Tuesday, May 24, 2022

Price Psychology: Product vs Service

Welcome back to this week's um pricing tips for you and now i want to cover in last week in prior episode i covered kind of picking a camp and how you should decide whether you are a low price company or if you want to price based on value and that's kind of the first and .

Foundational step of developing your pricing the next step is understanding which pricing strategy is best for you and there's quite a few pricing strategies but you first need to figure out whether your product or service now i'm not saying that necessarily product .

And service will have a different pricing strategy they will be slightly different but there are certainly marketing gurus out there like apple for example that converts a product um approach and kind of makes it a service based approach as well so kind .

Of taking um taking both approaches at the same time and creating sort of a hybrid pricing model so typically when you have a product business and realistically speaking yes every service business is a product business if you price it right but let's say your actual physical .

Tangible product business right if that's the case your number one priority is to make sure that you not only have the main product but also develop some sort of an accessory or several accessories that actually are cheaper than the main product enhance the experience of that product .

And where you can build in a nice cushion of profit notice how when you go on to apple website and you buy let's say or not buy but add a computer to your cart um notice how that kind of is always cheaper the components of additional items are cheaper than the .

Main product let i'll walk you through an example let's say you want to buy an imac mind mac computer it's a pretty expensive machine usually you know starting anywhere from 1500 and up and you can get up to 5 000 and more .

Typically there used to be when i first got introduced in to price ecology apple used to have two options on the website option one kind of a smaller versions you know less hard drive power less less hard drive space less ram whatever and .

Then the second option kind of next to it that's more power more memory more ram or whatever and then you would first choose the two options or they also used to have a 21 inch and then a 27 inch next to it so kind of two options then um probably about it six months to eight .

Months ago that's when i've noticed it maybe they've done it earlier than that apple decided to change that a little bit and they actually introduced a little tiny bar kind of at the top of the website where you for you select 27 or 21 inch so that they don't have to present .

It as two options anymore then once you've selected the 27 versus 21 inch imac you are presented with three options one next to the other so they're kind of taking the service business approach and converting it their offering to a three option presentation when you .

Pick an option that suits you whatever let's say you'll pick the middle option then um you add to cart and you the you kind of are walked through the series of upgrades upsells right so you get offered a better keyboard a better hard drive a bigger ram a better processor or whatever .

It's very smart because you know oh you know i'm just i'm spending eighteen hundred dollars on a computer two hundred dollars is not gonna kill me and then at the end of this whole process you end up with a three thousand dollar computer instead of a two thousand dollar computer or eighteen .

Hundred dollars for a computer right so you have to take notice but also learn from them apple is one of the best marketing companies of companies that have nailed their marketing and we all know that i'm not a marketing person i'm an accountant but i love the fact that it's .

Doing it this way so when you have a product to sum it up you have to make sure that you have some upsells that you can incorporate if you remember many years ago when you were supposed to go to the store to get your phone like a verizon store right you would buy the phone but then you .

Would immediately get offered to buy a pack of accessories a an earpiece a microphone something else a holder holster or whatever and usually um there was a discount involved to kind of induce you to purchase think apple and think phone purchases .

Come up with a way for your products to have an enhancement maybe it's an accessory maybe it's a more expensive accessory like um a wine opener for um a wine store you know or something but come up with your plan for service businesses it's slightly different for service .

Businesses we should have three packages see what apple did there it used to have two options on the website now it has three three is the magic number the reason is that when you have two you're kind of um i don't want to say bottleneck but it's kind of like that you're kind of stuck .

And you um don't make a decision um you're deciding whether to buy or not to buy when you have three options you're deciding more kind of which option to go for so when you as a business owner build your service packages make sure that you .

Fill the um middle package with a lot of value but also price it for with your target profit in mind what does that mean well 60 of people will choose the middle option so you will be selling mostly your middle package make sure that it's actually the package that you want to sell the benefits that you want to .

Provide and that it's priced so that you make a nice profit for yourself i mean after all we're all in business for profit right that's very important so three options for a service business when you have more than three options people get overwhelmed and can't choose so three .

Options have statistically been proven to be best so i strongly advise you to adapt adopt a an approach of creating three options for your offering i if i could do it for my accounting practice you can do it for any service business all right my .

Friends i'll see you next week

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