Last night I went to the discount theater here in Austin, Texas.
If you know anything about Austin, you know that everything is getting more expensive seemingly everyday. Starting home prices hover around $300,000. Fancy restaurants are popping up left and right, alongside high-end hotels. Movie theaters are in on the price increases, too. The local Regal Cinema charges $11.47 for a ticket. A cheap dinner and movie now costs more than $50.
So the opportunity to catch a flick for only $3 a ticket was welcome relief. (For you movie buffs out there, we watched Sicario.)
Immediately after walking in the theater, however, you could tell something was different. The lobby was a mess. Popcorn covered the ground. The stations where you picked up straws and napkins had trash all over them. I went to the restroom before the movie, and it was a mess too. Paper towels in the sink, dirty stalls, the works. It was as if people had suddenly lost their understanding of how to act in public and just did what they wanted. If they made a mess, they didn’t care.
I continued to think about the theater lobby and the restrooms as we sat through the previews. Why would this place be so messy? It had the same exact product as the normal priced theater down the road. It’s in the same city with the same customers. Yet one theater is normally clean and this one is a mess.
Maybe it was that this theater didn’t care about cleaning up or have anyone assigned to the job? That wasn’t the case either. Going into the movie, we saw an usher with a broom and dustpan trying desperately to battle the mess.
Thinking a little more, I realized that I had seen the same situation before at low-end store like Walmart or Kmart. Sometimes these stores can look like a bomb has gone off. Aisles can be just trashed and no one seems to care. This is just not something you’d ever see at a Macy’s or a Nordstrom.
What was happening at this discount theater… and at Walmart… and a Kmart… was that customers were using price as an indicator of quality. It didn’t matter that the theater showed the same movies that were in the major theater. Or that the popcorn, soda, and nachos are the exact same. They were all priced cheap, so people treated them as cheap. Customers didn’t respect the theater. They didn’t respect what they had bought.
Believe it or not, it’s the same with your products and services that you sell. It’s so tempting to slash prices; to offer something cheap. After all, people respond to price, right? The common knowledge is to cut the price and watch sales ramp up.
But that’s not the reality. If you price your product like it has no value, then people won’t value it. Assuming you are selling a product that is in someway unique, then there is a good chance that customers will use its price as an indicator of quality.
Take what Robert Cialdini, a noted expert on influence, has to say…
Social psychologist Robert Cialdini suggests that in some cases, businesses can actually increase their sales by raising prices. The reason behind this surprising phenomenon, he revealed in a recent podcast interview, is that in “markets in which people are not completely sure of how to assess quality, they use price as a stand-in for quality.” While most customers wouldn’t pay $20 for paper towels because it’s easy to compare them to other products on the store shelves, it’s much harder to evaluate certain categories of products or services.
Art is notoriously challenging – what makes a Damien Hirst sell for millions while a similar piece by someone else might languish? Consulting or other professional services are also hard to compare, because practitioners may have different approaches or skill levels, so you’re not comparing apples to apples. Thus, says Cialdini, “especially when they’re not very confident about being able to discern quality in their own right, people who are unfamiliar with a market will be especially led by price increases to go in that direction [and purchase more expensive offerings].”
Pricing is such an important signifier, says Cialdini, that “organizations will sometimes raise their prices and as a consequence, will be seen as the quality leader in their market,” regardless of whether they’ve upgraded their offerings.
Finally, I’ll leave you with a little anecdotal evidence to back this up if you’re worried about raising prices. Several years ago, I dabbled in t-shirts. I had a design drawn up and got the shirts printed out at a local shop. I then sold them on consignment at a trendy store on Austin’s Congress Avenue.
The owner of the store asked me what price I wanted to sell the shirts for. I looked around the shop, and all I could think was that everything seemed overpriced. I pulled $22 a shirt out of thin air. I would never pay $22 for a t-shirt (after all, I’m the sort of guy who likes $3 movie theaters), and thought I had just sunk my chances of making sales.
It was the exact opposite. Even at that price, the shirts sold like hotcakes. So much so that when I submitted a second design at the store, I raised the price of the new design without any drop-off in sales.
Pricing is the most important lever you can use to increase your revenue and signal to customers that what you’re selling is high quality. Don’t be afraid to use it.
Have you tested the pricing on a product you sell? What happened? Let us know in the comments below.