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 the price of an item as reasonable when it is viewed after we’ve seen a higher-priced version of a similar item. In other words, a $2000 item may be perceived as a relative bargain after one has seen a similar version priced at $5000 and a prospect could be moved to envision him/herself purchasing that $2000 item.
Placing premium-priced products and services in proximity to similar, 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 more costly.
Zeros kill sales
In retail sales, it is standard practice for you to list prices that end in .99, .98, or.95, but never .00 when pricing your products. The reasoning behind that quirky little tactic is that prices ending in zeros are often perceived by customers as being comparatively expensive, according to a 2003 study that appeared in the Journal of Quantitative Marketing and Economics. According to the study, most buyers feel that $5.99 is substantively cheaper than $6.00.
A 2011 study conducted by the Society for Consumer Psychology suggests that when pricing B2B services for a client proposal, it is best to avoid listing a price as $3000.00, or even $2995.00, for example, because too many zeros would be included. Prospective clients apparently will feel more comfortable with your price when it’s expressed as $2995.
Be a Lexus and not 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? University of Chicago economist Richard Thaler explains that the power of perceived prestige allows the luxury set to get away with charging higher prices.
According to that line of reasoning, Solopreneur 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 that enhance profits. Let the value you bring be known to those who matter. Teaching at the college level, speaking at respected business associations, producing long-form content that appears in noteworthy print or online publications, or publishing a newsletter or blog that draws several thousand subscribers will showcase you as a thought leader and an authority and allow you to reflect that expertise in your pricing structure.
How to raise prices
So, you’ve figured out pricing your products. What about when it’s time to raise your prices? Weber’s Law (1834) indicates that your clients will probably accept a 10% price increase in products or services purchased from you and some may not notice the change. You already know that several factors can impact your ability to raise prices, including the urgency of the client’s need for your product or service, the presence of competitors and the perception of your brand value.
Thanks for reading,
Kim
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