There’s this (extremely) outdated notion that your pricing determines what kinds of customers you’ll have.
- And that you either have HIGH PRICE and FEWER CUSTOMERS…
- Or LOW PRICE and MORE CUSTOMERS.
And that’s absolutely bullshit. Many companies don’t operate this way and neither do their buyers.
Let’s re-learn the rules of engagement so your business succeeds:
1. Pricing is for RESPECT, not revenue
Pricing (probably more than anything) is the strongest indicator of value/quality for buyers. The “expensive” option is always assumed to be the best option. It simply doesn’t make sense to consumers why a $50 item is better than a $100 item. It can’t. Even if the $50 item was better looking, had more features, and even better reviews…people are still drawn to the more expensive option AS LONG AS IT’S SOMEWHAT JUSTIFIED.
Look at the success of Apple, their iPhones and Macbooks. Premium pricing (and even premium demand) yet being sometimes behind their competitors, no? This same logic echoes for many brands in many other industries as well. An inferiorly-equipped Mercedes commands a higher price tag than a more upgraded Honda Accord.
We don’t argue why that is. Both you and I know that things are just that way. High price commands high value, and also high demand. I’m just speaking generally here, ok? Your price sets the tone for your brands respect and positioning among other brands. Keep it high. Remind people how high it is. Have them remind and complain to others how high it is. That’s probably the best thing you can do for your brand’s pricing.
Now just do me one favor: make sure your product or service is actually worth that high price. Because if it isn’t, then your brand is just a joke. Just a wannabe. Charge more but give more as well.
You might be afraid now:
- What if people think it’s too high?
- What if no one will buy it?
- What if not enough people can afford it?
- Is there anyway I can sell my product at different prices?
Hehe…I thought you’d never ask.
2. LIST PRICE is not the same as SELL PRICE
The truth is many of the “premium-priced” companies hardly ever sell their items at the listed price. Think about how you shop (when buying expensive items). Do YOU buy things at full price? Do you know anyone who does? No, we hardly ever do. It’s funny how that works, right?
So why is the price listed at that if nobody’s buying it at that price? Well, it raises the brand’s perceived value. You see, companies don’t want to choose between high-end and low-end customers. They start with a high price, which sells to big money customers no problem, and then they give discounts to those who want the product but for cheaper.
It’s pretty genius, right?
3. Avoiding DISCOUNT DESENSITIZATION
One trap you have to avoid when giving discounts is not to desensitize people to your discounts. It really hurts your business when nobody respects your price anymore. That when you say it’s $500, and they immediately know it’s worth so much less than that.
The best way to avoid this issue is to have a clear reason why things are discounted. Here are some choices:
- Discounting old stock – old models being sold off. Only works for businesses that have new products every year.
- Segment discount – special discounts for college, government, businesses, etc.
- Volume discount – great way to give discount without hurting your brand’s perceived price/value.
Otherwise, when you discount things without a clear reason. People immediately lose trust in your brand. They feel like you’re just trying to offload cheap items onto them. They’ll think of you as that random guy in the parking lot or gas station trying to sell used goods and dropping the price every 5 minutes.
Premium pricing has been around forever
It’s not a new tactic by any means. It’s a super old tactic…probably as old as the “coupon” concept. I really believe that. It’s been done forever and ever by many companies. Look at Apple (and their college discounts). Look at Dell (and their decades of slickdeals coupons). Look at Nordstrom (and Nordstrom Rack). What about all those companies “remarketing” you with emailed coupons to finalize your shopping cart? The list goes on forever.
Let’s look at Apple one more time. I will have to say they are one of the most affordable brands out there. Hahaha, crazy statement, I know. It seems almost everyone has their stuff. Is it cheap? No! But are they affordable? Yes, they are! They find every tactic in discounts and financing to make it possible for EVERYONE to own their coveted Apple products. And benefit from having not only a prestigious premium brand but also having all customer segments (rich, poor) as their customers!
Again, notice how much their pricing is a part of their brand and yet, they’re still the #1 selling company in most of their product segments.