Part of how we communicate about our products it through our pricing. A new study about placebos reinforces the psychological power of pricing. From Science Daily:
[Researchers] used a standard protocol for administering light electric shock to participants’ wrists to measure their subjective rating of pain. The 82 study subjects were tested before getting the placebo and after. Half the participants were given a brochure describing the pill as a newly-approved pain-killer which cost $2.50 per dose and half were given a brochure describing it as marked down to 10 cents, without saying why.
In the full-price group, 85 percent of subjects experienced a reduction in pain after taking the placebo. In the low-price group, 61 percent said the pain was less.
Why the significant difference in the power of the placebo with the higher price?
Customers use pricing as a cue for the quality of the product or service.
There is a great example that comes from the story of a psychiatrist who tried to use pricing to phase out his practice. He was getting ready to move toward retirement. So he decided to double his rate for any new clients, assuming that nobody would pay that much for his services. But, the opposite occurred. Referrals and new patients came in at the highest rate he had ever experienced in his long career in practice. So he raised his rates again hoping this would do the trick and keep away any more new patients. However, you guessed it — referrals increased even more.
It seems that when it is hard to objectively evaluate quality, such as the case with service businesses, consumers look to other ways to judge quality. And pricing can be one of the most powerful tools to communicate quality.
When I was getting my executive mba at night while I was starting an Internet business, I remember a lecture in one of my marketing classes about pricing that had a similar message.
Until that lecture, I was using a low price strategy. But I recognized my folly and saw what kind of message I was sending to customers, and raised my prices to a premium level.
That one lecture paid for my entire $30K mba in less than a year through increased profits for the year.
And it has kept on paying, year after year since 1999! I have been in business for 10 years now, with double digit or exponential growth every year.
Hopefully your blog post will similarly pay off for your readers.