If there’s one thing I’ve learnt from selling information products, it’s that customers can be a pretty irrational bunch when it comes to interpreting value and price.
Image Credit: Santos
Three of the most profound things that i’ve learnt about value over the years are:
1. People are crap at differentiating value from price.
2. The more time or money a customer invests in a product, the more value they’ll get out of it.
3. Value is 100% psychological – it’s a feeling, not a thing.
How Selling £50 Contracts at £0.99 Taught Me That People Can’t Differentiate Value from Price.
Generally speaking, we assume that the more expensive a product is relative to other similar products, the more quality or value we are buying. In most instances this is a safe assumption (as the old adage goes ‘you get what you pay for’), but it also means that sometimes we’re tricked into buying overpriced products because we believe that they are better than the cheaper alternatives, when they’re not.
My first exposure to this was several years ago when I met a company who wanted a new content management system for their website, I recommended a free option explaining how it met their requirements, but they barely took me seriously after hearing the word ‘free’. They ended up wasting thousands on a significantly inferior system.
But it wasn’t until I started offering contracts on my website for one fiftieth of the standard market price that I truly realised how irrational consumers can be.
Here’s a little bit of background: professional music lawyers are not cheap and everyone in the market of selling contracts sells them for £50-£100, putting them out of budget for most curious young musicians who just want to know what a record contract looks like.
My goal was to help as many musicians as possible by providing them with the best information, so I decided to price my contracts at the ludicrously low price of £0.99, in the hope that it would make the information more accessible to musicians who don’t want to fork out a lot of money.
I received very few sales in the first four months, despite a considerable amount of targeted traffic from search engines. I honestly couldn’t figure out what on Earth was going on.
One day I received a phone call from a musician asking “are you sure your contracts are legitimate? Everyone else sells them for way more”. I then realised that by charging so little and thinking I was doing musicians a favour, I was actually causing them concerns and driving them away.
Sometimes being the cheapest is not the best for your customers if it means they’re associating low value with your low price tag.
Higher Price Tags Earn More Emotional Investment
If someone sent you a free eBook about how to grow your business, chances are you wouldn’t be in any rush to read it – you might not even read it at all. Whereas if you had paid £100 for a book on the same topic, you’d likely start reading straight away, or at least make it a priority to try and apply some of the techniques recommended in the book.
This is because we like to return our investments, and so if you spend £100 on a product you will have an urge to get at least £100 of value out of that product, which requires more effort. Whereas, if you received a product for free, you can do nothing and it hasn’t had any negative impact.
I noticed this when I was looking for reviews of my book. I noticed that people who had paid for the book were more inclined to write a review of it, and were also more inclined to finish the book sooner compared to those who received free copies.
From an author’s perspective, I can’t help but feel that the people who paid for the book will probably benefit more so than those who received free copies, and because I believe the information to be so potentially life changing for the right people, I really want readers to emotionally involve themselves with the content and really apply the techniques outlined in the book. Encouraging people to make a higher financial investment in receiving a product is an effective way to earn a higher emotional investment from them as a customer.
Value is 100% Psychological, and 100% Unique.
If you believe that the designer handbag you paid £500 for is good value, then it’s good value. Simple. The concept of value is 100% psychological and we all have varying yardsticks as to what we consider good and bad value.
You’ve probably known someone who’s spent £1000′s on a top-of-the-range mountain bike, DIY tool, or musical instrument and wondered “what on Earth are they thinking?!” Whereas to them, they probably think they’ve got a great deal. This is because how we determine value is based around our personal values and beliefs – people who spend ridiculous amounts on designer handbags value the appearance of being affluent and glamorous, whereas the people who think they’re silly don’t.
When it comes to value and pricing, there are a number of things to consider besides the usual accessibility and competitive considerations – what value are you implying to your potential customers? And does your product exceed that implication?
I’d be really interested in hearing anyone else’s experiences on this topic, so if you have anything you’d like to share please leave a comment below!