How we change what others think, feel, believe and do

Price Expectation

Disciplines > Marketing > Pricing > Price Expectation

Desire | Reference | Availability | Communication | Research | See also

When you set the price for your products and services, how do your customers decide what is a good price or not? There are many factors that may affect this.

Desire

Price expectation is, to a significant extent, related to desire. When we want something more, then we are prepared to pay more.

Their needs and wants

The basic driver of any purchase is that your product or service satisfies needs and wants that your customer has. Needs are essential factors, such as quenching thirst, while wants tend to be more social, such as looking good to others. While they may not break these down to their individual components, they will have a sense of the extent to which what you offer meets these needs and wants.

If your offering has a lot of functionality that offers no real benefit to them, then they may not only exclude this from their assessment, they may even consider it negatively, in that they will assign a part of the price to it and feel they are wasting their money. Note here that they are juggling price and value - in other words, the price you may charge and the value that they place on your product. If you charge $100 for something where they use only half of what is possible, then they could assess the value at around $50.

Promotional effects

One of the key goals of any marketing and other persuasion is to create desire, for example in the sales acronym AIDA, which suggests a sequence of creating attention, interest, desire and action in customers. Advertising also follows a similar pattern, where beyond the initial grabbing of attention, much of the advert is designed to build desire and consequently reduce price sensitivity.

Reference

When we make decisions, we often do this by using contrast, comparing it with a reference as a base point and making any adjustments from there.

The reference price

When we decide what a price should be, or whether something is expensive or cheap, our reference price may come from various sources, such as the general industry average, market leader pricing and what they have been told. The creation of this reference price is something that sales and marketing people may well work on carefully, for example by getting customers to believe they are shopping in a premium market and hence accept the price of known high-quality goods as their basic reference.

Their experience

Aside from other sources, one of the most notable references is experience. What a customer paid last time has a great deal to do with how much they expect to pay this time. Their experience will also help them classify products into cheap, normal and premium categories, where price expectations may vary significantly.

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What a person expects to pay may well be related to how they view the product and how they view themselves. If they see the product as superior then they will expect to pay more as they take higher-priced items as a reference. If they believe that they, personally, are superior to most other people, they may well seek premium products. On the other hand, if they consider themselves poor or the product as basic, then they will more likely buy on price and expect to pay bottom dollar.

Availability

When we buy, the easy or difficult availability of products may have a significant effect on what people expect to pay.

Scarcity

When a product is not easy to find, then scarcity has the effect of making it more desirable as people fear not being able to buy it. This desperation makes them more ready to pay more. This motivation is often tapped in sales, where factors such as 'the last one in stock' and 'have to order it in specially' can make customers more price-insensitive.

Your exclusivity

When you have a monopoly or otherwise offer something that they cannot easily get elsewhere, for example if you offer a full-service package that meets their needs well (including the reduced hassle of having to multi-source), then they will may have some difficulty in identifying a reference and be more dependent on you for price as well as the product.

Communication

What is said can have a huge effect on expectation. Even casual estimates, for example, can be perceived as promises as the reference point is established.

Your communication

Everything you communicate to a customer, from personal conversations to company adverts and even logos, can have an effect on how they perceive you, your products and consequently how much they might reasonably pay for your products and services. For example if a customer visited you, was made to wait in an untidy area, was not properly listened to, and experienced a problematic presentation, then all of these communications would lead them to assess you and your offering as poor. As a consequence, the price where they would be tempted to buy from you would decrease at every failure point. The reverse is true as clear communications and positive experience leads to higher price expectation and acceptance.

Competitor communication

Your customers probably listen to your competitors as well as you, and what they say (including about you and your products) will have an effect on their price expectations. For example, competitors may well create a comparative table that contrasts their offerings with those from you and other competitors in the marketplace. Of course, this will make your competitors look good and their products good value, and may well undermine your communications. You need to understand this if you are to change the mind of your customers to be more interested in your products and more ready to pay your price.

Research

As well as listening, customers will often do their own research, especially when buying more expensive and important items. Again, you should do similar research so you can respond to customer concerns and perceptions.

Third party information

Information about products and pricing may well be available from third parties and other people. Industry pundits and analysts may offer views. Magazines and consultants may help. Even colleagues from professional institutes and friends from the past might offer their views.

Their research

One of the benefits of the internet is the huge availability of data, including websites that are dedicated to price comparison. Careful customers research carefully and may even access histories and past versions of websites where they can see price changes over time. This research again will affect their product and price expectations.

See also

Customer Price Thinking, Decisions, Theories about decision-making