5 Ways to Get Premium Prices for Your Product or Service
Clowns… heights… spiders… even belly buttons are included among a list of phobias people suffer from… But what about entrepreneurs? What phobias are affecting us the most?
We often suffer from a fear of being priced too high, and therefore losing a sale.
…So we resort to things like sales, discounts, and negotiations to make an extra buck.
Most of us don’t understand, however, that these tactics — which are supposed to be the “solution” — actually become long-term problems (as you’ll see).
If discounts aren’t the way to making sales, what is?
Find a way to get premium prices for your products and services without losing a customer.
And now that I have a client who has paid me over a million bucks to grow his business, I think it’s safe to say I’ve gotten over my fear…
It starts by asking the question:
“What needs to happen in order to become the most expensive competitor in your market, and still have your customers and clients lining up to do business with you?”
Together, my clients and I devise strategies that create a compelling and unique incentive to do business with them while removing price from the buying equation…
…By having customers and clients focus on the value delivered — instead of how much it costs.
So, to get you started on the brainstorming process, I’ve decided to provide you with five examples of companies that have succeeded in dominating their markets with a strategic approach for getting premium prices:
1. Create Pricing Tiers Based on Client Segments
Netflix is one company that does pricing tiers well — and in a super simple manner.
You have three options, based on video quality and the number of screens you can use the service on simultaneously. So, if you want HD or Ultra HD, and need Netflix on several screens at once, you must pay a higher price.
Let’s say you’re an accountant….
Instead of charging by the hour, you might create tiered packages for small businesses, mid-sized businesses, and large enterprises.
A couple years ago, Server Density (a server monitoring service) let customers set their own prices based on how many servers, websites, and additional features they needed. While this pricing policy seems democratic, it gets complicated for non-technical customers who don’t know what features they need.
So, Server Density restructured their pricing to offer tiered plans. The new model included three options: Enterprise, Small Business, and Starter.
This change meant that their cheapest monthly option jumped from $13 to $99, so new customers had to commit to a bigger investment.
The increase ensured that Server Density worked with serious clients, rather than uncommitted “tire-kickers” just testing the waters.
Also, because potential customers could only choose from three plans, decision-making became easier.
And what happened after the tiers were added?
Not too bad for simplifying your pricing model…
Think about how you can apply this same technique to your company.
- Which products, features, or specifications could you bundle together?
- Which client segments would benefit the most from each bundle?
- Which minimum price tier should you use, based on the clients you want to attract?
2. Increase Product or Service Value, then Price Accordingly
Most businesses price products or services by calculating costs, then adding a margin for profit. The value delivered is rarely given enough consideration.
Keep in mind that your clients judge your price based on the value received — not by what they spend. With value-based pricing, you simply increase the value of your offers to raise prices.
Let me give you an example…
Selena Soo, who offers publicity and business strategy through her company S2 Groupe, recently created a two-day course and sold it for $600. At a friend’s suggestion, she raised the price and turned it into a two-month program.
The only change she made was including four hours of live Q & A.
“By just adding whether it was two or four additional hours, it doubled the perceived value,” she said in an interview with Mixergy. “[So] it [the price] more than doubled. I did that, then I doubled it again from $600, to $1,200, to about $2,500. With my private coaching, that started at about $5,000 for six months.”
Simply adding more access to private coaching, additional Q & A sessions, and a mastermind group allowed Soo to dramatically increase her product’s pricing.
So, what add-ons could you include to increase your product or service’s value?
3. Eliminate Frequent or Predictable Discounts
While it’s tempting to discount your products or services to increase your client base, doing so can bring big risk.
You see, discounting trains clients to normalize your products or services at a lower rate — so when you raise prices back to normal, the increase seems unfair.
After all, your clients know it’s possible to purchase your products or services at a lower rate…
Discounting also deters brand loyalty because it attracts buyers who only make decisions based on price… So they vanish the moment better pricing becomes available elsewhere.
Look at J.C. Penney…
“When Johnson took over J.C. Penney, 50 to 70 percent of all sales were at discounted prices. Here’s how it works: you start off pricing something at $100, but you end up selling it at, say, $50. All the actual sales take place at 50 bucks.
The problems that high-low pricing cause are tremendous. Customers come into the store, they look at the new merchandise, and they look at the prices. They like the merchandise, but don’t like the price, and so they don’t buy. As a result, this new merchandise sits on the shelves. The first markdown takes place after six weeks, and only then does the merchandise begin to move.”
The retailer focused so much on discounting (even eliminating sales and coupons) that the brand couldn’t keep customers.
Best-selling author Laura Reis writes:
“Think about it. The effects of coupons, sales, and discounts are exactly the same as cocaine. The first time you get a discount card in the mail you are elated! Wow! 10% off, 20% off, 2-for-1! You might rush out to the store and take advantage of the offer. But next time you drive by that store you think, I’ll just wait and see if there are any more coupons coming. Next time you drive by that store you get mad since you forgot the coupon. Eventually you refuse to step into the store without a coupon.”
Also, understand that numerous studies prove people perceive their purchases as higher value when they pay more — so why cheapen what you offer?
Instead, consider adding bonuses to attract new customers and counter objections that might prevent new buyers from trying your product or service.
4. Rebrand to Increase Perceived Value
A used car dealership’s perception is different than a luxury brand like Bentley or BMW, so why not use a disparity like this to your advantage?
In the mid-1980s, Apple faced near bankruptcy before undergoing one of the most well known rebranding campaigns in business history. The iMac combined high performance with a new, sleek design that paved the way for what is now a collection premium products.
Your product design, website, and social media accounts are all possible places to start rebranding.
Online watch retailer ExpressWatches recently increased sales by 107% by simply emphasizing product originality and reminding visitors that they are a “Seiko Authorized Dealer Site.”
In 2013, Birchbox — a subscription ecommerce company for beauty samples — overhauled its website and packaging for their premium rebranding campaign. The logo was updated to a simpler, more modern look, while an interior “gift” box was added to the packaging with color-coded tissue paper (based on items purchased).
Last year’s revenues reached an estimated $125 million.
Keep in mind: as a premium brand, you must also create an experience. Le Labo, a luxury perfume brand, handles this task like a pro.
Each perfume is hand-blended in front of the customer the moment it’s purchased. The bottle is then dated and the customer’s name is added.
Once brought home, the bottle must be refrigerated for a week before you can use it. This process doesn’t just create an exclusive product — it creates an experience.
So, what experience can you work into your product or service? Could a rebranding effort bring you big benefits?
5. Add Your Anchor
A price is only considered cheap or expensive if you have at least one other option for comparison.
So, for example, walk the medicine aisle in Walgreens and you’ll notice their own medicines look like a better deal because they’re priced lower than the major brands. The additional options create relativity, which is a key component to price anchoring.
Basically, the idea is to offer higher (and in some cases, lower) pricing to make your ideal option look more appealing. It’s even better if the higher priced item is seen first.
So, let’s say you offer a $3,000 watch. Compared to your run-of-the-mill Timex, that’s a pricy timepiece.
However, what if you display it next to a similar one priced at $12,000?
All of the sudden, $3,000 looks like a bargain…
In his book Influence: The Psychology of Persuasion, Robert Cialdini tells how a billiard-table dealer nearly doubled his average table sales by using decoy pricing.
Here’s the excerpt:
“If you were a billiard-table dealer, which would you advertise: the $329 model or the $3,000 model? The chances are you would promote the low-priced item and hope to trade the customer up when he comes to buy — but G. Warren Kelley, new business promotion manager at Brunswick, says you could be wrong… To prove his point, Kelley has actual sales figures from a representative store… During the first week, customers were shown the low end of the line… and then encouraged to consider more expensive models — the traditional trading-up approach… The average table sale that week was $550… However, during the second week, customers were led instantly to a $3,000 table, regardless of what they wanted to see… and then allowed to shop the rest of the line, in declining order of price and quality. The result of selling down was an average sale of over $1,000.”
Again, you simply condition your prospects to higher prices from the start, which then makes them more psychologically responsive to your higher-priced products and services.
Try one or two of the ideas shared here — or combine them all — and you’re almost certain to increase your average sales and overall profitability.
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