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SETTING THE PRICE     How To Use Price Perception to Sell More "Buy low, sell high" is the formula for success in the stock market and the business world. Fortunes have been made on all sorts of odd items by 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 rabbit." There are numerous ways to look at pricing. Our focus in these next few columns will be how to use price to support your overall marketing 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. Price is all in the mind. Here's an illustration: If I were sitting there with you now and said, "I'll sell you a gallon of water for $100," you'd 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 Why the 4000% difference in price? They both smell very nice. The difference isn't so much in the bottle as in the minds of the women who buy 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. Oddly, the reverse can also be true. A survey of grocery stores which primarily serve Hispanics in the Southwest found their customers believed these store offered lower prices than more well-known chain stores nearby.  In fact, the survey found the stores had comparable or even higher prices on many items, and that many patrons could actually save money while 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. A similar thought process goes on in the minds of those who go to flea markets or bargain-basement clothing stores. In Illinois, for example, the 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! The lesson here is that the price can been seen in many ways by buyers, as fair or unfair, high or low, depending in part on factors which have 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 on investment.   The Buyer's Mental Price Scale There are two major types of influence on the buyer's evaluation of your price. (1) Those you control, and (2) those you don't. Those you don't control are generally related to the buyer's past experience, while those you do control are related to your advertising messages.   Influences on their price perception you don't control: (1) Past experience with that product line: If you know you paid about $3.00 for a cafe latte at Starbuck's, you're more likely to think $5.00 for 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. (2) Knowledge of what others paid: If your neighbor paid $40 for a cab ride from O'Hare into Chicago, you're less likely to think that price is unfair. You have a basis for judgment. (3) Recalled advertising: This is one of the major problems with frequent discounting -- people remember that the product was much cheaper two weeks 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. (4) Brand name perception: We tend to think that well-known brands which have a reputation for higher quality will sell for more. Numerous studies 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.   This is especially true when it is hard for the buyer to quickly and independently evaluate the quality of the product. Shoppers 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.] (5) Common sense: When a product's price falls so far out of the range we expect, it goes against our common sense to believe the price is correct. 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.   Influences on price perception which you do control: (1) Price comparisons you offer: Sellers can influence a buyer's perception of their price by providing information about what others sell a 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 reasons: First, people don't recall exactly what the item sold for when they saw it (if they ever did). One recent study found that a majority of shoppers 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. Keep in mind that if you use a "Suggested retail price" which is higher than the estimated price range in the buyer's mind (whether it is true or 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. (2) "On Sale" signs. Buyers are generally trusting people. If you tell them an item is on sale, they'll believe the price they see is lower than 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.   If you see an ad for a leather coat at Macy's which is 40% off, you're initial reaction is "That's a bargain," not "I wonder if it was overpriced to start with?" 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. (3) Discounts: There are three common types of discounts used in advertising: (a) Discount Range; (b) Exact Discount; and (c) Upper End Discount. These three methods can create different perceptions about the same discount. (a) The Discount Range promises you'll save something ("10% to 40% Off!") depending on the item you select. A different approach is to state a minimum discount ("Save 25% or More!") (b) Stating the exact discount offered ("Christmas cards 50% Off!") gives the buyer greater certainty of what to expect. Research shows that stating an exact discount is as effective as stating a range, when that range is small ("10% to 20% Off!"). (c) Using the Upper End Discount is often the most attractive and effective method of gaining buyer attention, interest, and action. "Save 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. (4) Using the word "Only": The word "only" implies that others are selling similar items at a higher cost. Often this technique for 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"   Back to Top    Home * Solve My Problem * About Us * Free Information * Products & Services * * Free Newsletter * Contact Us * Index * Rewards *   NOTICE: All material on this site is Copyrighted, and may not be reproduced without the written consent of the Marketing Psychology Group, Inc., Scottsdale, Arizona. If quoting text, please provide attribution. Thank you. job buyer buyer 2 buyer 3 buyer 4