The Art of Pricing: Always Have a Higher-Priced Option

John Tabita
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Last week, I said that when quoting a price, if you don’t put it into the right context, your prospect will.

We naturally perceive things in comparison to other things. So if you fail to provide something with which to compare your price, your prospect will naturally tend to compare it to another cost.

The problem with comparing marketing costs to, say, the cost of insurance is that insurance is an overhead expense that does nothing to contribute to the bottom line. Whereas, marketing is a revenue-generating investment. Here’s how to prevent your prospect from making that type of apple-to-oranges comparison.

Always Compare Your Price to a Higher-Priced Option

My wife recently joined a subscription-based nutrition website. With it came access to professional, certified nutritionists, healthy recipes, exercise advice, and an active members forum. The sales video we watched before signing up started out talking about how the cost a personal trainer, diet coach, and gym membership could add up to hundreds, or even thousand of dollars over time, then contrasted it to their one-time subscription fee. You’ve probably seen similar sales pitches where the cost of attending a live seminar is contrasted with the DVD or CD series.

The reason this works is due to the effect of perceptual contrast–which makes the smaller amount seem even smaller by comparison to the larger.

Suppose I were to ask you to borrow $10. I could make that amount appear smaller by first asking to borrow $20. The perceptual contrast principle makes you less inclined to turn down my second request of $10 than if I’d asked for that amount straightaway.

Here’s another reason this is so powerful. Backing down from my initial request of $20 is seen as a concession on my part. That puts you in the position of feeling obligated to make a concession in return.

That return concession is a variation of the Law of Reciprocation, which states that we’re obligated to repay what another person has done for us—in this case, an obligation to make a concession in return for someone who has made a concession to us. When the other person views your second request as a concession, he’s more likely to respond with a concession of his own—by agreeing to your second request.

How effective might this be when pricing your services? A higher-priced option that’s just out of reach, budget-wise, can make the price you actually intend to present more palatable.

When I sold Yellow Page advertising, I learned to bring three programs to the meeting, a dominant program, a competitive program, and a representative program.

The dominant program was an aggressive plan, one designed to get the advertiser the most eyeballs and the most calls. But depending on the heading, getting a large enough ad to beat out the competition could be expensive.

Even though I fully intended to sell the dominant program (because I believed it was in the client’s best interest), the aggressively-priced option solicited the perceptual contrast principle nonetheless, and made the competitive and representative programs seem more affordable.

Having one or two additional programs as a fall-back is invaluable. I wish I’d know this during my web days, when we’d just walk out the door when the client rejected our one-and-only proposal. Are you doing the same?

 

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  • Derrick

    I’ve been using the same thing for years :) I call it “1-2-3 offer” :) with offer 1 being really small, offer 2 is the one I’m going for and offer 3 is a huge offer. in 80% of cases the client will go for offer no2 and in other 20% for no3 :). Never EVER did I had client who opt for the offer no1….

  • kenzominang

    nice to know… I’ll try :D

  • http://maydetkim.com Mr Tien

    Thanks, I will try ………….

  • http://www.mikehealy.com.au Mike

    I was thinking about price options while working on a proposal today. With so many ways to build a website and factors that can affect price it makes a lot of sense to give at least two options. Otherwise your guess at the sweet spot could be too high and lose you business, or even be too low when the client may have been prepared to develop a better solution.

    I thought about giving three options, but I think that could be too much choice in many situations. If each option is a progression of the last it might be alright, but if A, B and C take different directions with benefits divided between the options I think there’s a risk the client might choose to do nothing.

    I’ll be going with two options, the dearer about 35% more expensive.

  • http://www.bordaline.co.uk John Borda

    It helps to know your audience- I had a client mention his family ran a business I knew to be run by people of a culture used to hard bargaining- I put my initial price up, he beat me down to what I wanted to get in the first place- everyone’s happy!

  • http://www.mattearly.com Matt Early

    I like the idea, and this is why we have standard, premium and elite options in most packages we see, especially online.
    Anyways, can you lend me £20? ;)

    • http://smallbusinessmarketingsucks.com/ John Tabita

      Nice try …

  • http://Cheti.ME Fani

    Really helpful information :)
    Thanks!

  • Pete

    This tactic is often used by restaurants when selling you wine. There are 3 categories, cheap, moderate, and expensive. The restaurant owners know damn well most people will go for the moderate option – and they correspondingly provide the highest profit margin wine in that category. The very cheapest or most expensive wines usually represent the best value, if you can call wine at a restaurant ‘value’!