Last week I ran a poll on LinkedIn, asking this question, Does Price Matter? 90% of those that responded agreed that it did. I tend to disagree and this is why.
Consider the value
If I promised you that I would give you £1000 in return for you giving me £1, I suspect that you would accept. A 1000% return on any investment is pretty good. Equally, I suspect that if I offered to give you £1000 in return for you giving me £10, then you would also agree. A 100% return is also pretty good.
So, despite your investment being 10x the size and the return not changing, you would still, I suspect, accept the offer. In this instance, the cost of the investment does not seem to matter. The return justifies the investment. Even a £100 investment for a £1000 return is pretty good and would be readily accepted by many.
However, at some point between a £100 investment and a £999 investment, the return of £1000 does not seem quite so good and we are therefore less and less likely to accept the offer. The return, or value derived from the investment, does not justify the expenditure or cost.
So, the price on its own does not matter, the value that is realised does matter. When buying a product, rather than an investment, the return or value can be difficult to quantify, particularly if the product forms part of a long process or workflow. In these cases, people tend to focus on the price and less so on the value.
Commodity goods
When comparing “identical” products or commodities, price is typically seen as the sole differentiator so it would seem in this case that price does matter. However, price is not the only characteristic of a product.
Consider white, A4 envelopes. On the face of it, two different brands are, to all intents and purposes, identical. However, consider two brands, one £1 more expensive than the other. It may seem obvious that you would buy the cheaper product but not if you had to travel 5 miles to buy them. If the more expensive brand was sold in your local store, you are more likely to buy them simply because they are easier to purchase than the cheaper brand located far away. So, even when comparing “identical” products, there are other characteristics that influence our decision of what to purchase so price matters but it is not quite so simple.
Price perception
When buying most products, we tend to have an idea of how much something should cost. A burger in a restaurant costs about £15; a ticket for the theatre in London costs about £70. When the price varies dramatically from this, we are reluctant to buy as the price doesn’t feel right. A £25 burger would be considered very expensive when our expectation is £15. However, a £16 burger would feel acceptable when our expectation is £15; a £14 burger would feel even better. The actual price does not matter as long as it closely matches our expectation.
Our perception of value is influenced by our price anchor. Anything lower than expectation suggests better value and is very acceptable. Anything higher can be off-putting, regardless of the price or increase. As a result, if a customer asks for a price, always give the highest price that they might pay. That will fix their anchor and any reduction will feel like a good deal.
Price discounts
I quite often get asked if a customer can have a discount, even before they have made the decision to buy. My typical response is that this is quite possible but it does not make much difference to the buying decision.
If a product costs £1000 and you get a 10% discount, you still have to pay £900. The difference between the two is not so great as to make much of a difference to your decision. This obviously changes a bit if the discount is 50% but such discounts are unusual and still do not really change your decision. It would be highly unlikely that you buy an expensive product that you do not really want just because it has been discounted by 50%.
Price doesn’t matter
So, I truly believe that, if we need to buy a product and we know approximately how much it will cost and that we can afford the product, the actual price does not matter. The value that we will get in return will justify the price as long as it matches our expectations.