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.
The Bottom Line
You can increase your prices by developing the story behind your products. It’s a simple tip that has loads of practical application.
Now what about you? Have you seen examples of this? Do you develop your story to increase your prices? Leave a comment.
Can you give an example of price increasing words which I could use on my website?
I’m in the international transportation business where I’m specialized in airfreight, seafreight and roadtransportation.
I’m binge reading all your old stuff and loving it.
I notice that you use oddly specific numbers in some of your posts ( 71%? why not just 70?).
It reminds me of the 81 milligram aspirin – why is that 1 milligram so important?
Since you don’t seem to do anything by accident, there must be some psychology behind this – I’m curious!
I landed here from Infolinks blog and found really nice posts here. I like the ways you explore ways to increase twitter followers, how to make a conversation effective, power of words for bloggers and marketers etc.
Thanks Derek, you are doing great.
This is great timing Derek. I’m actually going to release an e-book. I’ll rename it a training kit as I think e-books have been watered down. It’s all about perception baby!
Great advice, pricing is obviously affected by perception of quality and value and it is something that I worked very hard when having my site designed. Creating a feeling that “this is a place for me” and “luxury” is not always easy in 2D! Looking forward to learning more about the psychology of what people perceive as a “luxury” website. Thanks for the great info. I am learning a lot on blog that converts!
Fantastic points, Derek! It has amazed me how much “telling my story” has made a difference in my marketing and training efforts. It’s plain ole refreshing to see what a personal way business is moving toward…
Couldn’t agree more, Derek. Robert Cialdini has a good example of this in his book ‘Influence’ where he talks about the jewelry store owner and how she sold all her pieces by mistakenly doubling the price. It finally gave the buyers the perception that it was high quality (which it was). I know you’ve read the book, but figured I’d share for others. Keep up the great work.
Does it maybe help, when we raise prices, to add just a tinge of value? I mean, if we include a new worksheet or list of blogsites, or some other addition, and then raise the price to where it ought to be for both, would that soften it? I’m hoping!
At this point I’m not developing a story yet, at least I don’t think I am. While I’m fine with where my prices are at this moment pricing is my bane. I’m taking this article under advisement for when I feel the need to up the ante though!
I hate to be the one who has to go the opposite but for one I don’t drink or smoke and I wouldn’t go into any fancy hotel. I go to where the people are. Even if it means standing in line for hours at a run down shop. Why? because there is social proof that place has good food and is reasonably priced. 🙂
Ben, whether I wanted water or whiskey, I’d expect the product to be equivalent in both place, but the price flexible according to the overhead. Since I would be thirsty (!) I would go to the run-down place and save time and money. You too, I think.
Developing a story is something yet to be utilized in our marketing strategy. Nonetheless, we are definitely considering it Instantravel.com.
I do have a personal story of my own. I was standing outside a restaurant in Costa Rica one day while with a friend. We both have food sensitivities and felt like there was nothing on the menu for us to eat. Not long after we had turned around to leave a man came running after us, immediately handing us a 10% discount coupon. “You both looked like Americans or so I figured.” We all laughed at this, especially as it was something we had never before experienced being pursued for business. I looked at him and said, “You really know how to market don’t you?”
She and I ended up eating at that restaurant that day. Why? For the very reason that we related to the owner who valued everyone who walked through the doors as a potential customer although primarily as a person.
I’m thinking of selling my upcoming “digital picture book” for 5-10 dollars by 1. a price cut to let them know I’m giving them a deal compared to what I think it is worth, 2. Telling them the price cut is to help the story spread faster (which IS one of my goals), and 3. Giving Subscribers a glance at the first few pages. What do you think?
By the way, your “blog that converts course is so amazing. It’s the reason I visited the post, and I believe it has the potential to help me sell “Invizy & The Misfit Supers” to a larger portion of the world. Thanks, Derek!
I love your website Derek, it is the only helpful business advice I’ve ever read, and it’s so interesting too. Could I ask your opinion about something? I’m creating an online business, and I’m really struggling with the issue of “price is too low, people may think it’s junk. If it’s too high, they may think it’s a rip-off”. I was planning to make my prices as low as possible, kind of like walmart, and make the vibe of my website “low prices, high quality”, what do you think? Maybe I’m letting my personal opinions get in the way of pricing, because I’m super thrifty myself. Thanks!
[…] How to Increase Your Prices by 71% – power or perception, choose the right words and increase your prices! […]
So glad I have run into you .. your posts are so on, it hurts. I think on of the things with price increases, it raises the levels of your customers awareness to others as well.. I had a customer who wanted me to spend an extra hour with him..( beyond his scope of work) I said sure, but I cant do it for what I quoted you originally, I now am double th rates… needless to say he was dumfounded… I also told him it would be my associate coming out and not even me directly.. whoa? What did he do? Paid me.
More importantly is the class of customer you rise yourself to when you do raise your prices.. I have “Prada” glasses that cost be $325 for the name of having Prada..does anyone care or know, no… But I do…. we need get outside of our prison of thuoghts.. jumping price is a gradual learning process, I just began to think about this seriously as part of my 2012 strategy.. what am I worth? WRONG.. what do you think i worth.
Your content is remarkable. Can you point to any additional references on the impact those words such as ebook and consulting have?
Also, I found a small typo that you might be want to fix – your text says, “(as an aside”.
Thanks for insights.
I love the beer analogy Derek. It’s funny because we pick up on cues for what we would expect to pay in all kinds of ways. Words are definitely right up there, if you’re using words like luxury, select few, etc… that calls for premium pricing.
I also see myself picking up cues from design elements, timing, the way video is filmed/presented, etc.
Great stuff to implement as usual! 🙂
What do you mean when you say ‘picking up cues’?
Totally worth the six hours it took you to write this! SUCH great stuff!
Thanks again Derek. I had the same visions on particular words used to explain something. My job title is an Online Marketing Consultant, however I prefer to address myself as a Digital Marketing Strategist. Instantly sounds More up market and also makes an impression that I have great experience in Digital Marketing.
Thanks again for the article.
I love this concept.
Towards the “fancy hotel” idea, I placed a $500/hr consulting service next to a $40 product on my site. The idea wasn’t to sell a bunch of consulting services, but to solidify the impression of my expertise and value.
My hope is that conspicuously valuing my time at $500/hr will reinforce the expert status my bio / about page is supposed to convey, and therefore legitimize the product I’m selling.
Sales have still been good, but I’m A/B testing it now, so soon I should have some stats to see if this premise worked or not!
I’ve been increasing the price of my education program every month, but i guess i started too low… and it was counterproductive
Today I was asked over the phone first if “I was a call center,” then if my product was “Made in America” and finally the lady asked, “Are the people their good employers?” I answered, “yes, I am the owner!”
It is the idea of being an owner, a real person and answering the phone. We live in a computer/keyboard world and with a little personal touch on the website you stand out as different than the mass marketers, the overseas manufacturers.
You actually answer comments here and on facebook, for example, so now I read EVERY post!
Fantastic article, its all about perception!
Scrambled brain, that is in my head right now 🙂
You made perfect point. If you just said a “run down hotel” or a “fancy store” it would have similar effect on me as the opposite example in your post. You are definitely right about the power of those words.
As a customer, I also feel that I would rather pay more money for a “training kit” than an e-book, even though they would be the same thing.
I think I missed that post on Copyblogger, so I am off to read it now. Great one, Derek, I will be thinking about this all day 🙂
It’s all about making sure your products and services not only are “premium” but look and feel “premium” in every way. Thanks for this “blog post”, Derek, or should I say “life changing advice”. 😉
When it makes sense, yes. You can’t just make something that isn’t premium look premium though (too many people try to do that heh)
Hey Derek, awesome post as usual! Stuart was right, there isn’t anybody in this space combining sales, technology and psychology. I know it’s a lot more effort to do the homework but your readers definitely appreciate it. Keep up the great work!
And that’s why I’m here 😀
[…] Update: Just saw this post by Derek Halpern of Social Triggers on the right way to raise prices. […]
I have read many articles on the subject but this one does a great job at explaining the value of perception with the simple example of the bottle of beer.
I also committed the mistake of underpricing my services at the beginning of my business. I am currently working on changing the perception of some of my clients.
Its a long, tough ride, for sure. But it may be extremely worth it 😀
I have often wondered if my service is priced too low. I know my service is premium but how should I go about raising the price without upsetting current clients?
Nick, Raising prices is natural, particularly if you have a service in which you are always gaining experience. Current clients will think they got a deal, future clients will wish they had found you sooner. If you are willing to let go of clients paying lower prices, you are making space for the ones you want who will pay more. Trust yourself.
I agree one hundred percent.
There are too many people who price their products too low. Same goes with services.
1. Your timing is awesome because we need to change the way we describe some of our information products. Excellent examples included.
2. The Theme you mention with an affilate link (Thesis) is just plain awesome. Not saying others are also awesome but going with Thesis and paying a “premium” I can guarantee you readers won’t be disappointed.
Keep sharing the great stuff Derek, it keeps me coming back 🙂
Will do Jim, and thanks!
Wow–what a great post! So insightful and right-on. I just launched my first eBook last week… but I was having a hard time with that wording because it’s more than just a book. Now that I’ve read this post, I’m going to go back and call it what it is–A guide (or a workbook). Thanks for the suggestions!
That’s what I like to hear Jennifer. 🙂
[…] It seems a little crazy, but when you’re working with digital goods, the marginal cost of distribution is zero. Instead, it’s all about how people perceive the bonus. To read more about that, check out my article on the power of perception. […]
I totally agree with creating the experience. Just take a look at the money spent on an experience. For example Disneyland is not cheap, concert tickets are out the roof.
Yes service is one way we can give a better experience. But you can’t beat the entertainment factor….the draw to Youtube is a good example.
Love your new blog. Congratulations.
You’re absolutely right.
[…] Derek Halpern with Social Triggers has written a great piece “How to Raise Your Prices by 71% (and Have People Gladly Pay It)”. […]
I like the analogy of buying beer from an expensive hotel vs a corner store. I gladly pay $5 for a bottle of Heineken at a nice hotel. That’s $30 for a six pack. I do it because it’s what I expect.
As I’m building my business. I’m looking for the Purple Cow to separate myself from the competition. This isn’t easy. The concept has to be placed just right with the right people.
What do you mean by Purple Cow?
@Sandra – Purple Cow is probably a reference to a Seth Godin Book Purple Cow – interesting book summarised by James perfectly.
A brown cow doesn’t catch your attention, but a purple cow would. Just like a green cat would. It’s a way of saying what distinguishes you from others.
I have to agree with you. So far, almost everything I read about Richard Thaler was on point. I’m glad I stumbled on to his research experiment about Mental Accounting. Thanks for stopping by Karl.
I’m sitting here wondering, why no one has gone this direction. No one is even remotely near your niche and I learned at least three things from this post. Combining sales, statistics and behavioral information into one post? Good stuff, Derek.
Own this space.
You know, I’ve found myself wondering why other people haven’t went into this niche too. I think part of it has to do with the amount of work it takes to combine sales, statistics, and behavioral information. For example, this post here took me no less than 6 hours to write.
[…] to raise your prices, right? Well, in my latest article over at SocialTriggers.com I talk about how you can raise your prices by 71% (and have people gladly pay it). Click the link to check it […]