The best words of wisdom I ever got on pricing were:
No one knows how to price.
The task of pricing is still there however. So how do you start thinking about pricing your product or services?
The answer is in psychology and psychographics. Let me illustrate with a little story.
I was out with a Gentleman Caller. He wanted to go to a restaurant that had steaks for $4.99. I refused to go. If the best thing about the restaurant was $4.99 steak I wasn’t going. I can’t get my head around a $4.99 steak. It must be horse meat or something. Sure, I understand loss leaders,** I just can’t believe that a decent steak can be had for less than $19.99.
Lets look at the psychology behind this. If you compete on price, aforementioned Gentleman Caller is the guy you’re after. He’ll drive across town to save a nickel on gas. He’ll drive to Southern Maine to get a $4.99 steak. He’ll eat at 5 PM because the wings are 10 cents at the bar. He takes pride in spending as little as possible.
Contrast with me. I will spend an extra nickel on gas because the gas station is on my way. I believe good steaks are expensive. I won’t eat at 5 PM unless I’m hungry. I’ll spend a little extra to get exactly what I want, for convenience or for a specific experience.
When you’re marketing your business you need to know which one of us you’re talking to. If you go the demographics route, you could target individuals 30-45 in urban areas with white-collar jobs. That covers me and GC. If you try to talk to both of us, you’ll miss the mark entirely. I won’t care and GC will find it elsewhere for a dollar less. Think about who your clients are and what they care about. If you want to target white-collar urbanites 30-45, do you want the ones who care about experiences? Who put their kids above all else? Who love live music? Who take pride in being thrifty? Who enjoy learning?
Get into your potential clients’ heads. If you don’t know what they care about, find out. Do a survey. Call them and ask. If you can’t speak to their values and the way they perceive themselves, you’re sunk.
If you have questions about target markets and psychographics, I’d love to talk to you.
Next week: continuing the pricing story. Stay tuned.
**Loss Leader – underpricing certain items to boost sales on profitable items. Think about those $9.99 lobster buffets in Atlantic City or Vegas. They take a loss on the lobster (or the $4.99 steak) and make up for it in gambling losses and high margin cocktails.