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How To Price Products So People Buy



Pricing your products is a tricky thing. Or maybe it’s better to say that the brain of the customer is a tricky thing. However, actually, when you really look at pricing and people’s reactions, it all boils down to one thing; PERCEIVED VALUE.  If the customer believes he is getting a good deal, good value for the price, then your pricing is right.



One of my favorite examples of perceived value and getting a good deal are the infomercials on late night TV. If you pay attention, you will notice they all use the same strategy for pricing. And it’s the same strategy they have used forever. If you see the same strategy used again and again, you can bet it is working!


Here is the standard infomercial: They have a unique one-of-a-kind product, but they start by saying “Department stores charge $300 for this kind of product…” then they make an offer at a lower price, maybe $69.99, so already, there is perceived value in what they are selling.  


Then they further sweeten the pot by adding bonus products into the offer as well. making the lower offer price of $69.99 look even better. By the time they are finished, the initial offer at the lower price, including all of the bonus products, is a huge value. And, for callers in the next 20 minutes, we will double the offer, 2 for the price of one, all you pay is shipping.


How can I refuse? Obviously a good deal!!!


So, let’s look at this closer and let’s talk about perceived value and how to establish the value for the products and/or services you offer. In the above infomercial, the initial perceived value established was $300. 

Put simply, perceived value means when a customer views an offer, a large part of the decision to go ahead or not go ahead and purchase has to do with whether the customer feels he is getting a fair deal.  


It’s actually all about pain, believe it or not. There is something called “buying pain” - this is a pain center in the brain that is activated when a person is paying for a purchase. As you would expect, the buying pain increases when the price seems too high.


So, how does this thing called perceived value work. It is all about anchor pricing. Anchor pricing is the price the customer expects to pay for an item. An example might be the expectation to pay $1 for a donut from the local donut shop. The anchor price establishes the price we expect to pay for an item that we then use to judge relative value.  


Typically then, the anchor price is established by the prices of other similar items already on the market. It is the price the consumer associates with the product, and might expect to pay for the product.  


If your price is higher than the anchor price for similarly priced items, then it is important that you differentiate your product. Why is it better? Why is it worth more than what I would pay for other similar products? In other words, why is this a fair deal? Because, besides watering my lawn, it also shines my shoes, as an example.


What do you do though, if your product is not something people buy everyday, or is a brand new product on the market? For items that are new or unfamiliar, the customer will still form an anchor price once they begin considering the purchase.  


If I decide to buy a new Barbecue, something for which I might not be so familiar with pricing-wise, and spot one I like in a Home Depot ad for $400, I might not rush out and buy that one, but $400 now will become the anchor price in my mind I will use to compare other deals.


An even more interesting scenario is where you are bringing out a new product; therefore, there are no other similar products on the market. Research shows that in this scenario, customers are quite flexible and the most important thing is to NOT ESTABLISH TOO LOW AN ANCHOR PRICE.  If you can, establish a higher anchor price, then later offers at a lower price will be attractive to customers.


A good example of this was the introductory release of the Apple iPhone. When the first iPhone was released, the price ranged from $499 to $599. People who bought the phone at this price were early adopters who just liked having the newest, latest, and greatest, regardless of the price… kind of having bragging rights to owning “the new thing.” However, the anchor price established therefore, for the new “unique” iPhone was $499-$599.00


A few months after the initial release, Apple dropped the price of the iPhone to $200, creating a seeming bargain, (and great perceived value for the $200) and creating huge motivation for people to buy them. Later, when Apple brought out the new iPhone 3G at the “incredible price” of only $199, they sold over 1 million phones in 3 days. What a deal! what a value!


Lesson learned: Do not set too low an anchor price! It bears repeating; If a higher anchor price can be established in the mind of the customer, then offers of lower prices will be very attractive.




Not a bad idea to post a price list of standard prices for products and services. Remember you are establishing anchor prices. And then offer deals, discounts, specials lower than the posted prices. Or 2 for 1. Or BOGO (buy one, get one). Or buy one at regular price and get a bonus… Or, just for today the price is...


TAKEAWAY FOR ONLINE SALES: Normally priced at $199 (with a big red slash through it). Special now, for the first 100 sold, only $39.95.


For more articles on pricing, take a look at Double Dipping and Hidden Charges 


Love to hear your experiences on pricing strategies that have worked and of course, those that have not.


Tags: Pricing, Deals, Sales, Discounts

Filed Under: Product Pricing

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