Pricing, part 3: Make sure that perceived value exceeds cost

Pricing, part 3: Make sure that perceived value exceeds cost

Jul 10, 2018 | Pricing, Side hustles

Not a contradiction, just a paradox

So, if you’ve already read Pricing, part 1: Can a Higher Price mean Better Value? and Pricing, part 2: You Deserve to Make Money for your Work – Good Money, you might think this is a total contradiction. However, like many things in life, it is part of a truth that can’t be summarized in a 30-second sound byte. Yes, higher price can mean better value. Yes, you deserve to earn great money for your expertise and skills. But your business will only be successful if your clients believe that the value you provide to them exceeds the amount you are paying them. That’s why if you want to have a wildly successful class or business or product or WHATEVER, you need to be besties with perceived value.

Perceived value

The first thing we need to talk about here is perceived value. The actual value of your product or service DOES NOT MATTER. Yes. you heard me right. The actual value of whatever you provide has little to no bearing on your success. It is the value your client perceives that matters. If you have a winning lottery ticket that can be immediately cashed in for $2 million, and you offer to sell someone a 50% interest in it for $50, that is a GREAT value. However, if they believe that it is a forged ticket, they aren’t going to buy it. Their perceived value of the ticket is less than what you are charging.

Here is another example. Last week, I listed our family’s beloved, but beat-up, Volvo Station Wagon on Craigslist. I was asking $600 for it since it had several mechanical problems and over 220K miles on it. I was completely honest, sharing pictures of its distressed paint and admitting that it was going to need some work, but that it did run. However, I knew the price was fair, since it also had almost new tires, and would bring almost $500 if it were sold just for the tires and the scrap value.

Several people contacted me and said, “I’ll give you $200 cash” or “It’s worth $400, I’ll pay you today if you’ll take it.” However, I was also contacted by a guy who loved Volvo as a brand and had a Volvo with a busted engine sitting in his driveway. He looked at the car on Monday, said he’d pick it up the next morning for full price, and even reminded me that if I changed my mind overnight he’d understand. “I wouldn’t blame you if you did change your mind,” he said. “It’s worth more than that.” We assured him that a deal was a deal, and the next morning, he gladly paid the $600.

That buyer got more value than he paid for, but other people definitely thought I had overpriced the car. Perceived value is tricky like that. Like beauty, perceived value is in the eye of the beholder.

Perceived value is a huge topic, so there will be future posts coming on ways to increase it. However, there are basically two ways to ensure that the value you are offering your clients is greater than the price they are paying you. The first is to increase what they believe your product or service is worth. The second is to provide the same value for a lower price.

Increase what they believe the service is worth

Now, you are going to provide a high-quality product. You know it and I know it. So that is not the issue. The issue is to ensure that your potential customers know it is a high-quality product.

There are several ways to do this, but maybe the most effective long-term is education. When I started my Spanish classes for children, I had a big drop in enrollment after the first month. The students weren’t going home and spouting Spanish to their parents, so the parents thought the kids weren’t learning. They didn’t realize that you understand much, much more than you can produce. Nor did they understand that by learning to truly understand the language, instead of memorizing vocabulary lists, their kids were building a foundation to be able to actually communicate in Spanish.

What I had to do was educate them on the value they were actually receiving. So I started sending out short e-mails every week or two explaining why my methods were so effective long term, the benefits of learning a second language, and how to help their child at home, even if they didn’t speak Spanish. They also received almost-weekly updates on their specific child’s class, including what songs we sang, which books we read, and what games we played. After that, my retention shot up to near 100%. I didn’t change my actual product, I just educated them so they would realize its true value.

Provide greater perceived value

Sometimes, you can figure out ways to provide greater value without too much more work or cost on your side. For example, when I started my Spanish classes, I set up a website where I included information on language learning, links to Youtube videos of the songs we were singing and the stories we were reading in class, and tips on how parents could optimize their child’s learning. This can be done relatively inexpensively, but it creates tremendous value for the parent. They can simply look up the website and sing the songs with their child, even if they don’t know Spanish. It allows them to participate in their child’s learning, which greatly increases the perceived value.

Perceived value of e-book versus online course

Another example of this is an online course versus an e-book. E-books have a very low perceived value, no matter how useful or valuable the information really is. However, if you take that same content and package it as an online course, people will gladly pay a much higher price.

Now, I’m not talking about scamming people. Remember what we said in Pricing, part 1? Charging a higher price can actually cause your client to take action because the product has a greater perceived value to them.

Let’s imagine that you have information that will literally save a person $20,000 over the course of their life. You can either package it in an e-book for $3.95 or in an online course for $395.00.

I can absolutely imagine someone buying an e-book for $3.95 and NEVER reading it. They would miss out on the information they wanted simply because they didn’t prioritize reading it. Or maybe they don’t like reading and just keep putting it off. They have wasted that money. Much worse, they have missed out on a chance to be $20,000 richer because of the information they didn’t read.

However, imagine if that person purchased that same information in the form of an online course priced at $395 and studied and implemented every lesson. They would have received massive value from that online course, even though it was priced at 100 times more than the e-book. Granted, this is an extreme example, but it happens literally every day. The takeaway here is that you can increase the perceived value of your product in a lot of ways. Your primary job, though, is to have your customer leave feeling like you gave them a heck of a lot more value than you charged them for by providing an outstanding product at a price that is fair to both you and to them.

Provide the same value for lower cost

Question: Is the value you receive approximately the same whether your child has a one-on-one class or is in a group of 5-6? I would say yes. In some cases, the value might even increase in classes because it’s more fun to learn with your friends, right?

This is why I almost refuse to do private tutoring. My clients receive much greater value (and I also increase my own earnings) by offering group classes. To be sure, I make sure the classes are small, so that our time is spent learning and not dealing with discipline issues. However, the kids really learn well in a group setting, so they aren’t sacrificing value. However, I can charge $12 per child and still make $60 per class. They are paying less, but they aren’t receiving less.

This is the same concept that many people are putting into practice online. I just finished a short course on how to design your own website. (By the way, do you like it? I thought the course was OUTSTANDING! If you want to set up your own website, see the end of this post for the link and information.)  Shannon offers pre-recorded classes that are value-packed. I loved her free class so much, I decided to sign up for her Serious Side-Hustlers subscription course because I know I’ll get unbelievable value from it.

However, she has already done the work by recording the lessons and posting them on her web site. She is providing me EXCELLENT value with no extra work because she figured out how to scale her business. What if she had to sit down with me individually (even online) and teach me step-by-step how to set up my website? It might be slightly more valuable to me since I could ask questions in real time. However, she’d have to charge me so much  that the value of her service would no longer exceed what I was paying for it. She has figured out how to charge less for basically the same value. She has scaled her services, just like I scale mine by doing group classes instead of individual classes.

Link and info for Shannon Mattern’s 5 Day Website Challenge

OK, I mentioned that I would share the link to the website class, so here it is. I can’t recommend it highly enough. And for the first 30 days, IT’S FREE!!!!!! Here’s the link to Shannon Mattern’s 5 Day Website Challenge. This is an affiliate link, so if you follow one of her paid programs I will receive a small commission. However, I ONLY endorse things that I have used and LOVE. And for anyone who knows me, I don’t do tech! So if she can teach me step-by-step how to set up every aspect of a website and all sorts of gobbledy-gook that I don’t understand, you know she is a tech teaching goddess!

 

 

Pricing, part 1: Can high price mean better value?

Jul 4, 2018 | Pricing, Side hustles

Women are expected to be more helpful

Pricing is an issue that many of us struggle with as we start a business or create a side income. As women, we are conditioned by society to be more communal than men are.  Now before you get mad at me, I am basing this not on my own opinions, but on studies of how women are perceived in the workplace. Generally, co-workers are more likely to ask help from women. They are also more likely to be offended if that assistance is not forthcoming.

This can create problems in our own brains. Because our culture often expects us to just “pitch in” without a thought for ourselves, or the inconvenience it may cause us, women often have trouble valuing ourselves at our true worth. While men tend to be confident that their services are worth a premium price, women often second-guess themselves. It can make us uncomfortable charging for our services, especially if we are pricing them at the upper end of the spectrum.

I tell you this for several reasons. First, because being aware of the problem is an important step in overcoming it. Second, because we need to address how we are actually serving people when we charge money for what we do. And third, because if you are going to provide a high-quality, premium service (which I assume you are), you deserve to charge a premium price. To do less is to short-change yourself and your family. Since this is a pretty important point, and since I tend to be wordy, I’m going to break this down into three separate posts. Today, we’ll cover how we serve people better when we charge a premium price.

Price Influences Value

Two years ago, I invested in a class on how to make an income by creating and selling online courses. And when I say invested, I mean it was a big decision – over 2 weeks’ take home pay for me. I went through the course. I followed the course. It didn’t work. I adjusted and started over again. Still, no luck.  Meanwhile, in the Facebook group, people are talking about their successes. How they created a course, tested it, and are earning money teaching people about something they love. I cringe and start over – again!

So why am I still trying instead of throwing in the towel? First, because I know for sure it can be done and I know for sure I can do it, even if it takes multiple attempts. Second, (and this is probably the real reason) because I just flat refuse to lose that kind of money. If I stop trying, it becomes a “waste of money” not an “investment,” and I am too stubborn to let that happen. Paying a high price made this course matter to me, and in the long run, it is more likely to make me successful.

Another example is a treatment we chose for my son’s ADHD when we wanted to get him off his medication. Its effectiveness was backed by multiple studies. Unfortunately, it wasn’t covered by insurance, and each session cost $100 AND it worked best when appointments were at least once a week.

Well, you’d better believe I didn’t miss any sessions, nor was I late unless something major happened.  Also, we changed our lives to make it a priority, even taking our son out of school early a couple of days a week, which doesn’t happen lightly in our family. (In case you’re wondering, yes, it did help and we’re thankful we did it.) Would I have taken it as seriously if sessions cost only $25? I hate to admit it, but I don’t think so. Consequently, it probably would have been a lot less effective and my son would have missed out on its benefits.

In both of these cases, pricing the service at a premium may have actually improved its benefits.

It won’t happen overnight

Learning to value yourself and your skills probably isn’t going to happen overnight, because this is truly a paradigm shift. If you, like me, have spent a large portion of your life looking for bargains, it’s hard to change that and start thinking that setting a low price isn’t necessarily doing your customers a favor. But I want you to start trying.

Examine your beliefs about what is “fair pricing,” and what truly constitutes value. When we are talking about services, the customer’s perception of its value, and thus its importance, sometimes has even more impact on their success than the service itself. Is it a better value for a person to spend $100 and get an outstanding service that they prioritize, or to spend $10 and get the same product, but not the benefit from it because they don’t value it?

What do you think? Do you have an example of a time when a pricing a product or service higher actually benefitted the customer more or when a low price prevented you from appreciating a product or service? You’ve read my take. What’s yours?