pricing your services you should not only avoid listing, say, $3000.00, because you’re presenting too may off-putting digits, but you are also recommended to avoid listing your price on a proposal as $2995.00. Prospective clients will feel better about your price when it’s expressed as $2995, according to the findings of a 2011 study conducted by the Society for Consumer Psychology.
Be a Lexus and more than just a Toyota
A Vanderbilt University study demonstrated that customers are willing to pay more for a Budweiser beer in a fancy hotel bar than they would for that same Budweiser in a dive bar. Why? The economist Richard Thaler of the University of Chicago explains that the power of perceived prestige allows the luxury set to get away with charging higher prices. Freelance consultants (so much more classy and deserving than a mere Freelancer, no?) are advised to in various ways present cues that make the case for charging premium prices.
Let the value you bring be known to those who matter. Teaching at the college level and speaking at respected business associations showcases you as a thought leader and an authority. Producing long-form content that appears in a respected print or online publication, monthly newsletters sent to your email marketing list, or weekly blog posts that draw your followers also adds to the perception of your expertise and as well brings your writing skills to the forefront. The design and content that appear on your website should present you and your entity in a way that communicates competence and good taste, as should your business card and client invoice template.
The organizations of which you are a member, the quality of your clothing, where you vacation, the books you read, how you socialize and the boards on which you serve (along with the related committee activity) also enhance your reputation and reflect on your brand.
How to raise your prices
Weber’s Law (1834) indicates that your clients will probably accept a 10% price increase of the products or services purchased from you and some may not even notice the change. You already know that other factors can impact your ability to raise prices, including supply and demand, the urgency of the need for your product or service, the presence of competitors and the perception of the value of your brand.
Thanks for reading,