Monday, August 1, 2016
The psychology of price
Why is it that whenever I raise my prices, I get more business on the same exact items that are now more expensive? There is some psychological phenomenon that must have a name or a published study that I would like to know about. I have seen this happen many times over the years. When I first started making my greeting cards with handmade paper and pressed flowers, I wasn't that confident about selling them and I was doing it more to clean out of inventory than anything else. I remember I started selling them for $1 each. I got a few customers who saw my inexperience and bought a lot then told me I should raise my prices. But many other people seem turned off by the price. If they were that cheap, why couldn't they be a little cheaper? Customers hemmed and hawed about buying them and wanted a discount off the very low price.
I gained confidence in my work and doubled my price, selling a lot more; when I raised them by another dollar, to triple the original price, and added packaging, I couldn't keep up with the demand. There was a perceived value that the exact same card was better because it cost more.
(I know a person who paints houses for a living who decided when he opened his business that he was going to cater to wealthy people and make more money per hour than other painters offering the exact same service. He charged exorbitant rates and ended up getting only very wealthy clients who perceived him as being much better than any other painter!)
I recently raised my prices on my best-selling item by $1 because I was going on vacation and I figured I would slow down sales while I was gone so that I didn't have a lot of back orders to make when I returned. To my surprise, sales on the item have been just as steady as they were before the price increase. I thought I had hit the sweet spot for pricing but it turns out there is still some room to grow.
I know a woman who slightly raises her prices every year - she sells window coverings - no matter what the economy is doing. She says she never wants to be in a position where she has to hike her prices substantially after a few years of keeping them even and thinks a slight nudge up every year keeps customers happy who might be angry when the price on her services increases too much. Her theory makes me think I should take another look at the prices in my shop and inch everything up since I have had success with my best-selling product and have not increased my prices in several years ...