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The Science behind higher prices

 

Last week I purchased a magazine (while I was passing through Atlanta Airport on route to Heathrow) which had an interesting article about prices, and it went something like this:-

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Research was carried out on a number of people that required work done on their property. Each property owner was asked to get four estimates for the job they required to be completed. After this exercise was carried out it was found that about 80% of the property owners had selected one of the two highest quotes, about 15% had gone for the lowest quote, and about 5% had gone for the next to lowest quote. (Almost a perfect 80/20 ratio). It was also noted that the people that picked the lowest quotes did so because the low priced quote was more than 25% below the top two highest priced quotes.

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Also, I am in the process of reading a book about the Psychology of Pricing. In it, it states that people that are put into a Brain Scanner and then shown bottles of wine with different prices. Although the wine in all the bottles was exactly the same, people became very much more excited about the wine when the price was higher, believing that the more expensive was of far better quality.

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In both these examples it shows that the majority of people do not wish to purchase the cheapest option. In fact, the vast majority of people want the more expensive options, because they believe it to be better quality.

This shows that if you are keeping your prices as low as possible to get new business, you will in fact get less business than if you had higher prices and made more profit.

 

It seems that the high price that 85% of people prefer is about 25% higher than the low price. So if a low price is £25 per hour, the more acceptable price will be £31.25 per hour.

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  • PRO

    Its intesresting , It reminds me of the analogy if you were given £100 and could choose to buy just one pair of shoes costing £100 or Ten pairs of shoes costing £10 a pair which option would you choose and why ? 

    I believe all customers are unique live / lived lives and equally discerning , The ones who fit a businesses criteria i.e the serious customer  can pick up on integrity , work ethic , competence within the first few seconds of meeting us and unless they have an inflexible budget usually the rate is secondary unless of course its massively inflated . 

    Others of course like to buy a brand or a good reputation and are prepared to pay for the experience .

     

     

  • PRO

    very true, i often pass a hotel which looks nice and who advertises 3 course meal for £10.99 i just assume it is naff at that price or small portions and have never went in but eaten out elsewhere at a much higher price

  • I'd guess it might be different for regular maintenance................. customers may well pick the cheapest quote as they know they can just get shot of you after the first visit if they're not happy. 

  • PRO

    What this doesn't take into account is the ceiling of prices that people will pay, which will vary from area to area. 

    We can charge a lot more (per hour) when we go into London but there is more hassle factor involved ie. Parking, traffic, congestion charge etc

  • This is exactly what I have found over the years. Most people want someone that will deliver a first class service, both in finish and reliability. Also they want someone they can make a connection with, someone personable.

    Most people know that anything worth having is never cheap. Very good things cost more than cheap and cheerful things.

    I have always said that if you charge low rates you will be seen as a cheap commodity and therefore not get the respect you deserve. Proper commercial rates do engender respect and perhaps more importantly, confidence.

    The ‘right sort of clients’ know full well that any professional charges for their time, skills and long experience, but also for all the overheads there are in running a bona fide business with all the professional grade equipment.

    We as professional gardeners take this approach all the time. Which is why we buy Stihl strimmers and hedge cutters and not Ryobi gear. We know that paying more, often a lot more, gets us something infinitely better.

    And so it is with us. We are worth the premium rates we charge.

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