Pricing is … Information

A price is the amount of money someone has to give up to acquire a product or service.  Duh.  Everyone knows this. But what seems to be irrational is that customers also use price to infer characteristics of the offering.

We expect customers to analyze the quantity and quality and then decide if it is worth the price.  However, many of our customers use price to help them determine the quality.  This seems wrong.

We’ve seen that pricing can be a signal of quality.  When people see higher prices, they infer higher quality.  Does this make sense?  Yes.  Shoppers have probably not thought about this logically, but they have experienced unlimited examples of where they could get more quality if they were willing to pay more.  It’s all around them, so they subconsciously learn that higher prices mean higher quality.

If they wanted to justify their behavior, they would probably think something like this when looking at a higher priced product: “The manufacturer (or the retailer) knows this one is better so they priced it higher.  Besides, many other people who know more than I do have done the analysis and think this one is worth more.  Otherwise nobody would buy it and the company would lower the price.” And most of the time they would be right.  Higher quality products have higher prices.

Customers have subconsciously learned other meanings from observed prices.  Prices that end in 99 are considered to be good deals because sale prices are usually priced with 99 endings.  Prices that end in 00 are considered higher quality.  The lowest and highest prices seen by the shopper bracket the quality levels under consideration.  The higher the high price point, the more the customer will expect to pay.

But in every case, this only applies for non-expert customers.  The shoppers who are looking for clues, don’t want to become an expert in the field.  True experts know the real value and use price for the purpose it was intended, what they have to give up to acquire the product.

As you can see, price is more than just what the customer needs to buy your product or service.  It is also telling the customer more about your offering.  Take care that your prices are telling them what you want.

 

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Mark Stiving, Ph.D. – Pricing Expert, Speaker, Author

Photo by Onkel Wart