Pricing is an area of marketing that particularly fascinates me - particularly when we seem to act in unpredictable ways!  In these austere times I read that it is mid-priced items that are suffering - the luxury goods market is holding up, as is the bargain basement.  Where would you rather be operating your business?

Right now I'm reading a great book (and one that you will hear more of as I work my way through it): Roberto Cialdini's "Influence, The Psychology of Persuasion".  In it he tells the story of a jewellers in Arizona who had tried everything to shift some items made from good quality turquoise: keen pricing, prominent displays, sales person's attention, etc.  In desperation the shop owner decided to slash the prices by half to get rid of the stock.  However the employee who was left a scrawled note to this effect mis-read the x 1/2 as x 2, and doubled the prices instead!  The surprise was that within days every article had been sold!

Cialdini's explanation for this is that it is a form of human automatic action - the holiday-makers, with little real knowledge of turquoise, were using a standard principle to guide their decision-making: "expensive=good".  The higher price made the jewellery more valuable and desirable - and I'm sure, if you're honest, you can find examples in your own life when you have followed this principle.  And if you have been brought up on the maxim "you get what you pay for" then price is a good shortcut to efficient decision-making.

The converse is also true, of course: "cheap = rubbish" in many (granted, not all) cases.  Be sure to bear this tale in mind when deciding your own pricing strategy.  Understanding the needs and attitudes of your target customers is critical to determining where to pitch your price in order to maximise your profit.  And note I say 'profit' not 'revenue'.  You can make more money by selling fewer items at a higher price - and potentially for less effort - than by going for volume at a lower price.  Being the cheapest is not an easy option - it requires ruthless cost management and, at the same time, making significant investment in marketing to hit the volumes.  Particularly hard for small businesses without the scale and buying power of larger corporations.

Some industries seem determined to devalue their whole market - websites for £99 anyone?  Faced with this offer this may be a good time to stop and remember "you get what you pay for".  If you are tempted to go cheap in this area stop and consider what value you are intending to get from or create using your website, and what therefore is a more rational and reasonable approach to take.  And if you are competing with people offering very cheap versions of your products or services, spent some time to understand and articulate the value you truly can provide to your customers to help them feel they are making the right decision.  Always remember:

“Marketing’s objective is to be able to charge the highest possible price for what you offer – and for people to smile after!”