Why on line prices can mislead

Cars for sale

On line markets where people sell peer to peer – think eBay sellers, or used cars on line –  can trick our perception of the price of things. Here’s why:

This is the advertised price, not the price it sells for.

When we compare similar items on line, we are more likely to see the price of things that haven’t sold yet. The price people actually buy at, is often not advertised long enough for comparisons. This means the real value of something is often much less than we think. Especially when we are looking to sell something we own. We are weirdly programmed to think items we own are worth more than they are. 

You might notice a car like yours is advertised for $20,000. There may even be multiple advertised at this price.  Other sellers also see the most common price and follow the market. But we need to remember these are the cars which ‘haven’t sold’ – those that sold probably did so at $17,ooo and are no longer listed. It’s the overpriced stock that creates our price perception.

Why does this matter? Because it is counter intuitive, the opposite of what we’d expect. It’s the filter bubble in action. The more we see homogeneous products with price X on line, the more we should remember it’s the price people hope for.

You should totally read my book – The Great Fragmentation.

The simplest brand building tool of all

black mercedes

Building a brand with meaning is a difficult thing to do. But there is one hack which tells us more than any other signal, and it takes less than a second to give that signal.

The price.

If it’s super cheap or outrageously expensive, it tells a stronger story than any other feature immediately.

It tells us where it sits in the scheme of things, the consideration set of where I could cast my dollar votes. It tells me if this is option is in my range or not for me. Sometimes the price is most important feature, we want people to know how much we paid. The story I tell myself has already began. I make a decision based on the price which tells me I’m being smart and frugal, or I deserve this most expensive option. In some categories like apps and software, these days there’s an expectation of no price at all.

If our price stands out, then even before our product or service has been trialled we have a brand perception. The only challenge of course, is making sure that after consumption the experience lives up to what was expected.

You should totally read my book – The Great Fragmentation.

The only way you can compete on price

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My favourite blogger Seth Godin talks about competing on price as being a race to the bottom. I couldn’t agree more. Yet, it can be a valid business strategy, and here is the only time when competing on price is a smart thing to do:

When everything the customer does not see is focused on price.

If you want to compete on price, then the price tag itself is the least important part of the ‘low pricing strategy’. It’s the back end, and every single thought and action in your business needs to be about efficiency and reducing cost, all day, everyday.

If we can manage to do this, then we can win on price. But we should always remember a price sensitive customer is always the least loyal.

You should totally read my book – The Great Fragmentation.

Pricing & relativity

While reading SamsMojo earlier this week I was surprised to learn the prices of the top 10 selling iphone apps for 2009. In fact, the price for the top seller was more than 10 times what I expected at $99 – The TomTom navigator app. Not the $3 we’d get as a response if we asked a random sample of people.

Sure, it’s a high price as far as iphone apps go, but it much cheaper than a $500 TomTom. The point for startup is this. There is no such thing as expensive. There is only expensive in relation to the set of relevant substitutes. And when we are pricing our brand or startup all pricing decision need to be made relative to the alternatives.

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Trick Pricing

We are smart people.

We don’t get duped very often.

We know a scam when you see when.

We’re even smart enough to know that $9.95 is really $10.00

So why would we treat our customers in such a condescending manner. Do we really think that any of our customers won’t be smart enough to know this?

Now that we have answered this question let’s ask ourselves why you would ever engage in such trick pricing for our customers.

At last, we’re entering the age of ‘authentic capitalism’, and $0.99 cents isn’t fooling anyone. In fact, you’re quite possibly embarrassing yourself on a commercial level and damaging your brand or start up. The threshold price point is the biggest hoax in consumer marketing. My suggestion, is to have honest pricing.  Charge to the dollar. Make it simple and gain respect simultaneously. Our customers won’t mind, really.

Who wants a pocket full of change anyway?