When Pricing Your Product, Go Big or Small — The Middle Doesn’t Sell Well
How a little squirt of dopamine will help you grow your business
Pricing is a sticky science (and more of an art). Since there’s no absolute value of anything, the price your buyer is willing to pay is relative to the environment within which you present it.
Display your product in a high-end way, our brains think you deserve a high-end price.
Display that new Lamborghini next to a dumpster full of day-old restaurant garbage — we want a discount. Show a fifty-cent pair of sunglasses on a table, next to a luxury pool, at a famous resort — we want to pay top-dollar, because we want to feel that exotic feeling when we put them on.
We make buying decisions with emotions much more than we do with logic.
In his fantastic book, Alchemy, Rory Sutherland (vice chairman of Ogilvy) tells us we get an emotional rush under two types of buying conditions: 1. When we get a great deal/discount, and 2. When we pay a lot of money.
The low and the high prices produce a dopamine squirt in our brains.
Dopamine is the neurotransmitter that reminds us we’ve been given a reward (reinforcing the same behavior in the future). We get the dopamine squirt in anticipation of a reward (i.e. buying something expensive or waiting for a package to arrive).
Each time we get a dopamine response for a particular purchasing decision, the behavior is reinforced in our brain (i.e. we want to do it again… and again).
This dopamine response is why FREE works so well
There’s no disputing free. We love free. The freemium model, the try-it-for-thirty-days technique, and many other pricing mechanisms show marketers how well they can earn new customers by giving away introductory products and offers to earn trust.
Free has almost zero barrier to entry (save for our time and attention).
We want our little piece of the action.
Sure, I’ll take the free sample. OK, sign me up for the free trial. Yes, I want the deep discount. Discounting works (almost) as well as free, because we get the same dopamine squirt. We get a rush knowing we got a great deal.
In fact, I like to tell my clients they should make their customers feel as if they are stealing from you — like they should walk backwards slowly, and shuffle out the door, before you notice.
When we make the customer feel as if they got so much value from us that they’re stealing — then we’ve got the deep-discount in the right place.
You don’t have to lose money with deep-discounting.
Remember, we only have to perceive the experience as a deep-discount in order to feel the dopamine hit. Use high-ticket price anchors with which to compare your product.
Show us the high value we’ll receive in exchange for a perceived low price.
This response is why luxury pricing also works well
Whether we buy a first-class plane ticket, a high-end watch, or a one-of-twenty purse — when we pay a ton of money we feel good. We’ve gone rogue. We could pay less for the regular kind, but we dug-deep and gave ourselves a little present.
There’s a dopamine squirt.
Our brain reinforces our emotional response to the price.
We feel we made the right decision.
We tell our friends so they’ll be jealous. We want to reinforce the decision more.
There’s another dopamine squirt in anticipation of telling our friends.
We flash a little edge of our new toy on Instagram, but not the whole thing (you know, to humble-brag), that would be rude. We’ve made a strong imprint in our brain.
The next time we have the option to make a luxury purchase, we’ll get the same goosebumps.
This is why people will spend $20,000 for a pair of Yeezys
This is why we can charge $15,000 for a mastermind group.
This is why people will spend the equivalent of two average homes to purchase a car most people cannot buy during their lifetime.
…and why mid-level pricing doesn’t work well
Remember, buying is not a rational decision. We buy with our emotions. If you choose a smooth, middle-of-the-street price for your product, you’ll get a middle-of-the-street response.
Middle-pricing doesn’t shake the cage.
We don’t get the dopamine reinforcement when we pay just the right amount for something.
You’ve built a commodity.
Toilet paper is a commodity.
If you build your business as a commodity you’ve got a long road, filled with mediocrity. We want to feel great about our buying decision, not ho-hum.
I recently had my furnace fixed. The repairman charged me a middle-of-the-road price. I paid the bill and went about my day. I was grateful my air conditioning was back in action, but I received no reinforcement from the experience.
Contrast that experience with if I had to replace my entire furnace with a top-of-the-line one for thousands of dollars. The bill would be a huge financial hit, but I’d tell everyone how much I loved my new furnace. Even though the broken furnace was a negative, I’d get a reinforcing hit of dopamine from the purchase price.
Stay away from the middle. Leave that sandbox for your competition.
Your pricing should reflect your business model
If you want to earn a customer’s trust and keep them for a long time, you may want to take the free/deep-discount approach. We start with free and make a steady rise of increasing offers over time.
Want to build a brand with drooling fans? Never discount your product and charge the highest prices in your niche. You want to be the home of the $150 grilled-cheese sandwich, not the $4.95, middle-grade sandwich.
Middle pricing gets middle results.
We don’t make as many rational buying decisions as we think.
When you price your next product, look at the experience through the customer’s lens. Will this buying experience produce a dopamine squirt? If the answer is no, it’s time to re-visit your offer.
No price is permanent. Experiment.
No price is absolute. Change the anchors with which you present your offer. Change the environment in which your offer is presented.
In the end, we’re controlled mostly with our irrational thoughts. As business owners, if we can reinforce the buying decision to make the customer feel good about the purchase, we’ve done our job well.
We’re waiting for you.
August Birch (AKA the Book Mechanic) is both a fiction and non-fiction author from Michigan, USA. As a self-appointed guardian of writers and creators, August teaches indies how to make work that sells and how to sell more of that work once it’s created. When he’s not writing or thinking about writing, August carries a pocket knife and shaves his head with a safety razor.