The more mature readers will remember the TV game show in the 80’s and 90’s called “The Price is Right” with compere Leslie Crowthers and later Bruce Forsythe. Contestants had to guess the prices of consumer products and the closest to the recommended retail price won. The trick was to guess what they believed to be the products’ value for money.
When it comes to setting a price in business, this is something that is quite often overlooked. The simple way of pricing is to add up all the costs (materials, wages and overheads), add a percentage of profit and that’s it - the sales price. However, when it comes to the customers perception of value for money this ‘cost plus pricing’ method could be way off the mark - too high and it’s perceived as expensive, too low and the customer may doubt its quality.
Every business that sells a product or service must master the art of pricing. But, when you think about pricing your own product, remember that pricing is not a point - it’s a range, between the lowest price at which you are willing to sell and the highest price at which the customer is willing to buy. So what will determine the final figure? What can a business do to move into the higher end of that range or to even price the product so that the range itself moves upward?
When consumers are asked about a new product, they generate a price point by thinking of other products that it can be compared against. Psychologists that study buying behaviour have established that we make judgments based on the first piece of information we have, even if that “anchor” is entirely unrelated to the problem at hand. In retailing, this phenomenon is exploited by presenting customers three options of ascending quality: the cheapest option, the premium option and the luxury option (commonly called “good-better-best”). We see it all the time now in shops and we often pick the premium option, even when we would not have picked it had it been presented on its own.
If a business makes a pitch to their customers by focusing on price, they imply low quality rather than indicating high quality. The trick is to highlight unusual features, show off endorsements or demonstrate to customers how they could benefit from consistent use of the product. For instance, put the price on the product details page of the brochure making it look like a fact. By making the benefits prominent, you can let the customer come up with the price.
The greatest art of marketing is to set a price that rewards you and your customer for building a lifetime relationship. When you do that your customers will “come on down – the price is right.”