Understanding Pricing: Why Raising Your Price May Not Be A Bad Thing To Your Business
Updated: Aug 20, 2020
The No. 1 thing — just this issue itself — the No. 1 issue with many companies have when they get really struggling is they are not charging enough for their product.
It has become absolutely the default method that the way to succeed is to price your product as low as possible under the theory that if it’s low-priced everybody can buy it and that’s how you get the volume.
You will realize that some of the largest companies in the world such as McDonald’s and IKEA aim for low prices. It’s a deliberate strategy because they’ve created infrastructures and systems which cost billions of dollars in investments that are designed to profit while offering low prices.
For smaller companies, it would be much wiser by charging more money.
No doubt that the business environment is cut-throat these days. Your typical customers are expecting free shipping, free returns, and 1st class customer services. In short, your customers expect 1st world service and treatment but only willing to pay 3rd world pricing.
The best way to compete is to increase your profit margins by increasing your prices.
The truth is, it isn’t as simple as increasing your prices and calling it a day. One has to balance out between increasing prices and not affecting your conversion rate as much as possible.
Increasing your prices is an entirely different game. It takes a different strategy than what most marketers are used to. And it is something that most marketers are uncomfortable with.
This article was inspired by my experience of buying cars.
For years, I’ve been driving a Honda Civic during my first few years of driving. Sure, they have great reliability and very economical cars. And they do a great job in bringing me from point A to point B.
So there is one fine day I was browsing through a car marketplace. From there I discovered many other brands of cars that you could ever think of.
So there is this particular car model which is the Mercedes-Benz C-Class (this model is very popular in my home country).
FYI, Singapore cars are very expensive due to the taxes here.
It cost about $180,000, almost twice as much as a Honda Civic! Imagine the rude shock that I've come across, and yet they function almost the same as a normal economical car like a Honda Civic. And better yet, they have backlog orders that would require one to wait for a few months before they can get their hands on their new ride.
At that point in time, I really wondered how people are willing to pay that much for a sedan car in Singapore. The max speed you can only travel is 90km/hr, and it functions as much as a Honda Civic based on practicality.
But then I remembered…I’m a marketer. I’m sure part of the price point is because the premium material and quality cost more, but so much of the markup is due to the perceived value.
That is the entire reason for what this article is all about.
I’m going to teach you about the concept of perceived value, and some actionable ways you can use it to increase the price point of your products.
I’ll be using e-commerce products as examples, but you can apply the same concepts to pretty much anything that can be sold.
Perceived Value is STILL Value
Let's take these 2 leather jackets for example.
They’re made from the same factory, using the same material.
The cost of each leather jacket is $10 in a wholesale market.
However, it must be noted.
This particular online store based in Wuhan sells it for $20. They sell it on Amazon.com, and it comes in a plastic bag.
This well-established online branded store called "Malan Bonas" sells it for $60. You get a really cool looking bag with quotes. All the top Instagram influencers are using their jacket. And the website is full of amazing copywriting on how much technology was incorporated into this ($10) jacket.
All that extra stuff is perceived value because the shirts are identical. But some people are willing to pay that extra $40.
Call it shady, unethical, or even a rip off!
Here’s my take: perceived value is still value.
Emotions do come into play when it comes to making a purchase!
There are some categories that I don’t really care – I’m fine with buying the cheapest office paper.
However, there are some other categories that I’m more than willing to pay a premium for. I'm more willing to pay more money such as my Macbook, wallet, or even my own car.
One of the reasons is identity.
We all have a certain identity that we're trying to become. And we all want people to perceive us as that person. Buying certain products helps us feel like we’re closer to becoming that person.
Yes, I know that is superficial. Unfortunately, that is the sad truth.
Here's my darkest confession. I used to meet people for gatherings all the time for dinner parties and high SES bars and pubs before COVID-19. I want everyone to think that I’m the kinda guy who has achieved and has done well in their lives, and not that clingy shit I used to be in my late teens.
That’s why some people are willing to pay over $3,000 for a designer handbag from Louis Vuitton, or even a million dollars Bentley. They want others to perceive them as the kind of person that can afford a Louis Vuitton bag and a Bentley.
And Louis Vuitton has spent many years cultivating this customer identity.
And to be honest, the bag would probably cost $150 in production cost. But by selling it at a price tag of $3,000 and above, I certainly do not think that customers are being ripped off.
Because such brands don’t sell products – they sell a lifestyle.
They sell a shortcut to feeling like you’re living your dream life.
When your products can elevate someone’s image, status, or self-esteem, only then you’re able to charge more money.
Feeling rich and confident after purchasing that Maserati? That’s value.
Feeling joy and excitement after purchasing that $2,500 Baies Rose Iconic Elixir from Clive Christian? That’s value.
Felt like a queen after having slept on a $2,400 Charlotte Thomas Bed Sheet? That’s value.
In this post, I’m going to share with you five ways that you can utilize to increase the perceived value of your product.
As a marketer, when you see someone charging prices higher than what’s normal, curiosity should come into your mind on what are they doing so differently than everyone else to justify their pricing?
Usually, it's not the usual case of “our ingredients and materials cost more”.
#1. Luxury Brands Are Selling a Lifestyle, Not Just the Product
I started getting into luxury fashion in my twenties.
In fact, many people around me in their twenties are already, or rather, obsessed with luxury products.
I couldn’t help but I started doing research on what was it about them that made people so obsessed with their luxury products.
So I headed to the Marina Bay Sands in Singapore and went to places like Louis Vuitton, Gucci, and Tiffany’s.
This is one of the Louis Vuitton outlets in Singapore, located at Marina Bay Sands. It's also known as the Louis Vuitton Island Maison.
So there's this 3m long underwater tunnel from The Shoppes at Marina Bay and a small external walkway linking the Island Maison. And trust me, you will feel like a VIP that has just disembarked on a futuristic private island for a luxury shopping.
The entire experience inside this Louis Vuitton store is more like a gallery than a typical shop. I couldn't help but it made the experience feel so premium.
There was so much space as the luxury stores. There were aspirational photos everywhere.
You can tell that everything was simply attention to detail. Their packaging was an experience. They didn’t just put my wallet and shoes in a plastic bag. They put it in a fancy box and wrapped it like a Christmas present. The receipt came in an envelope!
Even for a regular Louis Vuitton store, the design and layout of the stores were different. Try going to a regular clothing store. They’re trying to jam as many clothes into the stores as possible, which felt quite cramped, to be honest.
And yeah, the items that I bought did their jobs. People loved asking me about my wallet whenever I went.
In a "magical" way, me buying items with massive perceived value increased people’s perceived value of me.
The biggest takeaway I learned about buying luxury goods is that you’re creating an “experience” for your customers.
People want to feel special.
How can we bring the luxury experience in the online world?
Let’s take a look at the marketing of Luisaviaroma.
For an online store, the first point of contact with this brand is the ads.
Clearly, the production value of the video is high. We know subconsciously that this wasn’t filmed with an iPhone.
You can see that the formula and the layout of the video are different too.
Your typical e-commerce video would be something like a pattern interruption, benefits of the product, testimonials, upbeat music, tons of subtitles, and a call to action at the end.
They’re not doing any of that here because they’re focused on selling you a lifestyle. The message across is this: "Women who are confident and have a certain class will dress like this. And if you would want to look like them, buy from Luisaviaroma."
Next, we will look at the product page.
First and foremost, a high-quality product image and a clean looking product page are mandatory.
No nonsensical cheap conversion tricks on the landing page.
So what do I mean by that? I give you a few examples that you guys are already familiar with:
Fake anchor prices. There’s no "original price $3999, Sale Today: $1999".
Countdown timers. This sale only lasts for the next 3 minutes.
Email opt-in gimmicks. It’s perfectly fine to collect email addresses, you can utilize a clean looking pop-up opt-in. But brands like this don't use the spin-the-wheel and win a prize.
No, I'm not saying those above pointers are completely useless. But the fact is that a premium luxury online store doesn't use such gimmicks to persuade you to buy.
It's all about the process.
And finally, if you decide to go premium, make sure that you go all the way down to the packaging. Don’t put in all this work only to send the product in a cheap grey plastic bag.
#2. Justify Why It’s Worth the Price
Just recently, my friend showed me a handbag that she bought. I couldn’t believe my eyes – it costs over $700. And it wasn't a very well-known brand.
For that price point, very few buyers are willing to shell out that amount to purchase from a brand that isn't very well-known.
Well, turns out that it was completely handmade and has a unique design that is different from any other bag.
Here’s What I Caught:
There’s a story behind the product. That handbag was made in honor of the founder. This adds an emotional aspect to the product.
Lesser focus on the technical details. It showed off the artistry and perfect craftsmanship of the bag. The product picture is saying you’re not buying a mere action figure of a character – you’re buying the art.
It’s uniquely designed. There are very few handbags elsewhere that are similarly shaped in this design. When an item becomes rare, there’s no ceiling on the prices. You can imagine how much this particular handbag will worth once it's completely sold out, or even out of production.
There are many other reasons why your products are priced high. For example, your bag could be made by hand. In that case, show it to your audience or a potential buyer. Showing it goes a thousand miles ahead than simply saying it.
Remember that your customers only care about themselves. How does the high price add value to the product, and ultimately to them?
Your customers don't care if you have a high cost of acquisition, or you have bills to pay. What matters is what your product can benefit your customers. That is all it matters.
#3 Take Advantage of Influencers Marketing
We are now in an era where many things can be copied. I have seen many competitors jacking suppliers, blatantly copying product ideas, copying marketing tactics, and re-brand it as their own.
That's where you need to build what we called, an economic moat.
Moats refers to those competitive advantages that can't be easily taken away from you.
One moat that is recently quite popular is influencers' marketing. Think of it as traditional marketing where they display commercial advertisements on your television, but has since much evolved with the times.
Let me share with you an example. It's hard to compete with Pantene in the hair care segment as they have Selena Gomez to endorse them.
You are really going to have a tough time competing against Kylie Cosmetics in the cosmetics niche because you have Kylie Jenner as the main face of the company. And you can’t steal her away from them because she’s the owner of the company.
Usually, people think about working with influencers as a way of distributing content. You'll get traffic if they start talking about your brand or products on their Instagram or YouTube.
A partnership with the right influencer will substantially increase the value of your product, and as well as your company.
The biggest risk in influencers' marketing is having your product or company heavily tied to one person. One particular company in my home country took a big hit when an influencer was involved in sexual harassment against underage boys.
Speaking of this, there seems to be a trend of "cancel culture". Cancel culture refers to celebrities or influencers getting "canceled" due to controversial things that they have said or improper behaviors. It's not wrong for the companies for canceling them – no companies would want to associate or work with someone who has a negative reputation. It will affect the company's branding and reputation as well.
In conclusion, if you are working with an influencer, do make sure that you do a thorough check on their background.
#4 Show Proofs That Are Irrefutable
These days, customers don't trust reviews as much as they used to.
It's either drop-shippers who have been faking their product reviews by writing themselves or importing reviews directly from AliExpress, or some companies have been moderating reviews that specifically remove bad reviews.
Regardless, trust issues definitely is a problem here.
Put yourself in the shoes of your customers. What conditions would make you trust a business enough to pull out your credit card and make a purchase?
As a business owner, how can you go beyond what others are doing in order to establish more credibility?
One way I would like is to have your own customers submit video reviews of your products. Trust me, it's a lot more credible as compared to a "fly-in" customers creating testimonials in a studio.
If you do know of any experts who can give you more credibility, don't be shy to show them off!
#5 Turn Your Product into an Offer
Chances are, you are sourcing products from AliExpress and sell them on your Shopify store. If that's the case, your biggest weak point is Amazon as you have several competitors selling the same product as you on Amazon.
The difference? They’re selling it much cheaper and they also offer 2-day shipping through Amazon Prime.
To compete it directly would be suicide, but one way you can compete is to turn your product into an offer.
Here's an example from a fitness website.
This particular website sells anything that is related to women's fitness. Above here is an example of a fitness program that they are selling as a playbook.
Here, we understand that a 7-day swap step-by-step challenge playbook program is worth around $29.
But rather than simply selling a playbook, wouldn't it be great if you could get a progress tracker and expert secrets if you are new to fitness?
By creating an offer, you can charge double (or even triple) the average price if you wanted to. You’re no longer buying a playbook. You are buying the solution – a shortcut to your dream body.
Again, this relates back to, #1, selling a lifestyle, a future, a new you. A new identity.
These are the five ways that you can utilize to increase the perceived value of your product.
The biggest takeaway here is to keep reinvesting in value.
The problem here is that I've seen too many marketers keep pushing as hard as possible to get the sale. Examples are spin-the-wheel, win a prize, or even countdown timers. I'm not saying those are bad, it may work in the short term for gimmicky products that sell well for the next 2-3 months. But that doesn’t work in the long term if you’re trying to build a brand like Louis Vuitton and Rolls Royce.
You have to play a long game.
I give you one classic example. Louis Vuitton had a controversial practice. If their bags couldn’t sell them, they rather burn them as a loss, instead of offering it as a discount. Why? Discounts hurt the brand they’ve spent centuries building.
In fact, even in the COVID-19 pandemic, Louis Vuitton even increased their prices. Just in March 2020, Louis Vuitton has announced a 3% worldwide price increase. However, on 5th May 2020, they absolutely shocked the entire luxury community by announcing that prices are going to be increased worldwide yet again.
With that being said, these aren't the only way in order to succeed in e-commerce. There is no one fixed way to succeed in e-commerce. What I've just shown you here in this post is only the concept of perceived value. But this will be vital if you’re trying to build a stronghold brand.
If you’re interested in learning more about this concept of making your product into an offer, I will write more about this concept in my next post.