The rise and fall of the moving parade.

I got into a conversation with a client a few days ago about this, then again yesterday, and yet again today I stumbled across a discussion related to setting pricepoints for products. So, since my coffee is still hot and I’m trying to find ways of avoiding other work – I decided to do a drive-by post on the subject of one theory behind determining pricing.

Perceived Value.

Essentially, the gist of it is that the “value” (not price) of something is determined not by breaking down the cost to produce and bring to market and then charging a penny more for profit… it’s about creating a situation where you manipulate (for lack of a better word) the perception of what something is worth and run it up against what the market will bear.

Huh?

…Price something for as much as you can and make it seem worth every penny.

Here’s the inevitable punchline – my quick and dirty list for creating higher perceived value for a product:

1. Price it high. Price it beyond what the bean counters say you need to make a profit. It’s not about following a tired, old standard of cost + 20%. It’s about pricing it high enough that the cost alone, from the view of the customer, might appear to be special. Afterall, a dime store price suggests dime store quality. Boutique pricing suggests something a cut above the rest.

2. Have an awesomely generous return policy and awesomely worded guarantee. Not only does this fit another category (that of risk reversal – taking the purchasing risk off the shoulders of the customer and putting it on you) but it suggests that the merits of the product are so good you’re confident that nobody would want to return it – but if they did you’ll give them their money back with a smile and zero hassle. Important: Spell it out! For example “100% satisfaction guaranteed” is terrible. Yes, it is. It sounds great at first, but says nothing… what is it? How is that defined? 100% of satisfaction means how much money back? No, spell out your guarantee so it lets people know that if they decide conditions aren’t right you’ll give them back the money they spent, the mechanism they need to ask for a return (eg. calling a toll free phone number), how much and how fast you’ll return, and any benefit that takes greater risk off (return postage paid by you not the customer).

If you’ve got a great return policy it means you’ve got confidence in your product at the price it’s offered. Only scaredy-cats fear returns and have adversarial or complicated return policies with fine print. You? …nope, your prices are right and your products are worth every penny and your return policy backs that up.

3. Testimonials. They aren’t the end-all be-all they used to be because of abuse – too many schlocky companies pushing schlocky products hiring too many schnook actors to say goofy things that weren’t true. Yes, I’m a little jaded but testimonials, done right, can have a great effect on bolstering the perceived value of a product. I recommend you don’t fudge on testimonials – don’t fake it. Use real testimonials, from real people, expressing themselves in a genuine, but positive way. Even a great testimonial, if it sounds like an over-hyped schmooz-fest, might be best left unused. Sincere praise from individuals who give honest feedback in plain English are often the best ways to create higher customer confidence. Higher customer confidence feeds directly into higher perceived value when you’re representing your product. Be sure to collect and file testimonials in a proper and legal way, though – there are laws governing the use of customer feedback.

[Strange trivia #3 for the day: WordPress' spell checker highlights the word "WordPress" but doesn't ding me for the word "schlocky." Huh. Go figure.]

4. Benefits versus Features. Benefits are “you’ll be happy and look great.” Features are “Pentium 3.2 processor, 250 gigabyte hard drive, 4 gigs of RAM, 21″ LCD monitor.” List both. Have ad copy, product description, testimonials, or any other content you can muster that lists benefits and features for your customer. If you can convince them that it comes with bells and whistles, but also what wonderful things it’ll do for them personally… you’ll appeal to their senses of need and desire – again, creating a higher perceived value.

5. Bonuses. If you are in a position to give added value – a bonus – do so. You can offer such bonuses upfront (which has an elevating effect during the purchasing process) or you can combat buyer-remorse by giving a bonus that comes as a pleasant surprise after they purchase or receive their product. A phone that’s disguised as a sneaker is one way to give a bonus but so is a coupon for future purchases. It depends on your abilities and avenues available but try something that adds to the sale or reduces buyer-remorse (second thoughts after getting the product). Lock in that sale with a little something extra.

6. Endorsements. If Brad Pitt or Angelina Jolie aren’t available to tell people how great your product is – consider riding the testimonial train again, except this time by putting a face to the testimonial. The more you can get a famous person or respected individual in a related field to tout your product – go for it. If you can get the lady down the street to do the same and she looks like she has a trustworthy face – see what you can do. Special note: celebrity endorsements, in particular, carry a heavy risk. If they ever do something negative or fall from grace the last thing in the world you might want is to be associated with them. We’ve watched major sodas or fast-food chains drop celebrities like a bad habit when something negative comes out in the press regarding them… fact or fiction. so, beware of who you use to endorse your products and again… make it legal.

7. Brand it! Give that sucker a name, a title, a reason-to-be, and do what you can to make that mousetrap, sport car, tshirt, toilet brush, or whatever “the” item in its class. Branding is a process and involves a lot more than what I’m typing here (I’ll write more on that later – when I’m dodging other work and have more coffee) but if you are working your way toward creating an identifiable brand you can often command higher prices for that alone. You really don’t think those baby GAP jeans are honestly made of some special material worth that much money, do you? No, it’s the name.

In the end, there are several ways, but these are my favorite highlights for creating an environment in which your product can not only stand above the rest but also withstand higher pricing by creating a greater perceived value. Let people see that the dollar amount you’re setting (not asking for – but setting) has a lot more behind it than just the sum of that product’s parts. It’s got value that you walk people through (consciously and maybe even a bit subconsciously) that makes it clear it’s worth the money and maybe more.