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Expectation Pricing

 

DisciplinesMarketing > Pricing > Expectation Pricing

Description | Example | Discussion | See also

 

Description

Price your goods and services ('products') based on what customers expect rather than any other costs or analysis. Then ensure you deliver to those expectations.

It is important in this to understand what customers really expect, not what you think they should expect. This can be significantly helped by going to talk with them and, even more, to listen to them. Ask them about their experiences with your products and products from other companies. Listen to their moans. Show them alternatives and find the point at which they start to become disappointed.

You can do a lot to set expectations. Never over-promise and under-deliver. It is also not a good idea to over-deliver by a significant amount as this will just make it seem you have no idea what you are delivering or that you are being deliberately tricky. Best is to set expectations carefully and then deliver just over the expectations. Add icing to the cake, but do not deliver all icing and a little bit of cake.

When expectations are clear about what is being delivered and the price for this, customers will be happy.

Example

A hairdresser shows photos of what they can do, with graded pricing by complexity of styling.

A computer service company charges high prices but communicates that this will get rapid and effective support. They then work hard to ensure they deliver on this promise.

Discussion

Managing expectations, including around pricing, plays to the need for a sense of control, so customers feel they know what they are getting for their money and can make rational decisions based on this. It can be tempting to promise more for the money, especially when your competitors do, but if expectations are later dashed or if prospective customers doubt your promises, then this will be very bad for future business.

Customer expectation can be a complex equation and may be based on factors such as:

  • The extent (or not) of comparison products which may be used to set the basis for expectations.
  • How easy it is to compare your product with other products (from you or from competitors).
  • Whether the customer has a 'checklist' of desired features (which may or may not be related to the real value that is delivered).
  • What competitors have told the customer about their product (and maybe your product).
  • What you have told the customer about the product.
  • The customer's previous experience with similar products from you.
  • The customer's previous experience with your company in general (for example in service calls).
  • How strongly the customer desires the product.
  • How easy it is for the customer to get hold of any product in the category.

Knowing and consciously managing expectations is far better than guessing. Research can provide surprising information, including that customer expectations are lower than you expected. Asking them what they expect can be good for the relationship and can give you a strong competitive advantage, especially as you can then price directly into their satisfaction zone.

See also

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