There are a lot of articles and several books now that talk about the psychological aspects of pricing. These are fun to read and may have some impact on your business, but long before you even think about psychology, you should focus on the two most important concepts, value based pricing and how your customers use price to decide.
The most important concept is charge what your customers are willing to pay. This is value based pricing. You’ve read about this many times in previous blogs (and will probably do so again), but that is not the topic of this blog.
Second most important concept, you must understand how your customers use price when making their decisions. We’ve talked about this in many different ways, but it recently struck me that many of those issues revolve around this one topic, how do your customers use price? The more I thought about it, the more it became clear that this is an easy and practical way for businesspeople to think about pricing.
What follows are brief descriptions of several blog topics that fit naturally in the concept of understanding how your customers use price when making purchase decisions.
The blogs on Will I? Which one? described two different decisions customers make and how price effects each one. Price has little impact when customers are deciding “Will I buy in a product category?” Yet price is all powerful when customers are choose “Which one?”
Under the banner of “Which one?” we reviewed how customers make the choice, how they determine value. When comparing two products they look at the difference in price and the differentiation of the products to decide if the higher price of the more expensive item is worth it.
We talked about the bigger game of pricing. Sometimes people decide on bundles of products at the same time. Sometimes people make one choice (like milk at the grocery store) which influence other purchases. We also have people making repeat choices over time where we don’t want to abuse our customers’ loyalty.
And yes, our customers are influenced by the psychological aspects of pricing. We’ve talked about 99 cents and good, better, best. There are more coming.
Nobody says this is easy, but it is important. Actually, it’s the second most important concept in pricing. Understand how price impacts your customers’ decisions. Once you truly understand how your customers think about prices, you can create and implement pricing strategies that will maximize your profitability.
Mark Stiving, Ph.D. – Pricing expert, Speaker, Author
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