How To Determine And Specify What Price To Charge – Part 1

In the first of a series where we’ll be talking about how to set your prices, we’re going to deep dive on the psychological factors that affect pricing – both for your customer… and for YOU.

Episode #131 | Episode Date: November 7, 2015

In the first of a series where we’ll be talking about how to set your prices, we’re going to deep dive on the psychological factors that affect pricing – both for your customer… and for YOU.

Many people struggle with what to charge for their products. And the easiest path is just to low-ball the price. While low prices have their place, it is too often done out of fear.

  • Fear of being salesy
  • Fear of not making sales
  • Fear of being able to deliver

So, how do we get past that?

In this installment of CBB, we’ll talk about how to get over the confidence issues with your offer and your price. We’ll also talk about the foundation for how to set your price. Lastly, we’re going to talk about how price affects what happens AFTER the sale has been made. This is a HIGHLY important topic… and may very well result in you confidently asking for higher prices. 🙂

This is the first of a multi-part series having to do with prices – an important aspect of product creation and the monetization of our businesses.

Also, if you’re finding these episodes valuable, I’d highly appreciate it if you could post a quick review over in iTunes. You can also share on social media and direct people to CoffeeBreakBlogging.com. Be sure to use hashtag #cbb so that I can see it and thank you.

So let us get in to our topic for today…

Topics We’ll Cover In This Series

What I want to talk to you about today is actually the start of a multi-part series that we are going to run for the next few installments of Coffee Break Blogging. And we are going to talk specifically, about pricing… How to price your products. This is an often a very confusing topic for people; and me, too, at many times. And there is not an entrepreneur out there who has not second guess himself of what their pricing should be. So, if that is what you feel; it is totally normal, it is totally fine. So what we are going to be talking about here over the next few episodes is just some of what goes into deciding what price to have for the various products that you are selling. So if you are worried about pricing your product too high; or are you thinking maybe it will be better to aim low and hopefully make up for it and they’ll buy them, or are you one of those people who just basically give everything away for free, then in a lot of times there are just psychological reasons behind that.

Sometimes there are legitimate marketing reasons to give things away for free; in many cases like lead magnets and blog posts and stuff, but sometimes I find that bloggers are just giving things away for free because they are actually outright afraid to ask for money. So those are some of the things that I want to begin talking about on this episode and in the next few episodes. I want to talk about things like, our fear on charging higher prices; I want to talk about why the size of your product does not necessarily have to be humongous… I want to talk a little bit about what happens after they buy based on what they pay; because that is definitely something you need to keep in mind, especially with instructional products. I want to talk a little bit about the balance of exchange and how important that is. I want to talk a little bit about why aiming low on your prices is not always a good idea but there is a specific right place where low prices make sense.

We are going to talk about how to test out a product idea that you want to charge money for and see if it has any legs. We are going to talk a little bit about those internet marketing style prices that end in seven, and whether there is really anything to it. We are going to talk about how price affects the perceived value of your product. We are going to talk about how to ask people what they pay, but without actually just straight up asking them… How much are you willing to pay; you know, it is going to be a lame question. And we are going to talk about how your pricing is affected by your competition.

Not all of that are we going to be talking about today; but let us go and get started on this topic and talk about a few of them…

The Idea Of Low Prices

The first thing I want to talk to you about is this idea of Low Prices. Now, here is the thing… When it comes to marketing and trying to get sales; it just so happens that low pricing is pretty much low hanging fruit. And so for that reason, because it is so easy and so brain dead obvious, you see a lot of people who are just aiming for that as a primary sales vehicle. So, they just try to undercut their competition on price or they are constantly relying on sales discounts and coupon codes and all that kind of stuff. The problem is, was that when everybody is competing on price, we end up in a big race to the bottom. You end up turning yourself into a commodity where there is not a lot of difference between you and the next person over because you guys are basically just competing on price. And we do not want to be in markets like that.

We do not want to be in a business where we are competing on prices. It is not a good place to be. In this world of digital marketing, though, low prices are all too often based not on the competition but on an actual fear on the part of the product creator. It could be a fear that their product might not sell, it could be a fear of being perceived as salesy, so you are just kind of like trying to play key everybody by giving it away for really low prices or free, which could be even worse in some cases. We have got that fear that nobody is going to buy it and so you try to offset that fear by aiming really low ball on your price. We got that straight up fear of failure. Nobody likes to put work into something and then feel like it just failed. Nobody likes that feeling. And there is also that confidence issue with us as product creators that sometimes we might not be able to actually fulfill on the promises that we have made. And so, in order to offset that and not have them expect too much from us, we go and low-ball the price. But all these basically boils down to one thing… CONFIDENCE. Your own personal certainty that what you are making is truly worth it for your customer.

Now, in most cases I think all those fears will go out the window if you are truly confident in what you are offering. If you knew it was an awesome product; if you knew it would help them and you have total confidence in your ability to deliver that outcome. If you knew all that you won’t be screwing around with the price because you know it will be worth it. So, one of the big things that you need to do is make a product that makes you excited. Make a product, make an offer to your customers that you are truly excited about. You are excited for your customers to get into that product. You need to be confident of your product’s ability to deliver the outcome that you have promised. Now, if you are not confident of that, you might need to go; not necessarily back to the drawing board, but in some cases maybe that is necessary… But maybe you need to go back and re-visit this product you are making or you have already made and make it better so that you truly feel as if it is a service to your customer to where they would be missing out if they do not buy it. That is the way you want to feel about it.

When you put an offer out there to your audience, you want to truly feel as if it will rock their world and that it is truly going to do them good. If you really feel, like, honestly deep down, that your product is truly going to help them, you are not going to be quite as worried about being “salesy”. That whole idea of being salesy is an irrational fear that many of us have because of confidence issues. So, the way to get that out of the way is to have a product that is so good that you feel like you would be letting them down if you do not do your best to get them into it.

The Product’s Ability To Deliver The Outcome

Now, along that line; because we have been talking about the outcome, and the product’s ability to deliver the outcome, I want to talk about that for a minute here. Because this goes right to the heart of another thing that people very often do to justify their prices and that is to make the product big, like super huge! And so, you might actually go back and re-visit it from that perspective and realize that your product might be able to go on a diet. You might be able to really hone down that product, make it smaller and actually make it more valuable while doing it because here is the thing… Nobody is going out there and shopping around for information products thinking that, “Man, I really want more information right now. I really want more modules. I want more videos.” Those thought have never occurred to anybody before. And so, you trying to make your product “more valuable” by simply adding more crap to it is not necessarily the way to go.

There is this saying… Some people still do this and it is called the “thud factor”. Especially in old direct response type of advertising where the course was shipped to you on a big pack of DVDs or CDs or something like that. And it was this idea that when they got the box in the mail and they put it on the floor or on the counter you wanted to go… “Thud.” And it was that idea that there is a lot of weight to it because it was big; like you were getting a lot for your money… Big piles of stuff. And you call that the “thud factor.” And when it comes to digital training, that “thud” factor is often done by way of just simply loading it up, like having tons and tons of videos in there. And you will have people bragging about how many hours of video footage is inside that product. It is a stupid way to try to sell a product because people do not care how many hours of stuff is in there. They just don’t. They actually want less. If you can get them to the that desire and outcome in one hour, instead of it taking 5 or 10 hours, then do it in 1 hour. It does not have to be huge. The big thing that you need to take into mind is, it has everything to do with your pricing, is that it is a matter of how effectively you deliver the outcome. If you deliver it effectively, if you remove those hassles, you remove those barriers and they get the outcome that they wanted and they got it effectively and in a short amount of time, your value of your product went up. That is how you come up with the price of your product; not based on how big it is but based on how effectively it actually gets the person from Point A to Point B. Now, how effectively it does; that has everything to do with how confident you are going to be in the offer and that is going to of course, affect your price.

Fair Exchange

Here is another foundational thing I want to discuss about the price and then we will end off for today and pick up the topic again on the next episode; and that is this idea of what your charge for your product is going to affect what happened after the sale has been made. And it has a lot to do with it. The reason why is because all of us, basically from childhood, have a sense of exchange practically built right in to us. We kind of know when we have been gypped, we kind of know when we are getting are even deal and we kind of know things are stacked one way of the other. And that natural sense of exchanges inside of all of us… Whether if people feel they are on a beneficial side of that sense of exchange is going to affect what can happen afterwards. And so for this reason, if you give away the farm for a really low price point, certain bad things can happen… You might make more sales but it might not be good sales. You might not get good customers. And it has a lot to do with that sense of fair exchange. If your customer feels like they got gypped because you overcharged and you did not deliver, then they are going to feel like you did wrong by them. And then they are going to ask for refund, they are going to go out the internet and say a lot of bad things about you; bad things are going to happen. Now, if you have a sense of even exchange where they feel they paid a certain amount of money and they got their money’s worth from it. It wasn’t like stellar but they did not feel screwed either, well both sides are going to be satisfied there.

I want to actually back up one level and that is the sense of where people underpay for something that is much more valuable than that… I already mentioned that the customer can go to the other direction where people overpay for something that you under delivered. What is going to happen is that they are going to feel like they got cheated, they will never want to deal with you again; bad things will happen. The problem on your side, because you are another part of the transaction here; you as the creator is going to feel one of the few different things. One is you could feel totally indifferent; you really don’t care about delivering the outcome to them because they paid so little money for it, you could feel a sense of guilt and that guilt can lead to resentment of your own customer.

I talked to some marketers behind the scenes; it doesn’t happen super often, but I have been doing this a long time. I have talked with all kinds of people. And I have heard some of them kind of say some not-so-nice things about their own customers like they do not really respect their own customers. And I think a big part of that might come down to the way they charge for their product. If you feel as if you are under delivering to them then what is going to happen is that you need to make that transaction okay to you by denigrating the customer because we want to feel okay with what we are doing. And if we are cheating our customer; in order for us to feel okay about that, really the only way to do that is somehow make less of our own customers so that we feel better about having basically gypped them. And so when you have marketers who are kind of saying not-so-nice things about their customers, “Oh, they are stupid!” or whatever, you know you have got a business owner who is doing some shady craft. You know that it is not just good times going on over there.

Let us go to the other side of equation where they paid a price which is too low considering what they actually received… In other words, they paid X amount of money; you gave them like so much value for that, but it all sets this exchange equation… Well, your side of it could lead to some issues. It could lead to where you begin to resent your customer but for this time, for a different reason. You almost feel like they are taking advantage of you but to a degree that you are not happy with. And you again are not going to deliver to your fullest to those people. Now on the customer side, it can actually create a sense of guilt on the other side of the equation because your customer has that natural sense of fair exchange as well. And just what I said about how you… If you were at the situation of reverse; it could end up in a position where you resent your customer; well, it can happen the other way around where your customer actually resents you too and they are saying bad things about you even though you gave them a fantastic deal. And this can happen because they feel like they took advantage of you. It has been said many times; it is definitely true, many times when you charge low, low amounts of money for stuff, you are going to have higher maintenance customers, you are going to have more complaints, more charge backs, more trouble… And it is because you are going to attract people who are more often going to go out and say bad things about you and will say you didn’t deliver and all that; even though they paid chunk change to you, it is because that sense of exchange has been offset too far in the other direction.

So what you want as your ideal is that you take the benefit and the outcome that they are going to be receiving from your product and you charge according to that. And then on top of that, what you want ideally, is that your customer is getting the slight upper hand in terms of the exchange equation. You want them to pay a fair price for it, but you want them to feel like they are getting more than that in value. But not to such a degree that they feel like… If they feel like they took advantage of you a little bit, that is okay. But if it is like a massive thing where you just gave them like a $2000 course and they just bought it for $10, it is not going to work out that well. Bad things might happen, they are going to be very high maintenance; probably not even going to partake, you are not going to get any results or any good testimonials because nobody ever even did the damn thing. They were not committed to the training because they paid so little for it.

And so, hopefully that was not too all over the board and you kind of get how what you charge for your product has a lot to do with what is going to happen after that. Your price needs to be fair for the outcome that you are giving them with your product. Your price needs to be inside of your happy zone; meaning that you need to be satisfied with the amount enough that you are going to be motivated to ensure that your customer is really taken care of. If your customer ask you questions or ask you to do something and you resent them for it and you are like, “Ahhh, stop bothering me!” that is a damn good indicator that you are not charging enough for your product. Now on the flip-side of that, your price needs to be in your prospect’s happy zone as well. They want to feel as if you over delivered and fulfilled all of your promises. But the price paid needs to be enough so that the customer is going to value it and is going to be invested in the outcome of your product.

So with all that being said, you got to take all these stuff into account when you are pricing it. It is not just a matter of what you can get away with and how many sales you can get; it is also about what happens afterwards. If you charge more for something, you are going to get probably less customers but in many cases, the customers are going to be much higher quality, it is going to be a lot less maintenance for you and a lot of good things happen. It is not only that; it is easier to deal with, it is easier business to run when you have less customers. So it is definitely a balancing act. And on that note, we are going to leave it at that and we have plenty to talk about in future episodes of Coffee Break Blogging where we are going to go on the next part of this Naming Your Price series in the next episode.

I want to again remind you here, that you can share this podcast with a friends out on social. You could do that on Facebook, Twitter, Google+ or wherever you are hanging out and just let people know what is going on. Maybe go over there and let them know to give a listen to Coffee Break Blogging if they are confused about what to charge for their products because that is what we are going to talk about for the next few episodes of Coffee Break. And when you do that, send them over to coffeebreakblogging.com and you can use the hashtag #cbb for Coffee Break Blogging so I can see it and thank you publicly. Also you can leave a review over at iTunes.

I will see you on the next episode of Coffee Break where we are going to continue talking about naming your price. 😉