Setting prices is a difficulty for almost every business. Do you charge a price similar to other services and products of the same kind or do you stand out because you have more benefits? Do you end the price in a 9 or a 7? Should you offer a price range? These are all debatable points.
Frankly, though, it doesn’t much matter. What matters is whether your customers are prepared to pay or not. If your customers are prepared to buy from you, then the price becomes a minor issue. But how do customers decide whether or not to buy something?
Traditional marketing lore is that you should emphasise the benefits of what you are offering. Once people understand the benefits, they will simply want to buy and therefore the price doesn’t matter much. Of course, like many things, traditional lore is often not quite true.
Earlier research shows that people do indeed focus on features, not benefits. If they know that a car will get them from home to work using an internal sat-nav and allowing them to have the listening comfort of a digital radio, they don’t need selling on those benefits. When people know what they want, they look for features.
However, new research shows that customers also do something else. They tot-up the “total price” in their head and then decide whether or not to buy. So, for instance, imagine you are selling a piece of software and you set the price at $97. Sounds good – you have ended in a 7 (a good ending number for a price), you have set your price just below the competition and it will also allow you sufficient margin to offer attractive discounts. All sounds good. But what your potential customers do is to then think about the cost of training it might need, as well as the cost of adding additional licences for their laptop or tablet device. Then they’ll add the cost of any conversions from old software to new software and end up with a total price. This is the price that will be the basis for their purchasing decision.
So perhaps rather than quoting a price for items you sell, it would be a good idea to quote a total acquisition price. That means your four £8.75 cinema tickets for the family actually costs £110 – £35 for tickets, £7 sweets and drinks, £60 for the meal afterwards, £5 on petrol and £3 on car parking. When we look at the £8.75 we then mentally tot-up these other costs to decide whether or not it is worth it. No amount of emphasising the comfort of the seats, the surround sound or the digital projection perfection will get people to part with their cash if the total cost is too high for them.
You can gain a significant competitive advantage if you emphasise total costs of acquisition, rather than just your price alone.