Price has a significant influence on your customer’s purchasing decision.
Once a consumer becomes aware of a problem, they research and gather information including price. Then they evaluate options, make the purchase, and determine if that was a good decision or not.
Pricing your product or service accurately is an art and a science. Get it right and you will be able to pay yourself and your team well. Get it wrong and you may find yourself struggling to survive.
Ultimately, your price must cover your costs and earn a reasonable profit. To gain a good understanding of what prices to charge you need to look closely at the market starting with your own customers.
Consumers will pay for what THEY value. When setting a price, the business owner must be aware of the customer’s perceived value for the product.
So how do consumers decide what’s valuable and what’s not?
Here are three factors that influence consumers on deciding whether or not the price is right.
Customers respond to pricing based on different socio-cultural mentalities.
There’s the “everyone else is buying it” mentality. In his book Influence: The Psychology of Persuasion, Robert B. Cialdini refers to this as social proof. When people are uncertain, they look to others’ actions the decide how to act.*
Another influential factor is scarcity. This is the idea that “It’s the only one left so I have to buy it.”
Cialdini says “The idea of potential loss plays a large role in human decision making. In fact, people seem to be more motivated by the thought of losing something than by the thought of gaining something of equal value.”**
Have you ever crooned over something, thinking “I had this as a kid, and now I want to have it again”?
Nostalgia is a psychological concept that affects your customer’s perceived value of your product.
Seeing something from your childhood stirs fond memories. Researchers found that when people recounted a “nostalgic story”, they had more frequent, and higher levels of happiness than an “ordinary story”. ***
We see this in all the Disney movie remakes that have done so well in box offices****, despite being old stories.
This effect can be reflected in your price and influences consumers decisions.
You’re at a bustling outdoor concert. It’s sunny and the music is amazing.
Suddenly, the weather takes a turn for the worst. It starts pouring! You want to stay and enjoy the music, but you are getting more and more miserable in the cold.
So you decide to buy a jacket from the merch booth. Normally, you would never spend that kind of money on a coat, but the situation demands it.
Consumers will pay more based on situation and circumstance.
Do you have a system for responding to situational pricing? When you have a plan, you can be flexible with your prices and always have the right value for your product.
Your price influences your customer’s decision to purchase your product.
When you reflect on your business, what factors have the biggest effect on your customers? How should you set your price in response?
Keep working on your business! I believe you can find the right price for your consumers.
Enjoy your Entrepreneurial Journey!
Share this blog with like-minded entrepreneurs!
* Cialdini, R. B. (2007). Influence: The psychology of persuasion. Harper Collins. pg. 140
* *Cialdini, R. B. (2007). Influence: The psychology of persuasion. Harper Collins. pg. 238
*** Sedikides, C., Wildschut, T., Arndt, J., & Routledge, C. (2008). Nostalgia: Past, present and future. Association for Psychological Science. https://www.southampton.ac.uk/~crsi/Sedikides%20Wildschut%20Arndt%20%20Routledge%202008%20CDir.pdf
**** Acuna, K. (2020, May 16). Why Disney keeps remaking so many of its animated movies. Insider. https://www.insider.com/why-disney-keeps-remaking-animated-movies-2020-5