Pricing on Perception
Our clients often wonder if they have priced their products and services appropriately, and they always wonder if they could charge more to improve profit margins. Increasing prices without damaging your business is often easier than you think, but it should be a carefully-managed process; you don't want to turn off new customers or lose existing customers by going too high.
For example, an executive going to the airport can choose a taxicab or a town car service. Both will get her to the same place and will take the same amount of time, but the average airport trip fee is about $25 more for a town car versus a taxi. Part of that is based on the higher cost of purchasing and maintaining the vehicle, but most of it comes from the service's perceived value.
In the town car example, perceived values are both tangible and intangible. From a tangible standpoint, the executive can see that a town car is cleaner and roomier. Also, the seats are more comfortable, and the driver is friendlier. The car service might also provide guarantees and other perks that help the executive feel confident she will get to the airport on time. Equally important though, the executive feels a powerful pull towards the town car based on her intangible perception that executives should travel in style. She is willing to pay more for the service in order to ride in a manner appropriate to her status.
You might be thinking that you are in an inflexible market and can't possibly raise your prices. Surprisingly, there is wiggle-room in pricing and opportunities to add perceived value in almost any industry. For example, the supermarket industry, one of the most fiercely competitive, has accommodated premium stores that offer better lighting, layouts, products and services in exchange for higher prices. Like town cars, the customer is getting the same basic product, but she is willing to pay more for the experience of shopping in a nicer environment.
With a continuum of price points in the competitive market, Acme Towncars can see that it is on the low end of its direct competitors. This means it might be able to raise its price by increasing perceived value.
Defining Perceived Value
Pricing Using Perceived Value
In the town car example, we would do this on a scale of 1-4, with 1 being lowest/worst, and 4 being highest/best. In this case, Competitor A is perfectly priced in the market - it has the lowest price and the lowest set of perceived values. Acme Towncars has the highest level of intangible values, and higher tangible values than Competitor B. This means it should be able to safely raise its price to that of Competitor B ($45) and possibly even go higher, to a price point between that of Competitor B and Competitor C ($47.50).
Marketing Perceived Value
In conclusion, there is usually a spectrum of possible price points,
and there are many ways for you to determine how to price your products.
How you market your business can help you make sales at a higher price
- just make sure your company's service follows through on your marketing