Pricing - The Human Psyche
Many books have been written on the art of product pricing, but one element of pricing that is difficult to quantify is the level at which a product price can influence certain human perceptions and behaviors.
How much actual or perceived quality, value and uptick in social standing can a price have on a buyer, is something that can often be observed but not necessarily measured.
Premium priced products such as luxury automobiles and watches often have a loyal following of customers willing to pay those higher prices. Onlookers often perceive these customers as connoisseurs, leaders, discerning and successful to name a few.
Product positioning in the market not only means pricing the product accordingly, but it also means providing the perceived benefits that differentiate market segments from one another.
In other words, if you want to command a high price for your wood crafts, these must be made of superior materials, craftsmanship and design and must appeal to the buyer's other senses of perceived quality, value and status.
Let's look at a couple of examples of industries that either focus on or offer products and services in the premium price range.
Apple has long been known for its design and leading edge technology. Their iPhone has garnered such a loyal fan base, that it is not unusual for fans to line up in the middle of the night waiting for an Apple store to open its doors to sell them the latest greatest mobile phone. The premium price does not imply that the buyers are affluent. But owning an iPhone has become synonymous with having an appreciation for this fine product. And as one of the first ones to own a new model makes these buyers leaders in their social circles. Something to be proud of when showing their phone to friends and family. Apple has this figured out and is an expert at producing the hype and products that fans are clamoring for.
In addition to regular priced seating, the airline industry also offers premium pricing for the first class travelers. Did you ever notice how many fewer seats there are in first class than in economy? The demand for first class tickets on commercial flights just isn't enough to fill a plane entirely with first class seating and services. To many buyers, economy tickets are the way to go. Why pay more for the same trip as the passengers in first class? But sitting in first class can be a real treat.
Luckily for us all, there always seems to be a market for products priced at both ends of the pricing range. So, what are the factors that influence an emotional purchase?
The psychology of pricing
In addition to the well known relationship between price and resulting demand, the purchase decision is also affected by 3 of the more important psychographic elements (in yellow) that come into play.
In most buying decisions, product selection evokes a number of human emotions in terms of actual and perceived benefits.
As the diagram above illustrates, premium pricing is often associated with a perceived higher quality. "Perception" does not imply that true quality isn't actually there. To many buyers if the product or service is higher priced, it must be of higher quality.
For value based buyers, some level of quality is nevertheless expected from economy priced products. Here, quality is not the major focus of the buying decision.
- The passengers in first class will have more comfortable seating, better meals and a dedicated attendant to tend to their needs.
- The wood craft will be made of exotic woods with superior features and craftsmanship.
In general, perceived value (or return on investment) diminishes as prices increase.
- To those travellers who can afford it, first class has value to them but not as much value as the larger market of economy ticket buyers who simply want to go from point A to point B without the frills.
- Buyers of economy priced products are typically more focused on getting value for their purchase dollars.
Premium pricing often contributes to a buyer's status of being a connoisseur, leader, discerning, successful, sophisticated and appreciative of the arts and so on.
- As economy seat ticket buyers embark the plane, it's hard for them not to notice the folks in first class already seated and sipping on a cold beverage. Whether we like it or not, the perceived status for first class passengers is somewhat higher than for those folks sitting in 'the back forty'.
- Owning a legendary Sam Malouf chair shows off the owner's discerning tastes in fine woodworking.
So what does all this mean?
Your product pricing strategy must not only take into consideration the competition and quality of your crafts, but also the expectations the target market has with respect to the human elements described above.
Key ingredient: A high reputation for the quality of your crafts and services.
- Market size: Small with longer sales cycles.
- Focus: Quality, service, reputation
- How to position your products:
- Your wood crafts must be made of high quality materials, craftsmanship, rich in features and exquisite design.
- You must develop a strong branding and marketing strategy with professional quality pictures, great copy, buyer testimonials, positive reviews, exceptional services.
- Buyer status is potentially enhanced by having one of your fine crafts.
- Shedding the best light possible on your crafts and the benefits for owning them.
- It is best that your whole product line satisfies premium pricing criteria.
- Personalization services are a plus.
- Easy transaction and fast shipping are expected.
Key ingredient: Competitive pricing with a focus on value, fabrication cost controls
- Market size: Large with shorter sales cycles. Can mean razor thin profits with sales goals achievable through volume sales.
- Focus: Value, functionality
- How to position your products:
- Your wood crafts must be made of acceptable quality materials and reasonable craftsmanship.
- Keeping your prices low by keeping all your costs low and optimizing your fabrication processes using raw materials common to that price level
- Your product line can contain a combination of economy and intermediate priced crafts.
- Easy transaction and fast shipping available at a premium
- Buyer tolerance for longer delivery times if free shipping
Intermediate Pricing - The Sweet Spot:
Key ingredient: Competitive pricing with good quality and craftsmanship with opportunities to differentiate.
- Market size: The bulk of the market with lots of competition
- Focus: Very good quality, value and status
- How to position your products:
- Requires a combination of the Premium and Economy pricing strategies described above.
- The level at which you implement these strategies will define where in the intermediate pricing range your product price will fall.