Applying different pricing strategies

I'm trying to remember how I learned about prices and the value of things. Do you remember how you learned about those topics? I was ...

I'm trying to remember how I learned about prices and the value of things. Do you remember how you learned about those topics?

I was a kid in the 70's, then a teenager in the 1980's. That's a long time ago now. I still remember the ritual prior to Christmas. We would get a Sears & Roebuck catalog and circle the things we'd hope to get. Then talk to mom & dad about our choices. We weren't alone. Kids have done it since the 1890's.

"No Jason - you cannot have a canoe for Christmas - that's too expensive, besides, you're only six - and we don't live by a lake."

"What about a riding lawn-mower?"

"No"

Remember those days?

Somewhere in our childhood we get an understanding of what things should cost, what we can afford, and what range of spending we can comfortably operate in. It gets baked into our brain - like a permanent record of what's possible - and what's okay and not okay.

For me, I think that happened each Christmas when I'd ask for things - and I would either get shot down, or get the more positive response,

"Okay, we'll see about that".

When I was a kid we knew our birthday gifts needed to be about $20. Ask for something more expensive than that and you were running the risk of having mom actually come up with her own idea for your gift, which of course was under $20.

different pricing strategies

Fast-forward to today - and that amount seems like a cruel punishment for my kids. Talk about a mutiny, (when I jokingly suggest it). They just have a different range baked into their brain.

We each perceive the "expensiveness" or "inexpensiveness" of an item depending on our context.

So prices are relative - the same price can be expensive for some people, but inexpensive for others.

I'll never forget the Thanksgiving when my in-laws came to visit us in Seattle, (Auburn actually), from San Francisco, (Petaluma actually).

We were bored one morning, and the weather was nice, so we took them for a walk around our new neighborhood. We had just moved into a very large master-planned community full of nice big houses. Ours was modest, but down the street there were mcmansions.

What did we stumble upon?

The model homes. So we went inside, just to look at the paint, carpet, and furnishings. Model homes are always so fun to gawk at.

As we strolled through the kitchen area of one of the mcmansions my mother-in-law picked up one of the pricing sheets that list the number of houses available and the specific price of each one.

Her eyes bugged out of her head.

"What?" - she (almost) screamed!

As it turned out they could sell their 1,100 square foot home, which happened to be 40 years old, and get one three times bigger at half the price.

Done deal.

14 years later they are still happily in their dream house. We're blessed to have them right down the street. Tons of Californians have done this over the decades. They take advantage of the relative price differences of housing in different markets.

Context Creates Anchors


What's the point of our little trip down memory lane? It's simply this - the reason relative prices impact us is because our minds create what is known as an anchor. Anchors are formed by the memory of a prior price or simply knowing about the price of a related item. The anchor amounts are what is "baked in".

Imagine for example, that you live your entire childhood in the one-square block in San Francisco known as Union Square. Maybe you have a condo above one of the stores or live in the Hilton hotel.

Here is your reality - On one corner you've got Neiman Marcus, which in-case you haven't been in it - is a 4 story, (as I recall), department store loaded with the most expensive boutique brands in the world.

On another corner you've got the largest Macy's most people have ever seen. Then there's Saks Fifth Avenue across the square - and of course the Tiffany's Jewelers. In the middle is a nice plaza with ice-skating in the winter. (Side note - if you're ever there, go to Britex Fabrics. It is Cinnamon's favorite place on the planet).

Imagine you live your whole life growing up there, never visiting anywhere else.

Now imagine you fall madly in love with a tourist from Zimbabwe and move to the capital city of Harare.

[I truly mean no disrespect to the country or wonderful people of Zimbabwe.]

In Zimbabwe they print One Hundred Trillion dollar bills, (I'm not joking), because the Trillion dollar bills were apparently too hard to carry around, (in large wads that would fill your pockets). Apparently they became useless, so the country started going with the One Hundred Trillion notes instead.

Not long ago, when I was in Zimbabwe in 2009, a cashier tried to give me change in U.S. Dollars.  I asked if I could get change in Zimbabwean currency, (as a souvenir). He said, "How much do you want?"

I said, "Do you have any of the new Trillion dollar bills?"

He said, "No, people keep asking me for them. I'm out, but I've got Billions."

I said, "How much will $2 U.S. dollars get me?"

He said, "It's not worth anything, so just take some."

He started counting me out a pile of billion dollar bills very quickly - in exchange for $2 U.S. dollars. I started giggling.

Yes - I'm a billionaire now. I give away billions of dollars - to people as gag gifts - it's fun. People start giggling.

Sadly, the pricing power in that country has vaporized if you use their currency. They use U.S. dollars instead. That spiral downward of retail pricing strategies power is known as hyperinflation.

Imagine the difficulty you'd have in moving from Union Square in San Francisco to Harare! Your understanding of the appropriate price of things would be all messed up until you grew accustomed to the new context.

The simple fact is - different customers will perceive your prices differently. Some will complain bitterly while others giggle. The only logical response is to test different price points, have a solid plan, and try to be careful not to make changes based on one or two vocal customers. Having a solid plan will help you navigate these tricky waters.

Different pricing strategies action steps


Consider the context in which your prospects establish their strategic pricing ideas related to your product or service. Make a list of the things that influence their thinking and consider how you can impact these situations. Test various prices to determine the market acceptance of your offers. Don't over react when you have one person complain about your pricing strategy .

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Thought Leadership Zen: Applying different pricing strategies
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