Price is not just a number on a tag.
As a smart business owner, you need to recognize that consumer psychology comes into play when your customer’s are actively processing price information. Your customers are interpreting context from prior purchasing experience, formal communications (advertising, sales calls, and brochures), informal communications (friends, family colleagues), online resources, and other factors.
Your customer’s pricing decisions are based on how they perceive prices and what they consider the current actual price to be and not your product’s mentioned price.
There is an upper and lower threshold for consumer pricing perceptions. Consumers may have a lower-price threshold, below which prices signal inferior or unacceptable quality, and an upper-price threshold, above which the product appears not worth the money.
Pricing is the one element of the marketing mix that produces revenue!
Understanding Customer Price Perceptions
- Reference Pricing
- Price-Quality Inferences
- Price Endings
When your customers are examining your prices they often use a reference price, where they compare your prices to an internal reference the remember or externally research pricing for a price comparison. You can encourage this thinking in your customers by stating a high starting price initially or pointing out your competitors’ prices. If you are a smart business owner, try to frame the price to signal the best value possible. For example, relatively expensive products look less expensive when broken into smaller units.
Many of your customers use price as an indicator of quality. This is called image pricing. Image pricing works well on ego-sensitive products like designer clothes and luxury cars. Clients who perceive your products and services as a luxury desire uniqueness, you can increase demand and raise prices because they then believe that fewer other customers can afford your products.
Studies have shown that customers perceive an item priced at $399 to be in the $300 range rather than the $400-dollar range. Your clients may view prices from left-to-right rather than rounding up. Also, customers may perceive the “9” ending as a discount or a bargain. So, if your company is wanting a high-price image, you should probably avoid the odd-ending tactic.
Why is proper pricing relevant to your business?
Pricing is the one element in the marketing that produces revenue, while all other items create costs. Your company’s pricing strategy communicates your intended value proposition of your products or services. Pricing is not just a number on a tag.
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