Let’s try a quick exercise. Think of your living room at home. Can you tell me the exact price to the penny you paid for any item in that room? You might know one or maybe two items mostly because there might be a memory tied to it somehow. It might have been a birthday or anniversary gift.

Price Is Not Why We Buy

Only about 7 percent of the population can be defined as true “price buyers.” People who always seek out the cheapest price they can find regardless of brand, service or reliability. The other 93 percent buy on emotion. It’s not the price it’s how the ownership of the product makes them feel. No one buys a 50” TV. They buy the Super Bowl live in their living room or their favorite movies or TV shows. They don’t buy what the product is; they buy what the product does. There is where the value to the customer comes in.

The 93 Percent

If you have a product that you sell for $15 and you sell 100 of them you now have $1,500. What would happen in you raised the price of that item to $25? Now you only have to sell 60 of that item to make the same $1,500. Theoretically, you could lose 40 percent of your customers and still make the same income.
Let’s go back to the perception of price. What are you really selling? All of your new customers will not have any clue that the item used to be sold at a lower price. Your current customers know that the prices of items and services go up from time to time. No one stops buying gas or green beans because those items went up in price.

If 93 customers still continue to buy your product at the new $25 price you now gross $2,325 — an additional $825 with no additional effort, payroll expense, utilities, no change in your business at all. And the best part is you now have a cushion with your suppliers when they increase their prices to you.

Soften The Blow

If you think a $10 increase will really damage your business there is a way to soften the blow of a price increase. Show the item at the new $25 price and show it as a package deal with some related items. You see this in TV infomercials all the time. The Ginzu Knives are famous for using this marketing model. They establish the price for the four knives then start adding some extras that cost them much less but appear to be an extra value to the customer.

Please understand that I’m in no way asking you to behave in an unethical manner. You must give the customer fair value or you will definitely lose them. If you use packaging as a selling tool give them fair value for the products or services you provide.

Some Final Thoughts

Billionaire John Pierpont Morgan is often quoted as saying, “If you have to ask how much it costs you can’t afford it.” This is certainly true for yachts, planes and mansions. But for everyday items emotion, or need for the product, will always win out over price. If I want the product bad enough I will create an argument to justify the price.

The bottom line is this, price is only one of the items customers consider when purchasing a product or service. No one buys a 1” drill bit; they buy a one-inch hole. For some customers the need is only worth a few dollars, for others it might be a few hundred dollars. Sell value not price.     e

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