How to Raise Your Prices by 71%

It’s common knowledge that pricing products or services is an ongoing battle with human psychology.

If your price is too low, people may think it’s junk. If it’s too high, they may think it’s a rip-off.

Now, let’s assume your product (or service) deserves a higher price tag. How could you raise your price and have people gladly pay it?

The Power of Perception

Let’s say you’re lying on a beach on a hot day. For the last hour you’ve been thinking about how much you want a nice cold bottle of your favorite beer. Your friend gets up to make a phone call and says,

“Hey, want a beer?”

The only place nearby where beer is sold is a run-down grocery store. How much money would you give your friend for the beer?

Remember how much you gave him and reread the question. This time around, replace “run-down grocery store” with “fancy hotel.” How much money would you give your friend now? Would it be more than before?

Most people say yes. During a research experiment, the behavior economist Richard Thaler discovered that the fancy resort’s median price was 71% higher than the run-down store’s price .

Amazing, right? You were willing to pay two drastically different prices for the same bottle of beer because your perception influenced your price limit.

Keeping this discovery in mind, the only logical way to raise your prices is by developing the perception of your product (or service). So keep reading to learn how to do it.

Choose the Right Words

All Thaler did was change a few words and people ponied up more money for the same bottle of beer…

What made those words so special? Each word triggers a memory that tells you how much money you should offer for the beer. In Thaler’s case, “fancy hotel” commanded a premium over “run-down grocery store” because  “fancy” sounds more expensive than “run-down.”

When you want to raise your prices online, you choose words in your description that communicate your desired price perception. Here are two examples:

• Ebooks - How many people do you know that sell an ebook? Do they call it an ebook? The people who are killing it online don’t. They use other names that sound more expensive. For example, they call it: “material,” “report,” or “training kit.”

• Consulting - Most people call it what it is, consulting. The problem is, that term is too generic. That’s why some top consultants use other words to sell their services. For example, some call it “advisement,” “strategy,” or “execution.”

(as an aside, you can read more about the power of words in a guest post I wrote for Copyblogger a few months ago)

Create A Valuable Product Experience

Not only do you need the right words, you need to create a product experience that people perceive as valuable. In Thaler’s research experiment, the words did the job, but it’s not always that easy. Sometimes you need to put in extra effort to create this experience. Let me explain.

I shop at this grocery store “Natural.” It’s relaxing. It’s low-light, the staff is personable and knowledgeable, and the owner is a culinary chef who helps you find the best ingredients. The other day I bought some Alaskan Black Cod. The fish monger told me how to cook it and gave me some free marinade and spices.

Sound great? You must be wondering “what’s the catch?”

It’s more expensive than other super-markets (you could have guessed that…).  The thing is, I don’t mind paying a premium price because I value their great service.

What do people value online? People want one thing: to be treated like people. How do you do it? A good rule of thumb is to personally address your customers and complaints because this will show people that you’re willing to invest time in them as people.

Let’s look at a couple of examples.

• Customer Service - The Wordpress theme market is overcrowded. The one theme I chose was the Thesis Theme for Wordpress (affiliate link) because the customer service is great. You can ask a question on how to implement your theme, and in most cases, someone will address you personally.

• Customer Interactivity - When people buy online, they’re fear that they’ll be another faceless sale. However, if you promise interaction with the product founders, you show your customers that you’re investing in them. How do you implement it? If you’re selling an ebook, offer a free 30-minute follow-up consulting call. Selling a design service? Offer 1 hour of free customization after the job is completed.

The Bottom Line

You can alter price biases by developing the story behind your products. If you want to learn more stuff like this, subscribe via RSS or EMAIL to make sure you don’t miss any of my newer articles.