Just been reading the article “How to Stop Customers Fixating on Price” in the May 2010 edition of Harvard Business Review.
It makes for interesting reading on the philosophy of pricing and how it impacts on the decisions we, as business owners and managers, make every day.
In the article, the authors argue that increasing the price of a “commoditised” item can have the effect of increasing customer interest in that item and particularly the benefits it offers. By getting the premium attaching to the item “right”, the customers’ interest will be piqued and they will spend time to find out the reason for the premium.
In effect, the impact of the increased premium on the price focusses the attention on the value provided as opposed to the price of the item. In their analysis, the authors describe an experiment conducted on students which revolved around a premium of 20% on some “staples” which they were then asked about. In most cases, it would appear those that paid the premium price identified more personally with the product they acquired as a result of the price they paid.
Getting the philosophy of pricing correct can be a difficult task – in many aspects argue the authors, it is counter-intuitive. Spending the time and having a good think about your product and differentiating it from the competition can be a very valuable exercise. I recommend the article highly.