Often in business one of the areas that often missed in the heady mix of marketing and sales ideas – is how often we should or could test the price of the product or service being sold.
So often it easy for business people to get into the habit of think that the market place will only respond to this month’s special offer or today’s price reduction or discount.
And yet – when we constantly discount the product we set market expectation and can train our customers to wait for the discount day.
I know of one Seminar Company that experiences this problem – as the day draws ever closer for the event – the price of the tickets goes down. As the seminar has a heavy back of the room sales turnover – often getting people to attend for free is still a viable option.
However as time has passed by…
Many people who are interested in the seminar company’s speaker have learned to wait for the reduced price tickets. In fact I even heard people say – pay! You’re joking – they always give away tickets in the last few days.
No quite the reputation many companies would want – unless – and it’s a big unless – the back of the room sales figures more than outweigh the loss of revenue on the original tickets.
There is lost of interesting research about price testing available – and one study I read contained some fascinating information.
Wharton professor Marshall Fisher and his colleague Vishal Gaur
in their paper, cite outside research suggesting that consumers “uniformly perceive a stronger association between price and quality for durable products” — such as microwaves and televisions — than for non-durable products, such as paper towels, orange juice and detergents
In fact in the price testing that Fisher and Gaur carried out they noticed a number of occasions when demand and sales increased as the price increased.
Again this is the link between perception of value and price.
My take on this…
For any service is that the higher price creates a believability of outcome in the customer’s mind.
For example: If a brain surgeon offered to repair your brain for $50 an hour you’d probably be unsure as to his or her competence – you have the idea.
When the price is below the customer’s expectation they have difficulty believing the advice they’ve been given – that causes them to avoid taking action and getting the result they wanted – they are displeased at what they’ve paid.
When the price meets their expectation or is even slightly above it – they believe – when they believe they take action and when they take action they get a result and are usually pleased with what they’d paid.
Counter intuitive but true! I’ve tested it many, many times.
So if we’re going to test price where should we start. Well the expression that’s relevant for this is –