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A small business blog featuring tips to help entrepreneurs succeed in the small business world. Topics include family business, human resources, marketing, money, networking, operations, ownership, startup, taxes and technology.
The Psychology of Pricing
When starting your business, and throughout it’s progression, you will always be evaluating and reevaluating how much to actually charge for the product/service you provide. You must take into consideration how much it cost your business to make the product or provide the service (i.e., supplies, payroll, etc.), how much of a profit you will need to make in order to keep your business running, and the like.
But there is more to it than simply picking a price that covers your overhead and makes a little profit. You have to take into consideration the thought process of your average customer and the psychology of pricing.
You want to provide your clients with a perception that they’re getting a great deal, and there are a few possibilities for conveying that:
Providing consumers with the perception that they are saving money is something that nearly every retailer and service provide implements into their pricing on a regular basis. You see it every day when the lunch you order is $3.99. Though that is essentially $4, that one penny really makes a difference in the consumer’s money saving subconscious. Even eBay sellers have caught on to the concept. As strange, and, for all accounts, illogical, as it may seem, it works.
And let’s not forget the ever popular discount. One of my favorite stores, a national craft and hobby chain, has new discounts every week – 50% off scrapbooking supplies, 25% off fabric, 40% off picture frames, etc. You walk through the store and there are red discount signs posted every where to greet you and draw you in. And it works. I always come out of there with more than I went in for because “I just got the best deal!”
Everyone loves a great deal, especially the “buy one, get one free” type. Think of those television commercials selling household cleaning products, knives and the like. How many times have you heard “Get the super sponge for $19.95. But wait! If you act now, we’ll give you not one, not two, but three super sponges for the low, low price of $19.95! That’s three for the price of one!”
And then, there’s all the extra bonus products they throw in, like the super mop and super soap, “at a $50 value” for free. Why do they do this? Because it works. If people feel like their getting a great value for the price, way more product than they’re actually paying for, then they’ll be more likely to buy.
Another great way to real a consumer in is by un-bundling the cost of the product or service. The ever popular “in three easy installments of $12.95” or “for the cost of a cup of coffee a day.” These phrases sound a lot better to the consumer than the actual cost of $38.85 for that tub of super detergent, or the monthly life insurance premium of $30. And, especially if your product or service is pretty costly, providing your clients with the option to make payment in installments, rather than all at once, makes it a little easier on their bank account and will help to insure that you actually get paid.
So, as you work at deciding what to charge for your product or service, keep in mind that the consumer’s acceptance of the price you set tends to have more to do with their perception of the price than it does with the current market and your overhead costs.
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Starting a Successful eBay Business (Part 4)
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