On Perceived Value & Pricing

Is the price of what we buy determined by some logical measure?

Is there a database we all look to so we can see what the price of milk is, or should be?

Technically speaking, there’s something close. The CPI (Consumer Price Index). This is really a collection or set of prices pieced together to give economists a window into the world of consumer goods pricing and purchasing activity.

But for us regular folk it would seem that there’s simply a “logic” to the price we’re willing to pay for the everyday items we buy. At least most of the time.

Of course there are exceptional moments to this like .com shares in the late 90’s, or Dutch Tulipmania of the 1630’s where at one time tulips and bulbs were going for as much as luxury houses.

Economists have a term- a luxury good. This is a product or service that isn’t effected by great variations in price. These are relatively price “inelastic”.

When it comes to more complex things, the rules of the game can be changed. Radically.

In the information publishing world, of which I’ve played a part, there’s an important concept called “Perceived Value”.

In short, it goes that your product or service doesn’t really have a value other than the value that your market/audience/list is willing to pay for it.

Based on this, marketers who understand perceived value always always always test multiple price points for their products. No matter what they think the price should be.

And here’s the interesting part- once they test and get statistically significant data, they don’t always choose the highest profit maximizing price. And they don’t always choose the price point that generates the most revenue. At least true marketers and strategic business people.

Which isn’t what they teach you in Econ classes or business school

They choose the price based on a few variables:

1) Who is my core audience and what is their income level?

2) How does this relate to the rest of my products, and help to position them and this product by the pricing I give this?

3) What am I doing now, and long into the future, that this pricing will have an impact one? (For instance, if you want to build a large customer list to upsell your higher priced “back end” products to, then you might pick a lower price point that generates less revenue but many more customers. The importance being that someone who has already paid for something from you is many times more likely to buy again later)

I’ll go out on a limb here and say that price testing is simply the best thing there is in marketing.

Oh, with the exception of affiliate deals where you get your hands on someones qualified customer list for no up front expense, all in one fell swoop.

Back to pricing and perceived value.

Some publishers try to create or raise their perceived value with tricks and gimmicks. A common one operates on the principles of Urgency and Scarcity. “Buy now. This deal only good for 24 hours, etc.”

I believe that the average consumer online is growing a bit more savvy. You used to be able to use all of those old direct marketing closes and calls to action.

Nowadays those not only read and feel dated. Your audience knows better.

I’d say it’s time to evolve past this if you’re serious about having a great business where your customers are “Raving Fans” even after they buy from you. (Would recommend you check out the book Raving Fans)

How does one do this?

In short, focus more deeply and clearly on the problem or frustration or opportunity your product or service is trying to help your customers with.

By making sure you deliver clear personal value to the individual who becomes your customer. You’d be surprised what “value” is to your customer.

Sometimes it’s just feeling heard and understood.

Sometimes it’s a simple set of instructions they didn’t have before.

Sometimes it’s proof in the form of a video showing an actual customer using or having success with your product, and giving them a concrete example of success for themselves to model.

Once you’ve delivered personal value to your potential customer, then the benefits of your products speak for themselves.

Although it never hurts to make sure you clearly and honestly articulate the personal benefits of your product or service in no uncertain terms.

Perceived value is all in your customers mind.

All told, if you’re going to focus on your product or brands perceived value… spend more time worrying about the benefits to your customer and what physical, emotional, social, or financial experience you want them to have as a result of your product.

Do this rather than trying to focus on building a feature-filled doo-dad that never even has real value until a human being uses it and places a value upon it.

Everything else is fantasy in your mind.