Posts tagged ‘Pricing’

Perception and Pricing

Earlier this year researchers from the Stanford Graduate School of Business and the California Institute of Technology published the results of a study on the effect of price relative to preference in the Proceedings of the National Academy of Sciences. Not typically a widely reported on publication, but the outcome of the study caused many in the mainstream media to sit up and take notice. As covered in the New York Times, The Economist, CNet and others, Antonio Rangel, along with Baba Shiv and John O’Doherty conducted a very interesting wine-tasting.

Participants in the study were presented with two glasses of wine and given no other information other than that one wine was $5/glass and the other was $45/glass. Using functional magnetic resonance imaging (fMRI) they documented that the part of the brain that experiences pleasure becomes more active when the drinker thinks he/she is enjoying the more expensive wine. Of course, both glasses of wine were from the same bottle.

“What we documented,” said Shiv, “is that price is not just about inferences of quality…but that price changes a person’s experience with a product.”

The researchers ran different variations of the test, for example, when one wines was said to cost $10 a bottle it was rated less than half as good as when people were told it cost $90 a bottle, its true retail price. Moreover, when the team carried out a follow-up blind tasting without price information they got different results. The volunteers reported differences between the three “real” wines but not between the same wines when served twice.

Rangel, having only studied consumer reactions to wine pricing, is hesitant to extrapolate too much, but says he believes that the bias toward higher prices occurs in many areas. And history has certainly shown that conspicuous consumption and waste are an important part of many societies.

There are many instances of this price-placebo effect, and many companies throughout the years have used it to their advantage. One my favorite, all-time examples is the L’Oréal slogan “Because I’m Worth It”: The L’Oréal products cost more than the other haircare and make-up options on the shelves, but extra cost was rendered incidental by the branding. And while there are many considerations to keep in mind when pricing a product or service–your local market, demand, profit and revenue goals, etc.-it important to realize the additional information and now, clearly, experience value, that pricing plays in terms of branding and positioning.

What’s your take on this? Do you think you’re in a position to bump your prices and improve your customers’ experience?

6 May 2008 at 6:34 pm 1 comment

The Likeability Factor

The current close race to secure the Democratic presidential nomination has lead to a focus on electability. And if any of you follow any of the late-night talk shows, especially The Colbert Report and The Daily Show, you also know the issue of electability has become many comedy writer’s favorite go-to joke.

Why? Because how do you define the state of being electable as president, unless it has already occurred? The only people who know for sure who have presidential electability are those who have already served as president. And what bothers many people about politicians, across the political spectrum, is their willingness, indeed, their seeming compulsion, to change characteristics and beliefs in their desire to become more electable.

Which brings us to the Likeability issue many of us in the industry grapple with. To work effectively with a client, there has to been some level of mutual respect and understanding. A good client will appreciate your skills, insight, and talents, and value your ability to improve their surroundings. To deliver this type of service, we must be open, understanding and patient, remembering that we have the rare gift of being invited into someone’s home, someone’s life, in order to make a positive change. 

But, as we’ve discussed previously, projects can often become more than just about the design…we become part psychologist, part therapist. And this is where the things become murky. Too often we allow ourselves to let the Likeability Issue to become overly important, to the detriment of business.

1. You don’t bill for all your time, because she’s a “good client”

2. You don’t bill for all your time because she’s a new client and you’re trying to establish a good relationship

3. You don’t bill for all your time because it seems like she’ll be a good client and you don’t want to “scare” her off

4. You don’t bill for all your time because it seems like she’s going through a lot right now and you just want to make things a bit easier for her.

Recognize yourself in any of these? If so, you’re letting the Likeability Issue get in the way of your business. When people pay you money to make, do or provide something for them, that’s a business relationship, not a friendship. Don’t let your very real human desire to be liked get in the way of building a profitable business.

5 May 2008 at 6:26 pm 1 comment

Raising Rates

There was a recent article in the NYTimes online about the tricky process of raising your rates in a soft economic climate. The most straightforward approach was given by a small business consultant, Marc S. Jacobs:

There is a simple formula to calculate a minimum hourly rate, he said,
but it cannot be done in a vacuum. It is imperative, he said, for these
entrepreneurs to write a business plan first that states clearly what
they want to do, how they intend to do it, and foresees revenues,
expenses and profits for the first several years.

Once they have done that, Mr. Jacobs said, they should add up weekly
living costs and business outlays and divide by 20, which is the number
of billable hours to shoot for. “Now you have what you need to charge
per hour, and you can compare that to the marketplace rate,” he said.

But for the business with existing clients that wants to raise its fees the recommendation is:

First, he said, increase them for new clients only, and use the exercise to explore how high you can push the rates.

Then, he said, the consultant should inform existing customers in
person — not in writing — that he plans to raise rates by 5 to 10
percent. “Have a conversation as part of a regular visit,” he said.
“Make it casual. Tell them why you’re doing it. Say something like
‘I hope we can work out an agreement.’ ”

Some customers will say there is no way they can afford to pay
more, he said. In that case, the consultant have to decide whether
to let them go.

It’s a short but interesting article, you can check out the whole thing here.

28 April 2008 at 8:14 pm Leave a comment

Window Shopping and the Wall St. Journal

A recent article in the Real Estate section of the Wall Street Journal Online provided interesting insight into the mind of “semi-typical” (quotes mine) consumer when it comes to buying custom window treatments. The writer test-shopped five different options, four shop-at-home brand name services and one online service.

There are two things that really stick with me about this piece: First, the appreciation the writer feels for the non-window design suggestions she was given and two, her seemingly instinctive price resistance to the actual window treatment suggestions.

Take a look and let us know what you think.

9 April 2008 at 2:59 pm Leave a comment

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