The Psychology of Pricing
The psychology of pricing is tricky, and it’s based largely in what is FAIR for your customer in balance with what your services and products are worth.
I don’t believe that anyone should price too far beyond market value. I do believe you should set your prices fairly for yourself, and I do believe that most solo entrepreneurs undercharge. But we live in a world of greed at times, and in a world where on the fringes of our industries there are people charging insanely high amounts ($1000 per hour puh-lease!) and sadly low amounts ($20 per hour is not worth your actual time).
Your customers are willing to pay you what THEY perceive your product or service is worth. The only thing in your control is packaging up whatever you do in a way that entices them to believe you are worth the price you set. Get it?
Are you a buffet or prix fixe?
Be the consumer for a minute:
A buffet, with all the trimmings entices us with a fairly priced spread of EVERYTHING we could want. Do we want it all? No, but we like the choice. We like the control and ability to choose from a wide selection. We know we are probably paying a wee bit more than we would if we just ordered off the menu, but it is oh so worth it to get seafood and dessert for the same price! Know what I mean?
A prix fixe allures with the benefits of fine dining. One set fee, and you get a lovely meal already decided for you with a few limited, but divine choices. You don’t mind paying more because it also comes with attention, a promise of guaranteed foodie-heaven and a sense that you deserve the luxury. You are paying more for less (than a buffet) in theory, but truly, were you going to eat $29.95 worth of salad and prime rib anyway?
Setting Your Price
In your choice, of being a buffet or prix fixe, you may have several services or offers that and you may be able to do both. The higher value, prix fixe, would be your VIP offer… your best stuff. Limited but specifically chosen choices of highest value can be crafted into a package that delivers a touch of extra service.
The important thing to note here is that just because you may decide to be a buffet, offer more, does not mean you get to price higher. In fact, if you process what a buffet really is (a chance to sample a little bit of everything), you can see it’s an entry point and a way to test you out. When people are “testing” the product or service, they expect to pay less.
What About the Rest of the Menu?
You do still have flexibility to offer a la carte items at single off the menu pricing. These one-time offers actually cost you a bit more because they may end up a bit customized, so they should be priced somewhere between the buffet deal and your fixed price oh la la offer.
The rest of the menu is critically important, because it is in fact the entry point for most customers. Most customers prefer ordering one thing off the menu that they really see value in, before ordering the buffet or the prix fixe. We tend to think they might try the buffet first, but many won’t.
So your a la carte, single order items need to be well thought out and mid-priced by your standards. They have to be priced high enough to be a true income earner for you, but low enough to be able to sell in enough volume to meet your minimum profit expectations. The buffet and the prix fixe menu are your path to bigger profits.
The menu is your core offering, the offer that is most appealing to the masses of ideal customers and the most psychologically (ie. market aligned, value-proven) appropriate price.
Avoid Fast Food Pricing or Fancy Fine Dining & All Will Be Well
Be cautious not to make your core products, your “off the menu” items, too low priced or you can’t service the volume you will attract fairly. Have you ever run a contest and ended up with a list of “tire kickers” or professional contest enterers, instead of valuable future customers? This is fast food mentally where you bring the customers in and crank them out with little care for who they are or how valuable the product or service is.
Be equally cautious to not make your VIP products unreachable for the clients you like best. Yeah, you have some goodies and goodness that is worth a premium price, but if you set that premium price as high as the most expensive restaurant in town, you better be prepared to deliver an unforgettable experience. At the highest price point, it is no longer just about the quality you are offering. You are saying it’s a luxury to work with you, and only the best of the best get the privilege of knowing you at the fanciest fine dining price. That’s great for some (it truly is)… if you can constantly deliver luxury experiences… but as you are probably aware, the coolest people are probably hanging out down the street at a place they feel they stay longer in their comfy shoes.
Low cost pricing will not attract your ideal customer. It will attract cash flow that is high maintenance to manage, and… it will feel a little gross. Because after all doesn’t low cost imply you are convenient and, well… (ahem) cheap? (couldn’t resist)
You are not a fast food restaurant. You are striving to be a GOOD business and deliver the very best your industry has to offer, assumably. If that is true, then do yourself and your clients a favour and price what you offer fair enough for you to make a comfortable living, but affordably enough that your customers will tell their friends.
High cost pricing will not grow your business. It will create aspiration and interest, but may not convert to growing a fan base broad enough to establish your business if you are still getting established.
If your business is established, definitely set the bar higher on offering a few luxury experiences, but you cannot expect to grow a business off of luxury offerings. These are special experiences… and they put you out of touch with your masses of future superfans because you put yourself out of the market if this is all you offer.
The Good Food Guide to Pricing – Go With Your Gut
In the end, if you don’t over-think it, you’ll settle on the right pricing, because it feels good. You can always tweak and adjust as you go and grow so don’t sweat it. Just ask yourself, where am I between fast food and fine dining.
I LOVE this article from Tad Hargrave, Marketing for Hippies, Why “Charging What You’re Worth” is Bullshit. It irks me when we over price ourselves on a notion of our “value” must always be in trade for equitable dollars. I truly hope by hanging here you are seeing your business worth and putting a high value on what you offer. I just think (and so does Tad) that there is a balance in offering exceptional service and making enough money to be profitable without being an unethical business owner.
Comment Below About Pricing:
- If you were a dining experience, what would you be?
- How do you set your pricing?
- What do you need to tweak to set a fair price for you AND your customers?