Perhaps the only thing more important than setting the right price is how you present it.  The key to presenting your price is to compare it with something that the consumer perceives as relatively huge.

For instance, the following techniques uses the compare / contrast method to give the perception that your price is not only fair, but a great deal.

Technique # 1 - Volume Method

 Imagine you are selling a course on how to stop smoking.  Using this method your copy would read something like this: "...you'd have to have 12 months of personal smokers rehab counseling to get the same amount of coaching that you'll find in this course." 

Suppose you are selling taxation consulting you could say  "...in just one session you'll learn how to save more in taxes than you paid last year to the I.R.S."  Notice how what you are giving them is compared to a much larger quantity, which has the effect of making your.

Technique # 2 - Monthly Installment Method

Offer to have your customer pay low monthly installments rather than one hefty price, then just advertise the monthly installment price.  This gives the perception of a low price.  Recently I sold a mobile home and noticed that people didn't really care about the price of the home, they were more concerned about the amount of the monthly payments.

Technique # 3 - Individual Value Comparison

This method takes each individual component of the offer, places a value on it and then adds it all up for a total and then compares it to the asking price. 

For instance, if you were in the hotel business you might say this, "...your luggage carried to your shuttle van (value - $15), a swift shuttle ride directly to your hotel (value $35), your personal assistant to help you carry up your baggage and get settled in (value $10), premium movie channels for your viewing pleasure ($12), a relaxing overnight stay in your personal suite (value $189), and a hearty breakfast in the morning ($15) for a total value of over $260...yours for only a small investment of $99.  You save over $160!

Technique # 4 - Pain Avoidance Method

As a consultant I often try to put a price tag on the problem to give my client a realistic picture of what it is costing her to continue to do nothing.  Then I compare it to my relatively small fee for helping to rid her of that problem.

For instance, the conversation might go like this...

David: "Hmmm, so you have a theft problem in your stores?"

Client: "Yes, it's terrible"

David: "What types of things are being stolen?"

Client: "Computers and software mostly."

David: "What do you think the average price is for the computers and software being stolen?"

Client: "The computers cost around $1,200 and the software costs around $50.

David: "How many are missing on a monthly basis?"

Client: "We usually come up about five computers short and probably about 20 different software packages are missing."

David: "Now this is happening in all your stores?"

Client: "Yes"

David: "Well, let's see.  From what you told me you're experiencing a shrink problem of around $6,000 per store and you own 12 stores so you're total shrink is costing you around 60,000 a month overall."

Client: "Yes"

David: "So, in a year's time you could have a million dollar problem."

David: "Would you be willing to invest $50,000 to get rid of you million dollar problem?"

Technique # 5 - "Most - Some - But" Method

This technique is a simple competitor comparison that gives the perception of rarity or exclusivity.

Example # 1 - Nail Salon

Most upscale salons you'll pay $50 - $100.

Some popular salons you may pay as little as $35 - $40.

But our low preferred customer price is just $19.95.

Example # 2 - Jewelry Store

Many jewelry stores charge $200 - $300.

Some jewelers will offer special as low as $99.

But, during our Customer Appreciation sale you only pay $67.

This method is used to dramatize the discounts or low price that you offer compared to other businesses in your market.

Technique # 6 - "Reason Why" Method

If you charge a very high price or a very low price, both may be a bit hard to believe by consumers who are used to paying a certain price.  Telling the consumer why the price is so high or so low helps to reconcile the price discrepancy and accept it as reasonable.

Example # 1 - Inventory Overstock

"Our prices are so low because we goofed on our last inventory order and are now seriously overstocked.  If we don't sell all our (product) we'll have to file for bankruptcy so we're clearing out all our inventory at ridiculously low prices."

Example # 2 - Custom Pool Builder

"Rainey pools recruited a team of the most experienced pool design engineers in the country to design each and every pool, down to the last nail.  No expense was spared.  We have developed the pool industry's most advanced software at a cost of over half a million dollars to ensure that the surrounding landscape blends in with the pool design to create your complete three dimensional vision before anyone even steps foot on your soil.  Our advanced planning system takes every circumstance and detail into consideration to guarantee that your project will be completed on time and on budget.  Lastly, we've scoured the eastern seaboard to find the most experienced pool construction people whom we pay twice the industry average to create your backyard masterpiece.  With over millions of dollars worth of experience, research, technology, and quality control, you'll have the finest backyard experience available anywhere in the world."

Pricing Rules for Rounding Off

How you end your price has more to do with human psychology than practicality.  People buy on human emotion rather than rational logic.  The following are several rules developed by price expert Erin Mitchell, President of the Pricing Society (www.Pricing-Advisor.com).

Tip # 1 - For prices up to $10 use endings such as $.99 rather than $.95.  Customer's reactions are the same for both price points and the $.99 garners you four more cents.  Also, prices ending in odd numbers such as .34 are confusing to people and may cost you sales.

Tip # 2 - For prices from $10 to $100 the best ending to use is $.95 rather than $.99 because the $.99 is seen as a "greedy" price.

Tip # 3 - For prices greater than $100 it's better to present your price in whole dollars rather than cents.  It's a cleaner look.

Tip # 4 - Pricing for professional services should be in whole numbers such as $150 rather than $139.95.  It's more professional and promotes dignity and confidence in your fees and rates.

Advertise Your Price?

I often get the question of whether to advertise price or not.  This has been an ongoing debate for years.  I recommend not advertising your price unless it is surprisingly low.  You're limited as to what you can do to build value in an average size advertisement.  Displaying a high price without first building value is a losing proposition.

If you're running a sale just advertise the discount amount rather than the price.  For instance, advertising "20% Off" or "Take $1,000 Off" rather than showing the actual price can get people just as excited as showing a low price, without showing the actual price.

Price Gimmicks that Work

All you have to do is open the paper to see a lot of price gimmicks that retailers use to lure people into their business.  I could have listed a dozen gimmicks but I've limited it down to five common price gimmicks.

1.  The $1.00 Gimmick

The $1.00 gimmick is my favorite and is very powerful.  It includes advertising a product for the "almost free" price of $1.00.  Tell you consumers to call or come in and find out how to get your product for only $1.00.

Your average consumer knows that this is a gimmick but it's so intriguing that many come in just to see what the catch is.  This is especially effective if the $1.00 product has value.  Currently, a friend of mine is offering a marketing course to insurance professionals for $1.00 using a postcard marketing campaign.

However, to get the marketing course for $1.00 they must purchase his $300 marketing course.  Is it a gimmick...yes!  Is it a good deal...absolutely!  In fact, the $1.00 course even more valuable than the $300 course, which is the key to attracting prospects.

2. Bait and Switch Gimmick

First of all the bait and switch gimmick is illegal, nonetheless, it is still practiced.  The bait and switch gimmick advertises a very low price for a product and then when the prospect comes in to buy it, the business has "sold out" and the prospect is then steered toward a higher priced product.

3. The Down/Monthly Payment Gimmick

Car dealerships are famous for using the down payment / monthly payment gimmick.  In act, I have a newspaper advertisement as I sit here writing that says, "Used Cars to Be Sold For As Low As $69 Plus TTL.  Millions of Dollars in Unclaimed Vehicles."

Do you believe that this car dealership is going to sell a car for $69?  Of course not!  The $69 is a down payment; however, it is presented as the total price of the auto.  It is very convincing and many people flock to these car sales every weekend.

The monthly payment gimmick is done the same way.  A low monthly payment is presented as though it is the entire price of the product.

5. The Free Gimmick

The free gimmick is great for giving away teaser or trial test products without losing your shirt.  If you've been watching television lately you've probably seen the CEO of the Video Professor computer training company.  They sell computer training courses on CD-ROM.

The CEO offers you a free CD-ROM of your choice.  He says, "Why am I giving these away?  Because I know if you try just one of my CD-ROM training courses, you'll come back for more."  However, in small print you'll see that he charges $6.95 for shipping. 

The $6.95 will not only cover his shipping, but also the manufacturing cost of the CD-ROM.  He loses nothing in the offer.  When you call up (like I did) you'll find out that they try to upsell you like crazy. 

6.  The Shipping Charge Gimmick

A spin off of the Free Gimmick is the shipping charge gimmick in which a low price is advertised.  But when the order is made an exorbitant shipping fee is charged.  So the real profit is hidden in the shipping fee. 

There are no restrictions on how much you can charge for shipping.  The higher priced product you buy the easier it is to hide profit in the shipping fee.

Successful Discounting Strategies

Discounting can be a powerful tool to close the sale.  However, it is over used and entirely abused.  Consumers just expect a discount in our current retail environment.  Instead of discounting, business owners should consider building value through adding low cost, high value bonuses and premiums to entice customers to buy.

To make your discount even more powerful it should be tied to a deadline.  This introduces a feeling of urgency, which motivates prospects to action.

With that said, let's review a few successful discounting strategies.

1.  New Product Introduction Discount

When introducing a new product you may consider offering it to a select group of individuals on an exclusive basis.  This will jumpstart sales. 

You might say something like this, "For the next two days I'm offering this introductory discount of 40% off exclusively to my current customers.  After this introductory period, you'll have to buy my product at the regular purchase price of $XX.  Hurry and take advantage of this special exclusive offer right now."

Or you could introduce it to the customers of a joint venture partner by having your partner say, "...I wanted to let you in on an exclusive special offer on a new product that my friend John Doe is coming out with this week.  I had to twist his arm to get him make this offer to my customers.  He finally relented.  Hurry and take advantage of this deal while it lasts.  I was fortunate enough to get him to agree to extend to you such a significant price break."

2. Quantity Tiered Discounting

A quantity tiered discount is one that increases with the volume of purchase.  For instance, if you buy three cans of peanuts you get a 10% discount.  If you buy 10 cans you get a 12% discount.  And if you buy 20 or more you get a full 15% discount off the regular price.

Many consumer goods companies do business this way.  Unfortunately it creates erratic order quantities and makes it difficult to predict future product demand.  But that's another article.

3. Value Bundle Discount

The value bundle discount offers a lower total price for a bundle of products or services.  For instance, assume you were selling a membership as a preferred customer to your clothing store you might offer...

1.      A $50 coupon for shirts and slacks. (value = $50)

2.      A $100 coupon for a suit. (value = $100)

3.      One free tie. (value = $25)

4.      One free pair of socks. (value = $8)

5.      One year of free tailoring. (value = unlimited)

The total value of the entire bundle of goods and services exceeds $183.  Instead of offering each of the goods separately you offer the entire bundle in a membership package for $100.  That's a great value that would be tempting to anyone.  But because your markups are over 100% you still make a respectable profit.

4. Secret Code Discount

The Secret Code Discount is also one of my favorites because it gives a feeling of intrigue, exclusivity, and excitement.  The discount includes offering a coupon or ticket with a secret code on it.  You must go to the business' website, enter the secret code, which then takes you to a webpage containing a discount coupon that you can print out that you carry into the store.

10 Stealth Ways to Increase Your Price

Ever wanted to increase your prices in stealth mode?  Here's 10 ways to generate more revenue without making a public price increase announcement.

1.  Revise your discount structure by decreasing your level of discounts offered to customers.

2.  Increase your minimum order sizes so that customers will have to meet a higher minimum threshold to get their discounts.

3.  Increase your delivery charge and start charging for any special services related to delivery.

4.  Start invoicing for repairs on serviced equipment.

5.  Bill your customer for any engineering and installation services that you previously included in the purchase price.

6.  Raise your prices for overtime on rushed orders.

7.  Start aggressively collecting on overdue accounts from the past several months.

8.  Shift your sales mix to higher margin products and service and start phasing out the lower margin items.

9.  Begin to write stiff penalty clauses into all your contracts.

10. Decrease the physical characteristics of the product or remove services that you are now providing and continue to charge the same prices.

Never Compete On Price

Let me first say this, and if you get nothing else from this article remember this, "Never compete on price!"  Never, never, never!  It's a losing proposition for you and for your competitors.  Okay, there's always an exception.  If you have a substantial cost advantage that is virtually impossible to duplicate then there might be a case for competing on a lower price.

What usually ends up happening is after you lower your price, your competitor is forced to lower their price a little more, then you have to match the lower price and down it goes.  Every body loses (except for the customer).

Why compete on price when there are so many avenues for differentiating you product or service?  It doesn't make sense, or should I say cents.

Conclusion

Pricing is a key factor in marketing and selling your product or service.   Whatever price your choose, make sure that you have an end objective in mind and that your pricing strategy supports your end objective.

Don't believe the myths that are swirling around about pricing.  In the end, price is simply a perception of value.  Build your value and charge higher prices.  Make sure that you do some testing on your price points or you might be missing out on a lot of profits. 

How you present your price can be just as important as the price you choose.  Always make a comparison to something large that your customer can understand.  Advertise your price only if it's very low or you can build value into the advertisement.

Although some price gimmicks may seem juvenile and down right dumb, never overestimate the intelligence of the public.  Not only do some price gimmicks work, but discounting can also be a successful motivator...if done correctly.

Lastly, never compete on price, unless you have a cost advantage that is near impossible to duplicate.  Competing on price is almost always a losing proposition.

David Frey, President of Marketing Best Practices Inc., a Houston-based small business marketing consulting firm, is the senior editor of the Marketing Best Practices Newsletter featuring small business marketing best practices.

"Dr Ebiz"

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