Recently I read that the travel website Orbitz is experimenting with a new pricing strategy to boost online sales.
Their plan: Show higher priced hotel offers to Mac computer users.
Why? Their research shows that Mac users’ spending habits are higher than PC users.
Orbitz found that Apple users spend as much as $30 more a night on hotels and are 40%-50% more likely to book a four-or-five-star hotel than PC users. They also found that when Mac and PC users book the same hotel, Mac users tend to stay in more expensive rooms.
Smart strategy. My guess is that they will not only get their Mac customers to respond better, but that these customers will spend even more.
However, most business owners don’t think like that. Many sales people and business owners are more compelled to reduce their prices, often without research or any real marketplace pressure.
It’s unfortunate, because when that happens, business owners are damaging their profitability—and may even lose customers because of it.
Dan Kennedy says, “Your prosperity begins with your price strategy.”
No business owner can haphazardly set prices or change them with no regard for his customers’ abilities and willingness to pay or without regard to competitive factors. But, you can’t let price paranoia or over-optimism about what you think your prospects and customers will pay rule your choices.
If you do, in many cases you’ll be wrong.
Case in point, a business owner I know was a shoe-in for a major project with a Fortune 100 company. Going in as the only referral, he was told the proposal was pretty much just a formality. That protocol required them to get bids. He submitted his proposal feeling confident he would get the business.
When he didn’t win the contract, he inquired why. The company told him that when they saw how low his price was, they thought maybe he wasn’t as good as they were told.
A higher price can reassure your clients, customers and patients that what you offer is high quality and of more value. Likewise, a lower price might be sending the wrong message.
Like Orbitz, it’s always smart to know who your target audience is and what their spending habits are.
So do a bit of research and test prices. (Tweet this!) You may be surprised to find that pricing your products and services higher will increase response and produce more revenue.
In Dan Kennedy’s No B.S. Price Strategy Book, several case studies are presented to support this.
For example, in one price test, a B2B newsletter tested pricing of $97 versus $127. Many would think that crossing the one hundred dollar line might suppress response. However, in this case, the $127.00 price pulled 11% higher response. The higher response combined with the higher price resulted in 45% more revenue for this company. (Source: TargetMarketing.com)
The point is… don’t reduce your prices without any evidence. Always test and re-test frequently to see what the market will bear. And remember, higher prices don’t necessarily mean poorer response. In fact, you might be able to work less and earn more this year, simply by changing your price strategy.
Do you have a story to share about testing your products and services at a higher price? What were the results? Leave a comment below.
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