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Pricing – don’t sell yourself cheap

Consumers will make assumptions about your services based on how much you charge for them. So don’t sell yourself cheap, says internet psychologist Graham Jones

One of my academic colleagues at the University of Buckingham Business School recently asked me to head over to Facebook to check out the page of his local pub. Apparently, the landlady is keen to increase her trade – like many publicans these days – and is using social media to attract visitors.

In spite of charging a mere £6.75 for Sunday Lunch, the pub still cannot attract the number of diners it would like. Therein lies the problem, I said.

The village in which the pub is situated only has 500 residents, so to earn any money it has to attract people from outside the area. The chances are they are not going to get in their car and drive a few miles for a lunch that is only £6.75. But they probably would get in their cars for a pub lunch at £16.75.

It’s all about perceived value. People who are going to have to travel to get a meal are not going to do so unless they think they are getting something worthwhile. A lunch for £6.75 doesn’t sound as though it would be worth the drive. Except, it is; my colleague tells me it is an excellent lunch.

Social media will help the pub, but the best thing they can do to increase trade is dramatically increase their prices.

Here’s the problem that almost all businesses face – they think they should charge less than their customers are prepared to pay. Several studies on pricing show that customers always rate products and services more highly than the company does themselves. If you have a product or service just ask people how much they think you sell it for. They will almost certainly come back to you with a higher figure than the price you actually charge.

Customers have no real idea as to what an item should cost. But what they do have is a perception of value. Many businesses are not targeting that position because they are concerned they will come across as too expensive, or because their competitors are charging less. Let them; it is your profit you need to worry about, not theirs.

So should you increase your prices? For most businesses, the answer is ‘yes’. An increase in prices will raise your perceived value. Price increases frequently lead to more custom, not less.

If you are worried that your competitors charge less and that you will now be seen as expensive when you raise your price that only means one thing. It means you are focused on thinking about your competition, rather than being focused on what your customers think about you. If you focus on them, you’ll discover that the perception of your value increases when you raise prices.

Of course, this only applies if you are not in a commodity business or if your sector is not priming customers to think of low prices – like the supermarket sector. Get people to think of value and they will flock to you. That village pub will get more customers when people in the surrounding area believe that it is worth travelling for lunch because it is ‘good value’. At £6.75 it is not ‘good value’ but ‘cheap’. People rarely like buying something that is ‘cheap’.

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