Setting Prices An Art Form

January 4th, 2012

Understanding the psychology of the consumer can help maximize your profit.
By John Landsberg
Why do we buy the stuff we do at various price points? Why will we pay one company $5,000 for a service and not one that is charging $3,000 for basically the same service?
For the most part, we make many of our buying decisions based on unconscious assumptions. And the buying decisions one person makes about a product or service may be completely different than the decisions someone else might make.
It’s All Relative
Setting prices is a tricky art form. Yes, it is an art. What else could explain more people buying the same item in the same catalog at $39.99 than at $35.00?
What does a submarine sandwich sell for these days? In many cases, people did not really know the price of a sub, but Subway has pretty much established a key price point at $5 through its extensive advertising campaigns. If you own a sub shop, you had better realize that your customer’s internal reference price for your product is now $5. That means you must adjust your prices accordingly.
Most experts will agree that as consumers we do not have an “inner price sense” on many of the things we purchase. As an example, how many of you know how much it would cost to put a new roof on your home? I certainly wouldn’t.
As wise consumers, we might call three roofers (generally provided to us via word-of -mouth from neighbors, friends, family, etc.). Let’s say one gives an estimate of $10,000 for the work, another roofer says he will do it for $15,000 and the third comes in at $20,000. There is a $10,000 difference between the highest and lowest bid—quite a range.
Now what? Pricing expert Dan Ariely, author of “Predictably Irrational: The Hidden Forces That Shape Our Decisions,” says that most people would go with the roof bid for $15,000. Why? Because in our minds, $10,000 seems a bit cheap and $20,000 is too expensive. The $15,000 is now established as a “safe” price in our minds.
Setting Expectations
Ariely points out that when people see a wine list at a restaurant they rarely buy the cheapest wine on the list. They will buy the second cheapest. Knowing that, wouldn’t you price your cheapest wine a bit on the high side knowing customers will move up in price?
Another pricing expert talked about a restaurant that advertised a $150 hamburger on its menu. Of course, people looked at that and thought, “What idiot would pay $150 for a hamburger?” Customers would then scan down the menu and gladly pay $50 for a steak because compared to the hamburger that was a “good” deal.
When establishing prices for your goods or services, ask yourself several questions:
· Have I done sufficient research on pricing?
· Will I be higher or lower compared to my competitors?
· If I am higher, what am I offering customers that will encourage them to buy my product/service?
· If I am lower, what can I provide to increase my value to customers and encourage them to pay more?
· Can I price my services differently than my competitors? An hourly rate? Cost-plus? Lump sum?
Price Sensitive Customers
When setting prices, it also is wise to realize that it is easier to lose sales to existing customers by increasing prices than to gain sales from new buyers by reducing them. Using that information, you should also realize the cardinal business rule that your current customers are more profitable than new ones. So, think very long and hard before implementing a price increase to existing customers.
Setting prices for your goods or services is not something that should be taken lightly, particularly by small owners who often are faced with razor-thin profit margins. Your pricing decisions can make all the difference in the world in building a successful business.

(John Landsberg is the president of Bottom Line Communications, a Public Relations firm based in Leawood. He is also an adjunct professor of marketing, sales and public relations.

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    From a purely journalistic standpoint, a recent segment (below) featured on the Conan O’Brien Show is scary.

    From a public relations standpoint, it represents a home run.  In fact, there are probably high-fives going around some PR Agency today for a job well done.

    Sadly, it is reminiscent of scenes from the movie “Anchorman” with anchor Ron Burgundy (Will Ferrell) reading whatever is put in front of him on the teleprompter. Except that was supposed to be a parody of local newscasts…

    Keep in mind, from a PR standpoint, having an anchor read information you provided is far more credible and valuable than a paid advertisement.  People trust what anchors report.

    But how does it happen that local newscasts around the country feature anchors reading exactly the same script? First, many stations now have to fill hours and hours of time with “news” and rely on syndications to supply them with scripts, video clips and fully-produced news packages.  (PR folks also provide Video News Releases (VNRs) designed to look like news items, but are really done to highlight products and services.)

    Secondly, when you factor in newsroom cuts and longer work hours for staffers it creates a perfect storm. If you can provide TV stations with packaged news segments (or well-written news releases) it makes their jobs easier and the chances of them airing increase dramatically.

    The O’Brien segment was likely produced by the National Retail Federation based on a study the group conducted. Its goal was to get consumers to buy more stuff for the holidays. Encouraging them to buy gifts for themselves is a great way to do it!

    “We’re doing six and a half hours of live programming a day, and we’ve got a lot of space to fill with a pretty small newsroom,” noted a producer from Kearney, Nebraska, in a column on the journalism site Poynter.

    The irony of it is if a print journalist is caught copying information directly from a news release he/she will often be reprimanded/ terminated. However, it is a common practice for those in the TV/Radio world to simply “rip and read” copy sent to them with little verification.

    In many cases the talent will read the story “as is” if the information is provided correctly.  Embarrassingly, in the Conan segment the anchors didn’t bother to change a word of the script.

    In PR terms, this means if you properly media train people to do effective TV interviews and provide stations with “news” that will interest their viewers your chances of free publicity skyrocket.

    Published December 1, 2015 at 10:30 am - No Comments From a purely journalistic standpoint, a recent segment (below) featured on the Conan O’Brien Show is scary. From a public relations standpoint, it represents a home run.  In fact, there are probably high-fives going aroun ...


    In Journalism circles, having a degree from the University of Missouri was often a ticket for success. It is not only the nation’s oldest Journalism school, it is also one of the most prestigious.

    When rankings for the best “J” schools in the nation are posted the University of Missouri is almost guaranteed to be in the Top 10 or Top 5.  However, that may have all changed due to the actions of a single media professor during the recent student uprising at the school.

    A Mass Media Professor, Melissa Click, is shown in a video asking for “muscle” to remove a student photojournalist, Tim Tai,  who was working for ESPN and in a public place.   It is a horrible act by a college professor and shows a total disregard for the Journalist’s First Amendment rights, which is against what the school has taught for decades.

    “Who wants to help me get this reporter out of here? I need some muscle over here,” says Click.

    A video of Click’s actions against Tai has gone viral and has well over 500,000 views (LINK) on a single site.  The New York Times has written an extensive story about her actions.

    What was once a sympathetic media for the protesters has now changed with the actions of students and faculty against them.

    Technically some have pointed out Click works in the Mass Media Division of the Department of Communications in College of Arts & Sciences, which is separate from the J-school.  However, she is listed on the School of Journalism’s site (LINK), which tars the entire Journalism program whether it deserves it or not.

    Click had earlier Tweeted out that she she was looking for coverage of the event by Journalists.  Later on she is clearly leading the charge against other Journalists with total disregard for their rights to cover the event.

    With the resignation of the school’s President and Chancellor the University of Missouri is clearly being painted as a college where the inmates are running the asylum.   Rather than act like a Professor, Click and other faculty members have clearly shown they were behind the student protests against the administration.

    If the University of Missouri doesn’t hire a crisis communications team immediately its entire image for producing quality Journalism graduates could likely be tarnished forever. If the school was wise it already had a crisis communications plan in place for such an incident, but that is unlikely.

    The first move would be to remove Click. But that would be a stop-gap measure since a faculty member helping foment the disturbance was an indictment on all the faculty.  The school hired her, and whether tacitly or not, approved of her actions.

    A statement issued today by the Dean of the Journalism School denied she was part of the faculty and sounded as if her days as a professor at Missouri were numbered. Click has also been forced to apologize in an attempt to save her job and resigned her “courtesy” appointment to the J-School.

    However, a Kansas City reporter told BLC that the protesters are refusing to speak with local reporters and will only do interviews with national media outlets.  That is the kind of move that will turn sympathetic local media against them now and in the future.

    It’s a bad move.



    Published November 10, 2015 at 10:23 am - 5 Comments In Journalism circles, having a degree from the University of Missouri was often a ticket for success. It is not only the nation’s oldest Journalism school, it is also one of the most prestigious. When rankings for the best ...