Have you been putting yourself on sale just to get the business lately? How many of you feel that twinge of guilt when you discuss fees with a new client? Feel as if you should apologize for your rate card?
In this economy, you’re probably not alone. There is a natural tendency to want to reduce fees in order to accommodate tight budgets. The truth is however, that when you dramatically reduce your rate (below 10-20%) you are diminishing your brand. You are teaching clients ‘bad tricks’ that they will use in future negotiations with you and setting yourself up for failure.
Pricing is always a tricky proposition. Customer psychology and market knowledge must be in balance in order for your pricing to work for you, instead of against you. Contrary to what you may believe, the lowest price is not always the most attractive to customers.
Some years ago, I owned a health newsletter company built solely on direct-mail marketing. We typically mailed 350,000 pieces each month. The postage cost then was nothing compared to what it is today, but nevertheless, when you’re dropping that many pieces every penny counts. Price was something we tested…and tested… and tested again, before we got it right. The experience taught me a lot about perceived value and pricing. I always assumed that if we lowered the price we would generate more response, after all…cheaper is better, right? What I learned was just the opposite. More times than not, the higher price lifted the response rate…and did so by a substantial percentage. I know you’re thinking this is crazy, but any marketer can tell you there are subtle nuances to getting the price right. And, perceived value is oftentimes greater with a higher price.
Another example of my pricing education came one day at the gallery we owned. I watched the behavior of a top-end collector as he perused the gallery for something interesting to add to his collection. He was drawn to a piece from one of our best abstract artists priced around $2500. He remarked, “his work is really exceptional, but I don’t collect anything under $5,000.” I was floored with the notion that even if the work was great, he wouldn’t own it because it didn’t have a price tag that matched his idea of higher perceived value.
Price strategy is multi-faceted and even the number itself can elicit an emotional trigger telling the buyer that something is priced either too low, just right, or too high. Obviously, we all want to be in the middle range to capture market share and grow our businesses.
Economists would probably argue with me that price has to do with supply and demand. It does. However, it also has to do with the psychological balance of price and worth in the mind of the consumer. In today’s economic environment, it’s popular to be frugal. No one wants to be perceived by friends and family as overpaying for something. It’s a balancing act of getting the right price point to yield the greatest customer response.
Let’s take a look at a few examples of pricing strategy to illustrate my point about the exact number being keyed to an emotional customer response.
Odd Number Pricing Example
A photographer prices his wedding package for $4,783 rather than $5,000. Which price resonates better with you? Does the first number appear to be more carefully calculated and leave you with the impression that there is little room for negotiation? Does the $5,000 seem a lot higher to you than the $4,873, when it’s actually only $127 less? This is an example of odd number pricing with a twist of uncommon numbers adding to the perception of finely calculated pricing.
Some numbers just sound better to buyers than others, even though they are very close. It’s no coincidence that numbers ending with a 5, 7, 8, or 9 are more frequently used in pricing strategies than numbers that end with a 0 or 1. People rationalize that the price is under a whole number and thus they are spending less, i.e. $999 is less than $1,000 or $49.95 is interpreted as less than $50.
Bundling Pricing Example
A photographer packages portraits by the number of poses. A six pose package includes one 16×20, a 11×14, four 8x10s, 64 wallets, etc. for $599.95 (showing a value of $742). This is a good example of bundling and odd number price strategy. Additionally, showing the value next to the package price further illustrates to the customer that they are receiving an exceptional deal.
Unbundling Pricing Example
A documentary photographer seeking funding for his next trip to highlight the affects of global warming, “for only $3 per day you can help bring awareness to the problem,” rather than $1,095 per year. When you hear the unbundled offer of only $3 per day, it certainly sounds more affordable than a lump sum contribution of $1,095.This is an example of unbundling to increase the perception of customer value.
Prestige Pricing Example
A world-renown photographer with numerous heads of state and celebrity portraits in his portfolio charges $25,000 for a 3-hour portrait session. This is an example of prestige pricing. You often see prestige pricing in luxury hotels, exclusive clubs and resorts. The pricing is intentionally above market, due to client demand and exclusivity. In this case, the photographer’s reputation is so unique and distinctive that he holds a prestige value in the minds of the consumer.
As you can see, pricing is as much an art as it is a science. Once you arrive at the ‘sweet spot’ for pricing your products and services, tweak in small increments, bundle creatively, and continuously promote your unique value. Working price to your advantage will ensure your brand stays intact…and, your bottom line for that matter.
Company: Embella, Inc.
Photo Credit: © 2010 David E. Warner
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