Ever wondered why some people will pay more for a product or service than others? There is a psychological phenomenon, price relativity, that affects how we perceive the value of two things. If you were given $100 and then offered $101, would you accept it? Probably not, because you feel like it's not worth as much as what you have. The buying mind thinks this way with many aspects of life. From choosing between two items, to deciding which restaurant to go to on Friday night.
We all make purchase decisions on a regular basis. Whether it be buying a new crystal or a new car, we are always faced with having to make decisions about what to buy and from whom. Price relativity comes into play when a potential customer considers other products with a specified price range in mind.
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The key part to understand is that it doesn't matter what price point you are selling. At the end of the day, every transaction is an exchange. An exchange of energy. An exchange of value. An exchange of money.
However, not all value is created equal. Not everyone values a pound or dollar in the same way.
So, let’s dive deeper into the buyer’s mind to explore this a bit more.
How much you’re prepared to pay for a product or service isn’t as a simple question as you think.
A buying mind
Buyers do not make decisions purely based on the information that we present them. Depending on their mindset, they will do some form of research to understand what other solutions exist.
For example, if you’re selling a course, consider what alternatives your buyer has in mind. Some buyers will consider hiring a coach as an alternative, others may think of buying a DIY solution, while others will be thinking more along the lines of the cost of a family weekend away. It's about creating the perception of value in your customers' minds, and understanding what they see as a suitable alternative.
The Psychology of Price Relativity
As with many small business owners, we often compare. We compare our offers and our business to others - often falling into the trap of comparisonitis. But it can be hard to compare like for like, especially as no two people have the same life experiences and influences.
The same is true for our potential clients when they compare your offer to alternatives. So to help our buyers make a decision, we need to provide anchors.
There are two main elements:
Anchoring to comparable alternatives - the comparison set, and by anchoring prices on things they’re familiar with.
The Comparison Set
For a moment, imagine you are doing your weekly food shop. You wander down the soft drink aisle and want to treat yourself. How much would you be willing to spend? You see a fancy bottle and it costs £20. Would you be interested? Probably not. Now imagine you are doing your weekly food shop. You wander down the alcohol aisle and want to treat yourself. Next to the vodka and gin is a non-alcoholic drink costing £20. Would you be interested?
In the first example, the comparison set is soft drinks costing under £3. While the second one is alcoholic drinks costing £20 or more. The cost of the non-alcoholic drink is the same. The only difference is what it is placed next to. The lesson to learn here is don’t accept your comparison set as fixed. Do everything you can to change the field of reference your customers have to one that is more aligned to your offer. If you change the comparison set, then you can shift the buying mind of your customer.
Pricing for soul led business owners can often be a complex issue. As soul led entrepreneurs, you’re leading from within rather than following a predetermined business strategy with specific, measured outcomes. With that comes a lot of inner work, especially when determining pricing for your products and services.
When it comes to pricing, it’s super important to understand how your customers will make their purchase decision. What’s “expensive” for me, might not be for you, and vice versa. So help buyers out by anchoring prices on things they’re familiar with. A common method used is a cup of coffee. Where you break down the cost to be equivalent to a daily cup of coffee. But for your audience it may be a weekly trip to have a massage. Do your research. Understand your customers. Understand their buying reference points. Understand what their mind is conditioned to think about in terms of pricing.
How to apply to your business
Help potential buyers overcome their price objections and use a relatable comparison set, then get them onto your sales page!
1. Switch the buyer's viewpoint by sharing alternatives. As with the non-alcoholic drink example above, change which offers yours sits next to. Are your customers comparing your £1,000 offer to a £5,000 or £500 alternative?
2. Switch up your product suite. This is a common approach used by big brands. Create a more expensive brand or offer. This can be as simple as putting together a "Luxe Package or Bundle". This will shift up your buyer’s frame of value. Making your original offer more attractive as “good value”.
3. Switch up your language. Use words and copy which plays down the importance of price. For example instead of saying "high performance", use "low maintenance" .
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Keep in mind
It's important for marketers to understand how consumers make decisions when they are comparing prices. And understanding the psychology behind pricing can help you sell more products and services. What questions are you asking your current customers to better understand the real reason they chose you? How can you refine your messaging to align with those buying decisions?
There is a great quote from Stephen Fry that comes to mind: "Books are no more threatened by Kindle, than stairs by elevators." Remember, understanding the buyer's mind can make all the difference!
Clare Fielder is a small business digital coach and web designer. Clare works wherever there is fresh sea air, Wi-Fi, and good coffee. Clare helps dynamic freelancers, ambitious businesses and passionate start-ups discover their online spark. If you are interested how I can help you request a call here so we can determine if we’re a good fit to work together.
Article originally published in the pages of SOULACY
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