The first thing to understand is that prices are about perception. And it is the perception of your customers that you are aiming to control. Ask yourself, what is a bargain? A bargain for one person is perceived by somebody else as a complete waste of money. It all depends on the customers’ perception of value. You also have to add in the expectation of the customer. The expectation of the customer can change their perceived value. Most businesses totally ignore this aspect of pricing and yet it is so important because it can affect how the market assesses your products and services.
In a very simple but elegant study in retailing, customers were more willing to pay $20 for a CD when they were placed next to sweaters which were priced at $80. There was price resistance when the CDs were placed next to sweatshirts that were priced at $10. In both cases, none of the customers had any interest in buying the clothes. Clearly, the perceptions of the customers were affected by the pricing of the adjacent clothes.
This knowledge is used frequently in selling. A good example is when you purchase a men’s suit. Once you have made the buying decision, the salesperson will try and get you to add a belt, tie, shirt and socks to your purchase. The reason why it works is because the price of these items are much smaller than the price of the suit. Yet these add-ons are normally higher margin items. The process is also used by McDonald’s. The question, “Do you want fries with that?” has added millions of dollars to their revenue worldwide.
We would all claim to be rational people when we purchase something. Yet our perception is affected by past experience, advertising, and even the price of unrelated products. This means that you should always put your most expensive items at the front of your catalogue or at the top of your price list or invoice. Then put the less expensive items further down the list because they will appear cheap by comparison, even though they may show prices that are higher than the customer could have obtained elsewhere. This tactic can boost your margins and profits substantially.
When you incorporate this strategy into your pricing and invoicing, you can add yet another way of affecting the perception of your customer or prospective customer. If you include things on your pricing and enforcing that you provide as part of your service, you can include them and put a “no charge” next to them. Immediately, your customer or your prospective customer perceives that they are getting something for nothing. Often this is the critical point which will make their mind up to purchase from you. custom baseball stirrup socks