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The 3Ps of Pricing: Placebo (Part 2)
How many free products have you acquired and not used? How many products in the sub-$30 range have you bought and intend to get around to using? Lastly, how many over-$100 products have you bought and not used?
I'll bet if you're honest, you'll notice that the more expensive the product, the more likely it is that you'll use it.
There's more to this, as well.
How many free e-books have you printed out? How many of those free e-books to you approach with a notebook in hand, ready to glean everything you can out of them? Compare your answers to products in different price ranges. Again, be honest.
If you're like most people, you're more likely to take the product seriously when you use it if you paid more for it.
Here's what's going on here: generally speaking, the more you invest in a product, the more you'll try to get out of that product. The price, then, can be a Placebo - the product itself hasn't changed, but the customer's orientations to and expectations of the product change significantly and often has a positive effect on their outcomes from using the product. Better outcomes equates to better actual value, but, counter-intuitively, the route to more actual value can be gone through changing perceived value.
Like Perception, this is another one of those lessons I had to learn the hard way in the field. For instance, I've been sharing free planners for years and they've always been received well. (Thank you!) But I started selling planners in January, and all of a sudden, people are writing me telling me about the great results they've had using them. Sure, I included some new planners in the Premium Planners, but the big difference is that people started taking their workflow seriously as soon as they paid for the planners. (If you "checked out" the planners but never printed them out until you bought them, you're probably nodding your head right now.)
So many entrepreneurs get how this principle applies to their purchasing behaviors yet fail to consider how this principle should apply to their selling behaviors. General buyer psychology applies to your products, too, unless you actively de-script those buying behaviors - and, even then, you're going to be going against the grain.
If Your Product Requires Serious Work To Implement, It Might Need a Price Point That Reflects That
The reason I say "might" here because, as with all things around pricing, it really depends on the product in question.
If the product addresses a core pain-point that people desperately want to change, then the nature of their discomfort carries a lot of motivational force - they're already significantly invested in the outcome. This is the meta-business principle involved in what's come known as "desperate buyer" marketing.
Let me be clear here: desperate buyer marketing is incredibly effective as a short-term strategy. It works because the desperation of the customer or client alters their approach to the product that purports to solve their problem, and they're more likely to use the product to its fullest. Thus, the actual value they get from the product is higher, but this is not necessarily because the product was better.
Though this particular form of marketing works, I'm not a big fan of it, especially when it comes to the way individual products and services are marketed. The teachers of this form of marketing often instruct people to "heap on the pain" so much so that potential buyers exaggerate their own actual discomfort. This is not to say that I don't address the pain points in my products, but I'd rather leave some value on the table instead of heaping additional pain and discomfort on folks to get them to buy something.
On the flip side, pricing products that don't appeal to people's desperation is a bit more challenging when it comes to both pre-purchase and post-purchase considerations. Since this post is about post-purchase considerations, I'll stick with that side of things.
Purchases of products that don't appeal to desperation often fall into the "I'll get to it later" category of buyers, and this categorization is even further exacerbated by low priced, non-desperation-based products. Since there's relatively little emotional investment in the outcome and relatively little financial investment in the product, those products tend to get lower priority than products that have either a higher desperation factor or a higher price point. Priority can be cashed out as effort in implementing the product or inclination to actually use the product.
If your product is going to require a lot of investment to implement and doesn't appeal to desperation, you need to consider the effect that price has on encouraging people to do the work required to get the results. If they buy your cheaper product and don't use it - or use it half-heartedly - they're worse off than if they bought that same product with a higher price but actually use it.
Remember this: people usually buy products to achieve certain results or to get certain outcomes. Your job as an entrepreneur is to help them get those results and outcomes, which sometimes means pricing products differently than you otherwise would.
For Etsy Sellers and Other Artisans
I know that quite a few Etsy artists and other artisans are reading this series due to my inbound traffic stats, and you might be scratching your heads about what to do with your products because it seems like they don't deliver results or outcomes. In fact, they do deliver outcomes.
Let's say that you sell paintings. People buy your paintings for at least two different reasons: 1) they want to support you as an artist and 2) they want to display your art somewhere. If someone pays $25 for your art, they may or may not display that art somewhere. If they pay $250, you better believe that painting is going to end up on the wall - depending, of course, on the demographic of your buyers.
The same thing goes for quilting, crotcheting, sewing, bracelet-making, or whatever it is you do. The more people invest in your item, the more likely they are to use, enjoy, or gift it.
One exception to this is markets where children drive the decision-making process for purchases. Children are just as likely to wear and enjoy a $3 bracelet as a $30 one and parents are more likely to buy that $3 bracelet for their children. However, those same parents wouldn't want to buy that same $3 bracelet for themselves. Adults have internalize the conflation of price and value, and art is often a status symbol for them.
(Thanks for your support. I see you.)
Placebo Is About Finding The Happy Middle
People's commitment to a product with a higher price provides some motivational force for you as the seller that tends to push prices upwards. However, there are other motivational forces that tend to push the prices downward, too.
After a certain point, consumers start evaluating the value of a product against its price. If the price of your product crosses this threshold, you run the risk of under-delivering, and it's much, much harder to recover from under-delivering on a higher priced product than it is to "recover" from over-delivering on a under-priced product.
Just like with Perception, there are red zones on either end of the Placebo spectrum that you want to avoid. On the lower end of the spectrum, your product is priced so low that people aren't committed enough to using the product, so their actual value is less than what it could have otherwise been. On the upper end of the spectrum, the product is priced so high that you're at risk of under-delivering. Once people start negatively questioning the value of your product, they're less likely to be as invested in the outcome of the product.
Your challenge, then, is to find that price that gives them the right amount of commitment but still ensures that you over-deliver on the value of the product. In this sweet spot, they have the best chance for great outcomes and results while at the same time still being extremely happy with the "excess value" of your product.
People don't assess the value of your product in a vacuum, though - they'll often compare your product to other similar products. This is a nice segue to talk about Positioning. Positioning is an interesting consideration because it's both a pre-purchase and a post-purchase consideration. Stay tuned for the next post in this series, but, before you go, I'd like to say something...
You might be reading this and feel like it's manipulative to alter your prices to address Perception and Placebo. There are many, many examples of people and businesses that have used destructive business practices when dealing with their clients and customers and you're completely warranted to be on guard against joining their ranks. That said, I'm about aligning strategy and compassion, and to be a smart entrepreneur, you have to at least understand buyer psychology so that you can make choices that ensure that your value-added stuff gets bought and used. If it's not bought and used, it's not helping anybody.