How To Use Price Perception to Sell More
"Buy low, sell high" is the formula for success in the stock market and
following that dictum, from tulips to domain names. Of course, the trick
is like the old joke about how you make rabbit stew: "Step One, catch a
strategy, to use price as a means of persuading your buyers to accept
certain ideas, and to create the image you desire in their minds.
laugh at the joke. But if you were out of water in the desert, you'd start
looking for your cash. Recently a gas station in Tennessee received
national coverage for charging $4.95 a gallon to protest the higher prices
they were paying to a big oil company. The funny thing was that while the
NBC crew was shooting the story, a woman drove in a bought two gallons of
$4.95 gas -- she was on empty and worried about getting stranded.
Customers expect a "fair" price. But "fair" is in the mind of the
beholder. Look at perfume. You can buy a six ounce bottle of a very nice
smelling perfume at Walgreens for $6.00. If you want Chanel No. 5, go to a
fine department store, where they'll let you smell it for $6, but just one
ounce will cost you $250.
Psychology Can Add Value
Chanel for $250. They know that Chanel gives them a number of
psychological "value-added" features -- they know their friends will
recognize the scent and admire them for their good taste; they know they
will feel good about themselves when they wear it; and they know that it is
part of the overall special image which they project to their husband,
friends, and business associates. In short, they are willing to pay for
benefits which are not even in the bottle of Chanel, but in people's minds.
these store offered lower prices than more well-known chain stores nearby.
getting higher quality by shopping elsewhere. But buyers were convinced
that the utilitarian features of the store meant they were spending less on
operations, and passing on the savings to their customers.
Farmer Store sells clothing of all sorts at a discount, displaying
everything from shirts to shoes in huge tables bordered with six-inch
planks to keep merchandise from spilling on the floor. At first they tried
to keep the apparel neatly in stacks, but soon found that people bought
more if they had to sort through mounds of clothing. Shoppers were
convinced that if the merchandise was displayed that way, it had to be cheap!
nothing to do with the actual product or service being offered. By
understanding the ways in which you can manipulate these other factors, you
can price your products and services to provide the greatest overall return
The Buyer's Mental Price Scale
control are generally related to the buyer's past experience, while those
you do control are related to your advertising messages.
(1) Past experience with that product line: If you know you paid about
the same drink at Coffee Plantation is unfair. If you've never bought one
before, you have no reference. That's why companies with products that
expand into new areas have a great deal of flexibility regarding price.
unfair. You have a basis for judgment.
ago, and will likely be on sale again. Whether they buy it or not, they
will feel that the price is too high, and if they buy, they'll not be as
happy with the price they pay as they otherwise would have. That's why it
is often smarter to ADD value to a product as part of a promotional deal,
rather than just cut its price.
show that consumers use a brand name as a substitute for product quality.
"Bayer means quality," which is the reason Bayer aspirin can charge double
the store brand's price for the exact same product, and sell millions of
units every year.
can look at the chicken in the package to see if it looks good, but they
can't tell whether the store brand aspirin is good until they have a bad
headache -- and that's too late! [Yes, the chemical make-up is on both
labels, but long scientific words just confuse most ordinary people.]
Common sense is a huge hurdle for a seller to try to overcome. One of the
great challenges Starbucks faced was to get people who were used to paying
a dollar for coffee to spend three or four times that amount.
(1) Price comparisons you offer: Sellers can influence a buyer's
comparable item for, such as the clothing price tag that says, "Suggested
retail price: $X" or "Sold elsewhere at $X." This is effective for two
couldn't guess the price of over 90% of common purchases like toilet paper
and milk within 10% of their actual selling price.
Second, most buyers will take your word that the quality of both items is
equivalent. Discount clothing stores have used this one technique to sell
millions of dollars of shirts and dresses, often making comparisons which
are not strictly 1:1.
not), the "suggested" price will not be used as a reference, and your
credibility will be damaged. For example, if buyers think that Hathaway
dress shirts sell for between $30 and $40, and your "suggested retail
price" says $50, they'll suspect that you are trying to manipulate them and
think less of you for it.
the one last week. In general, buyers will believe that an item on sale is
a better value than one which is not. This assumptions rests on another
fundamental belief of most buyers -- that products and services are usually
priced fairly, based on the whole "package" being offered.
Of course, the problem with sales is that you make less on that unit of
merchandise, so you have to hope your overall volume will make up for it.
Sales are best used to attract people to the store where they can be
exposed to full price. Supermarkets regularly put a few common items on
sale each week, selling them even below cost to bring in more shoppers.
Discount. These three methods can create different perceptions about the
minimum discount ("Save 25% or More!")
an exact discount is as effective as stating a range, when that range is
small ("10% to 20% Off!").
up to 70%" is usually more effective than a range, because the lower number
in the range takes some of the focus off of the higher number, and it is
usually the one read first ("Save 30% to 70%!"). This is especially true
when the discount is large. But be careful not to mislead people with this
pitch. Having one item at 70% off and fifty at 10% off is a sure way to
make them mad.
manipulating the buyer's perception of the price is paired with a
comparison technique, such as "Only $X! Compare at $Y."
These techniques focus on some ways to make the price appear more
attractive, but there are more effective ways to get the price you want by
creating a perception of quality and value in the buyer's mind. That is
the focus of part two of this series -- Click here to read "How Buyers See Price"
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