What do your prices say about you? Would your customers say your product or service is affordable? Value for money? Expensive but worth it? Or is it a steal? I just read a powerful example of how setting your prices at a certain point can absolutely transform your client’s perception of your product.
In Dr Robert Cialdini’s Influence, he talks about a friend who owned a jewelry store which sold a small range of Indian jewelry – beautiful stuff, in top-quality turquoise, similar to what you’d see celebrities sporting at premieres (such as Cameron Diaz, here).
The jewelry store owner set the prices for this jewelry at what she thought was a fair and reasonable value, based on her experience. But she struggled to sell them, even though her store was constantly filled with tourists. So she reacted in the same way most retail owners would: she cut her losses and put them on sale. The night before she left on a buying trip, she left a note to her staff asking them to display the turquoise pieces in prime position and to cut the selling price in half.
When she returned from her trip, she immediately noticed that all of the pieces had been sold. But here’s where she learnt a very valuable lesson… She realised that her assistant had misread the scrawled fraction and instead of cutting the prices by half, she’d doubled them. Why had they sold so quickly at double the price? Because with high prices come the connotation of high quality. Right or wrong, consumers think you get what you pay for and that a bargain is too good to be true. Those tourists had immediately snapped up turquoise jewelry that they perceived as being valuable and high-end.
I’ve seen it myself. I’ll see a pen knife in one store for $20 and think, “That must be rubbish” and then days later the exact same one in a fancier store at double the price and – despite myself – think, “Oh, that looks like good quality.” Or you may pick up something that’s priced at $50… and then notice it’s been slashed from $150 – suddenly, you think you’ve got a real deal (even if the retailer had never sold any for $150 because it really wasn’t worth that in the first place!) Chivas Regal, a brand of Scotch whiskey, was struggling until they doubled their price, at which point their unit sales doubled! Right or wrong, we have been brought up to believe that if it costs more, it’s better. People assume a pricier product is better made, elite, top-end.
Here’s the rub: if you’re making a top-end, top-quality, exceptional product but selling it at a bargain-basement price, you won’t get the reputation you deserve. Customers won’t value you the way you deserve to be valued. That’s not to say you should rip your clients off by simply doubling your prices – I’m simply saying to be wary of being too cheap. (Unless this is the premise of your business, of course, and it’s a conscious decision about how you want to be positioned, such as the chain of $2 Shops. But it’s not a strategy I’d recommend. It can be a lot of hard work for a lesser result. In fact, have you noticed lately that The Warehouse, “where everyone gets a bargain”, has been undergoing a transformation? They’ve really lifted their game when it comes to quality… and lifted their prices at the same time…)
If you need a hand deciphering what price point would work best for you and your customers, give me a call for some business coaching. Sometimes a simple tweak in pricing is all you need to get your cash flow pumping. firstname.lastname@example.org