How to increase satisfaction by raising prices
How to charge more and have people love you for it
What is something worth?
Sounds like a simple question but there are in fact actually 7.1 billion answers to it, and counting. Literally, because the answer is different for every single person on the planet.
Value is whatever someone’s willing to pay for it, which is a sliding scale. Every person assigns their own “worth” based on their situation - their needs and their means.
You know this intrinsically, although we don’t take much advantage of it most of the time.
Let’s explore an example
You’re in New York City and it’s raining. You’re watching two people argue over a taxicab. One of them, a young business professional, is late for a presentation and her briefcase is getting wet and she must be somewhere soon. The other, a middle-aged architect, is on his way to get a haircut and is flush with free time.
Who wants it more? The young professional, I’ll bet. She’s ready to scrap. If the taxi costs $40 I’d bet that she’d pay 3 times that. The architect on the other hand, well, it’s just not worth the conflict. He’ll likely wait for the next one.
These two individuals place drastically different values on the same thing. Price is completely relative. Today we’re going to explore the ways that you can exploit that in your marketing.
The relationship between pain and gain
People pay more when they have greater needs. That’s why airline and car rental prices skyrocket as the date approaches and why salespeople always try to find out why you’re interested in browsing their wares. This is sometimes referred to as “price discrimination” in older industries but we prefer the term “price-fitting.” It’s less charged (given today's climate) and far more representative of what’s actually happening.
The act of trying to maximize earnings based on what customers are willing to pay.
This is fundamentally what auctions like those occurring on eBay do: They tease out information on what people are willing to pay and then award the sale to the highest bidder.
Most markets don’t function as auctions however, and the majority of us are conditioned to pay the asking price for things, from supermarkets to shopping malls. Yet while set prices provide structure and stability, they also leave revenue on the table.
As a marketer you can use price fitting to ethically increase your margin and still have people love you for it at the same time.
I'm Grateful for … gouging?
The simplest way to go about this is to offer different tiers of your product or service based not just on functionality but on people’s immediate needs.
Take, for example, the USPS. If I don’t care if my letter takes 5-7 business days to arrive, I pay the price of one stamp, which is a matter of cents. That's your standard tier of service. But what if I’m late on paying a bill and I’ll be fined if my check doesn’t arrive in the mail by tomorrow? I'd happily pay $22.95 for an overnight envelope. That's your premium tier.
Now, there is no doubt that it takes some additional work on the USPS's part to guarantee that overnight delivery, but given that it's still the exact same infrastructure, trucks, and drivers, does it justify the 4,700% price increase?
Because I'm in need however, and they can afford to price-fit. Plus, do you know how I feel after paying for that overnight envelope? Grateful! I’m thrilled because they saved me in from a much bigger problem.
This is the secret benefit to price fitting:
The intangible benefits of helping people with a problem outweigh the pain of a price increase and lead to positive feelings.
Robert Cialdini’s marketing psychology epic Influence explores this. In it he cites several studies where test subjects who were forced to go through negotiation processes reported greater happiness with their outcome than those who got the same results with no negotiation. The reason? People like overcoming struggle and if you’re there to deal the final blow to their problem, whether that’s getting a package somewhere on time, booking an event space that’s fully staffed, or supporting your launch with a marketing-blitz, you both win.
What are some examples of how you can use price-fitting based on needs?
- Faster service, for those who can’t wait
- Higher quality service, for those who face high stakes
- Money back guarantee, for those who can’t afford to get it wrong
- Priority customer service, for those who need help
Weave these into your pricing tiers and devote advertising it to those segments of the population who have the greatest need.