"You're too expensive."
Sound familiar? I'd bet that every business owner has heard a customer say this, be it true or not.
Before we dismiss this and start justifying that our price is just right - or even worse, discounting - let's think about the last customer who told you that you were too expensive. What were they thinking? Why? How could you have changed their minds?
This is a question that gnaws at the mind of many business owners, and, when confronted, the natural reaction is to make arguments as to why you aren't overpriced. You'll make comparisons. You'll draw analogies. You'll give discounts. And maybe you'll ultimately win the customer over. Hooray, and well done. You've got the sale.
But here's the not-so-obvious bit: your customer made a decision about the price your product should be... before they actually learned your price.
In other words, their price was set before your price was revealed. They made a decision about what they were willing to pay before you told them what you wanted them to pay.
And that means that you could have changed their minds before they even saw the price.
A Traveler's Expectations
A couple of years back I lived in Beijing for about 6 months while studying. As with most travelers who find themselves in country where they have a currency advantage, I found that many everyday things were much more affordable. Catching a taxi cost around a tenth of what I'd usually pay; eating out was similarly inexpensive. With less walking and more luxurious eating habits, my waistline started expanding pretty quickly!
My perception of what was expensive and what was cheap was set by my expectations of what I'd be paying at home - what I was used to paying for the same service or product.
It wasn't long before my perception began to change. I began to evaluate things more natively, and Chinese prices became their own benchmarks. My thinking became: "this restaurant is expensive compared to the one around the corner" rather than "this meal is so cheap compared to my local noodle joint back in Sydney".
This set up me up for a terrible shock when I got back home, since everything was suddenly insanely expensive! Over time this feeling fades and a $10 meal is no longer highway robbery. But the point remains - my price expectations changed because of my environment. How much I was willing to pay went up, then down, then up again... all based on my perception of value and worth set by my environment.
So - what are your customer's perceptions of value? What are they comparing your product to, and what experiences might they be drawing on?
Welcome to Wal-Mart
When you go to Wal-Mart, you expect low prices. Everyday low prices is their mantra; their advertising emphasises this endlessly, or once did. Walk into one of their cavernous stores and the endless aisles with their intentionally not-yet-unpacked pallets of goods on sale scream to you that you're in a warehouse. You're one step closer to the supplier. You're cutting out the plush middle man. You're saving money.
This is a well crafted image that gives you the feeling that you're being frugal. Doing battle with the crowds and walking half a kilometer back to your car translates to saving money. Your expectation at Wal-Mart is that prices will be low because of the environment you're in, the experience you have and because their branding and marketing tells you that they will be.
Luxury stores are the exact opposite - spacious and clean, with neatly spaced merchandise and wide racks made of sturdy materials. Each bag perches on a pedestal arranged just-so. The store looks and feels pricey, the staff are insanely fashionable... you already know that the products here aren't cheap.
How is your marketing and your store's look and feel conditioning your customer's expectations of price?
You point at a strange looking wheeled object in your friend's loungeroom. You ask your friend:
And they respond:
"That, my friend, is the most advanced vacuum cleaner in the world; completely automatic and cleans the house itself. It's a Roomba."
Now you're already wondering how much it costs; you want one. And who wouldn't want a Roomba, they're freaking cool.
But what if your friend answered differently, saying:
"That's some vacuum cleaner my mum got me for my birthday. It's a little spooky and doesn't work properly. Who wants a little robot running around their house pretending to vacuum things?"
You might disagree with your friend's statement about robots, because robots are awesome. But the lack of a testimonial or recommendation in that statement devalues the product. The way that you as a marketer or you as a user talks and presents your product makes a significant impact on perceived value.
How are you talking about your products? In your marketing materials, on your website, on the phone... are you actively using words that convey the value?
Your Checklist: Expectations, Images, Words.
My three stories above illustrated these three core points. Let me recap.
Expectations. Your expectations about a product and it's price or quality are shaped by your experiences with comparable things.
Image. The look and surroundings of a product affect the perceived value of the product.
Words. The words and attitude you and your customers take when describing the product affect the perceived value of the products.
That's it. If people are saying you're too expensive, then you've messed up on one (or all) of the above three.
A Note on Expectations
You'll notice that expectations can be a sticky one; what if my customers have paid $2 for an apple all their life, but I want to charge them $10?
This is almost another topic entirely, but this is where good old marketing wisdom kicks in: think about positioning. This isn't a $10 apple. It's an organic, GMO free, fresh-from-the-farm-picked-by-my-mate-joe $10 delicacy. And you're displaying them on a nice wooden table, in a moulded recycled carton, shining from the fine mist you've just sprayed on them... now that's a $10 apple.
A Final Word: Be Honest.
If you set the wrong expectations, or build the wrong Image, or wield the wrong words, it will come back to bite you. After your customers buy, they'll be disappointed. And that ultimately means you lose.
Which is why I'm truly not - and wouldn't ever - advocate building the wrong expectations so that you can charge more. That sort of strategy may yield a short term gain, but using good marketing to cover up a less glamorous reality is not a business strategy - it's a con. And that's not what I'm suggesting you do at all! :)