Transcription
I'm just looking here.
Yeah. This, um, friend of mine started a new business, and they've, um, they've been constantly asking about pricing. And everyone else is saying to them, "Go $29.99 for this product, product." Like it's this magic, I don't know, swipe card into something, oyster card that gets you into some special club.
Into. I know, it's like the sacred 99p, isn't it?
What is that about?
It's called charm pricing. It's basically the, it's basically the marketing equivalent of, of saying something like, "Please like me." You know, it's so desperate.
It does. It feels. That's exactly. That's exactly like one little penny and and so needy, you know, but it's because, you know, oh, £29.99 doesn't sound like £30, you know, because our brains are so gullible that they.
They fixate on the first digit like little magpies. That's so silly because.
But what you're saying is you want people to believe it's cheap.
Yeah, basically. I mean, the penny does make a difference. Obviously, not to your, not to your wallet, but your amygdala, because it's the kind of, um, it's like a sleight of hand, isn't it? You know.
And, um, I mean, it's good for places like supermarkets and stuff.
Shampoo, but I mean.
And that other shop, what's it called? What's the name of that shop? Does it even exist anymore? My business partner used to go there.
I would get phone calls. I would get messages from her going, "Will I mean, I'm in Wilco." Um, because I use, um, a deodorant called Mitchum, and it's quite expensive.
Yes, it is. Yeah. And, um.
Not what I.
They used to sell it. Even have to say.
They used to sell it in Wilco, and every time she would go in, she'd be like, "Do you want me to get you some deodorant?" I'm like, "Yes." So they were actually my deodorant supplier, like my drug dealer.
I also think it was actually Wilko's, not Wilco, which shows. [Laughter] I'm not sure. I could be wrong. I don't know. But that was so right. So people do this $29.99, but if they're trying to sell a really decent product, then like, if it's someone of your clients, would you?
Oh god, no. It would look tragic if they tried to do a 99 thing.
Yeah. It's basically, you know what it's like? It's like, you know, you know when you break up with somebody and then you go, "Oh [ __ ] that was the wrong thing. Please, desperately take me back." And you're WhatsApping them. You know, it's basically like.
I don't know what you're talking about. I would never have done anything in this.
It's like TK Maxx clearance bin, you know.
Yes.
And.
And yet you're.
Yes.
But actually, what's most attractive and more likely to bring them back is if you just stay strong and silent and.
Yeah. Exactly. Prestige pricing, you know, full-fat, unapologetic, round numbers.
Round numbers.
Yes. Because there's no messing about then. It's clear. It's direct. And we know you can afford it. We don't need to make you pretend that you're not paying £30 because we know that you can afford £30.
Yeah. Exactly. But I mean, an ego booster.
There's a bit of an arrogance, isn't it? Really, isn't there? I mean, I'm I'm all for arrogance, you know that.
Yeah. Well, yes, I do know that. There's an arrogance in these, um, round numbers, basically, because you know something like £300 doesn't explain itself. It's just, it just is. It doesn't have to. It doesn't have to justify itself. It's basically, um, it's, do you know what it is? It's the difference between a stiff upper lip and a trembling bottom lip.
Yes. Attractive, unattractive. Yes. I know who I want to talk to. Take me back or do whatever you want. Nobody cares.
I don't need you. Someone else will snap me up. That's what that is, isn't it? Oh my god. What about when people do those stupid like.
I don't know, ridiculous like those mouthfuls. Somebody's vomited numbers like 3,223 or 332. Like it's it's so silly that you need a calculator. I don't understand why. What about those numbers?
I know. It's like.
It's like somebody has decided that, you know, the spreadsheet that they've been doing their calculations on are going to make good prices, isn't it?
Yeah. They just need it to be as hard as possible to know what it costs.
Yeah. Let's make it as complicated as humanly possible. Yeah.
But, um, no, it's called precision pricing, actually. And it's, um.
It's it's basically like, you know, you know when you go and get, you know when you go and get a suit made and you think that you're a 36-inch waist. Um, but you're actually a 36.447 waist. Now, I haven't been a 36-inch waist for a very long time. I'm just using that so that I can keep my dignity. But it's, um.
I'd have gone lower, Paul.
Yeah, we have to make it believable, right?
But, um, no, it's that it's it's basically like, you know, it's like Stephen Hawking numbers, isn't it?
Yeah. Like, you know, have you seen that meme of Julia Roberts with all the numbers coming out of her face?
Yeah, exactly. You know.
You have to do all these things on the calculator to work out everything.
What is it they said? Because my sister has said this and she's like, "Yes, absolutely. Unless his bank account looks like a telephone number, I'm not interested."
I'm with her. Absolutely. But as a price, I'm not interested. The minute there's too many numbers, it's actually a bit of a turn-off.
Right?
Yeah, it can be. And it doesn't work in luxury because, I mean, it reminds people that they're being sold to, you know, and it ruins the spell of luxury. Now, it does work in in other, um, areas. So it works in things like subscriptions or.
Right.
Or SAS or things like that. But if you're selling desire, like you are in luxury, then those kind of numbers are not going to work.
No, because they seem, it seems like you've added all the bits together and then just gone, "Here. So it's £3 for this, and 24 for that, and 1,233 for this." So we're just cobbling it all together and adding that, and we, and actually it screams that we're trying to give you the lowest price possible.
It does. But actually, you know, in some circumstances, it does build trust. So, for example, if you sell secondhand cars.
I was about to ask about cars, actually.
Yeah. So, if you sell a secondhand car and instead of charging £800, or however much a secondhand car is, you charge £772.
Mhm.
50p or 68p or whatever, people will think they're getting a good deal and they're going to trust you.
This price thing is a bit, um, more complicated than I realized. So.
It's not complicated. It's just psychology.
Says the psychology doctor. Like, yeah. Okay. It's not complicated. Um.
It's just really interesting, isn't it? Because it does. I can see why if you bought a secondhand car at that price, you would think it was more reliable as a price than a round number.
Yeah. I trust you more.
Yeah. But if you bought a brand new car, you would expect, until you start putting your additional extras on for it to be your optional extras, rather for it to be a round number, right?
Yeah. Yeah. Yeah. For sure.
So, okay. So, then what about when people have like these ludicrously high numbers and then they either slash and you can have it today for this price? Where does that fit in with luxury?
It's called skimming.
Skimming.
Skimming.
Yeah. It's it's when you open with this huge unrealistic price and then basically you slowly descend, you know, like a hot air balloon losing interest. And so it works really well for things like tech gadgets or, um.
Oh.
Art or, you know, things like that.
People in cults, tech cults use it, you know, like you Apple people.
So, you know when, for example, the new, um, Apple VR came out? Yes. I know I bought one before you say anything. Look at you. Controlling. I understand that, but I gave it back. Um, so early adopters, for example, will happily pay the very high price because they're early adopters. But then as it becomes, as people get more used to it and the price goes down, then it's fine. But it, it doesn't work in luxury because the second you start to drop the price in luxury, the people who've bought it at the expensive price.
Now start to feel like, you know, they've been duped.
This is something really interesting because I think about that quite a lot in terms of my own business of like, if I set it at this price, I cannot drop it. Um, I also don't think I can put it up, but we'll come, I'll ask you about that in a moment because I'm not sure, I'm not sure what the deal is on that. But the, if I was to drop it, then, um, the people who've paid full price are going to be pissed off with me.
Yeah. And they're going to be totally annoyed because once the aura cracks, it's really hard to patch it back up because you have to remember, price isn't just about money. It's also about identity. So if I'm buying something very, very expensive.
Like, you know, like a VR headset from Apple.
Right.
Um, I'm buying into the story of it. I'm buying into this idea that it's the best, most amazing VR ever, even though I have all the other VR headsets.
So, if you discounted later, then you're not just cheapening the product, you're cheapening me, the person who bought it first, because you're.
You're messing with my identity, aren't you? So, for you, it would be the same thing. You know, you would have somebody coming to you and paying £350 an hour, and then if suddenly you decided, "Oh, well, I need to get more clients, so I'm going to slash my price to 200." The people paying 325 are going to be so pissed off.
So annoyed.
Because they're like, "Why did I have to pay 350?" Then you're also going to have the people paying 200 going, "Well, if I'm only going to pay half price, then is she just ripping us? Like, am I going to get half the service or what?"
Yeah. Yeah. Makes sense. It makes so much sense that people would be.
There would be such discourse about it. Totally. You know, it's, um.
Also, yes, if I see something that I've bought that's expensive on sale, I do. It loses it. You.
Get so annoyed, right?
I get annoyed, but I also, the thing loses value to me as well.
No, because now everybody can have it.
Yeah. If my Mulberry handbag, which was very expensive, is suddenly, you know.
You see the maid walking with it down the street, you're going, "It's not really for me." Out. Yeah. It's it's a bit awkward, isn't it? You know, turn up and you both got the same handbag. It's, um.
Yeah.
No, no, it's true. For sure.
So, you could really damage your relationship with your customers by doing that sort of thing.
Big time. Big time.
So, then that bit about putting prices up, how does that work? If you start the whole idea up on 3,000.
Like.
It's difficult, you know. There is, um, there is this whole thing of "start low and go up later" tactic.
Um, but it's a bit like proposing to somebody with a Haribo ring and then promising a Cartier ring later, isn't it? You know, it's it's true. It's called penetration pricing. And, um.
But what it does though, is it trains your clients to look for bargains and to expect bargains.
Because once you've taught them that you're cheap.
Raising your prices later, it feels like betrayal, you know.
Um, but penetration pricing can work. So, Jio in India did it really, really well. So the mobile phone market in India is huge, right?
And Jio wanted to enter the market, but it was pretty saturated. So they use penetration pricing. They basically gave everybody free data for a year in order to use their phone.
Um, so of course everybody took it.
Right.
And then after the year was up, they started to put, um, data plans in place, but they were cheaper than everybody else. So it was done in incremental stages. So.
I mean, penetration pricing can work, but A, it's very expensive to do, and B, you have to be really careful the way you do it.
I personally would never start low and go high. No, no. Because I, I've found in my own experience that when you start low and then you want to put it up, there is such a reaction.
Um.
So much resistance.
Such resistance. But I also know that people will do it. But people who come to it new are just not bothered at all. So.
Right. Because they're arriving at a different expectation. The problem though, is you now have lots of different clients at different tiers of pricing.
Yes. And then who.
You then.
Start to feel resentful of the people who.
Yeah.
Had the came in at the lower price, and now you've got these people at the higher price. So you start to inadvertently punish the lower-priced people through no fault of their own. I mean, really, I can actually, I can see why people, that happens. It's.
You resent them for taking a space that could be going to someone with.
That you could get three times more money for. Yeah. Yeah.
It's interesting, isn't it? So what about, you know, the thing when you walk into a shop? I was just thinking about.
I know what you're going to ask me.
Go on.
What's it going to be?
You're meant to know what I'm going to ask you because you're, that's your job. You're predicting my behavior, and I should hope so.
You're going to ask me about anchoring, aren't you?
Yeah. The magic trick. Yeah.
It's so clever. And so you walk into Mulberry, and they've got this ludicrously expensive handbag, and at the entrance, say, and it's not this much, but say it's 50 grand. And you're that's crazy. But by the time you get round to the corner, and it's 2,000, well, that's quite reasonable, actually.
Yeah. It's a bargain. Absolutely. Restaurants do it as well with wine lists.
So you see really expensive wine and you go, "Bloody hell." So that anchors you. But I mean, if you show somebody something, you know, £10,000 first, then you're right. Something £5,000 seems like a bargain. And by the time you get around the corner, and you see something for £2,000, it feels like you're rescuing a dog.
So.
That's so true. So, yeah, because you think you're doing a good thing. You're being moral.
Yeah. Yeah. Absolutely. You know, look at me. I didn't spend 10,000. I only spent two. And even two is really bloody expensive. So, right.
Because we don't assess price in a vacuum. That's the thing. So the first comparing.
Yeah. We are. The first price we see becomes our anchor point, and we compare all other prices to that. So, you know, even, even if £5,000 or £2,000 is ludicrous, ludicrously expensive, um, we no longer think we're insane. We think we're actually quite sensible because we think.
We think, "Well, actually, I've saved £8,000." When in fact, you actually haven't. That works against me at the supermarket when they say, "Buy one, you know, do this and you get, buy three and you get the fourth free," or whatever. And you end up instead of just buying the one thing you wanted, you end up buying three more and you've spent more money than you actually, but I saved because I got one free. No, no.
Yeah.
No, I think it's really interesting.
It's called, um, BOGO.
Yes. BOGO. Buy one, get one free.
Buy one, get one free. Yeah. Took me a long time to know what that acronym was.
Yeah, it sounds rude.
Yes. I thought it was an insult. Bog off. Okay. I just wanted to buy this. Well, you get one free. I just. You told me to bog off. I don't. Yeah. What about that? So, that whole kind of anchoring thing.
It's sort of like you're, you're buying this because that one. Yes. You're doing a good thing. It just seems a bit like you think you've got a bargain and you just haven't.
Well, you've been able to justify yourself and reassure yourself that actually it's not as expensive as you first thought it was, because you're now comparing it with the much more expensive thing.
So, is that just like you create the terrible option to make like justifications? So, you you create this this awful option, and then this one.
Decoy pricing. Oh, what's that?
So, decoy pricing. I mean, it works similar to anchoring, kind of, um, but there are generally three options with, um, with decoy. So, you know, it's like a pantomime of options. So, there's cheap, there's decent, and then of course, there's one which is absurdly overpriced, you know. So you go into a restaurant and you see a steak for £30, and then you see another steak for £50, and then you see one with truffle shavings and a certificate, basically, for £400. And suddenly the £50 steak is actually quite good value.
So, yeah. So it's decoy pricing.
That's amazing. So you end up thinking again that you've made a good choice because you haven't gone for the big one.
Well, exactly. So, I mean, if you see three things, right? So let's say, for example, you, you're going to a, I don't know, a hotel spa or something, or even, you know, you're booking into a hotel, and you see a standard room for £120, a deluxe room for £150, and a junior suite for £160. Right.
So, which one are you going to get?
Well, I'm going for 160 because it's £10.
Right.
Yes. Exactly. But it's only £10 more. But.
So, it's, you feel like, obviously the decoy is 150.
I want you to spend 160. So, you're not going to jump from 120 to 160 because it's too big a jump.
So I have to.
So I have to put a decoy in there which allows you to come. It's not manipulative.
All right. It's not manipulative, Helen. It's it's.
Standard.
And so I have to put that decoy in there in order to stop you comparing the upper price with the bottom price.
That's so clever.
Yeah. But it's really important, especially in luxury, that it doesn't smell like manipulation because if it does, then it leaves a really bad taste in people's mouths.
Okay. So, how do you not let it leave a bad taste? Is that.
Well, you don't really use it. You use value-based pricing because that's the ideal where luxury is concerned because we're not really charging based on based on cost, the cost of the product or based on competition. Um, you know, an Hermès Birkin bag, for example, it's not priced because of the the leather that's used or the labor that went into it. It's priced on the the mythology of the bag. Did you see that the original Birkin bag was actually sold for something outrageous?
I don't know. I. No, I haven't.
15 million or something like this.
I mean, sold for 26. So I'm kind of like, okay, but this was a secondhand bag that was.
Battered, battered bag.
Yeah, but it's the first Birkin.
Okay, but Jane Birkin used this bag basically until it fell apart. Like, she was not careful with this bag.
No, she abused it. I mean, this is an abused, traumatized bag. And, um, it does need therapy. And it looks, no matter how much paper you stuff into it to try and get it back into its shape, it's wrecked.
But because it's the first and it belonged to Jane Birkin.
Then that's where the value is, isn't it? And that's value-based pricing. Because in luxury, it's.
It's a metaphor, isn't it? Not a margin. Whereas then that means it's like the price isn't actually the cost. You're paying for the meaning.
Yeah. Right. So.
Exactly.
So if that you have to remember.
Go on.
No, you're right. You are paying for the meaning because remember, you're not selling the object, you know, you're selling.
You're selling the story, and the price is just one element of the story. And in fact, if you even factor in price-quality bias, the higher the price, the better the quality.
Yes. And then so.
Yes. So people think if they pay more, they're getting better quality.
Mhm.
Mhm.
Okay. This, this you say it's not complicated because what I'm what I'm hearing.
Is that all of this, all of these different pricing structures are valid in different markets.
But for luxury, there are quite clearly defined.
So you do the round number thing, you do the anchoring thing, you might do the decoy, but probably don't do it really very often, and maybe actually just focus on value pricing.
Mhm.
Okay. So.
Well, value pricing is the holy grail, right? Who uses that? Well, there's anyone, anyone you could.
All most luxury brands.
All right. Okay.
Use value pricing.
Okay.
Because, you know, let's take for example, a skincare product, La Prairie, right?
Mhm.
Um, £300 for, actually £300 is the bottom of the range. 600, 700, 1,000 for a moisturizer. So you're not paying for the product inside that jar. You can't be.
No. Status. No moisturizer is worth £1,000. But what is worth £1,000 is the entire feeling of exclusivity and being part of something and people knowing that you use it. And also how it makes you feel using it.
Right?
Yes. Because it's.
Same with things like La Mer, you know, I mean, Aldi have, um, a rip-off of, um, La Prairie.
They do, don't they? I've seen that. It's so funny. It's so blatant.
There's absolutely no shame. Aldi are hilarious though for doing that because they did it with the caterpillar cake, didn't they? And they.
There's social media that goes with it. It's fabulous. But there's a thing of being unashamedly for the lower budget and it's.
Yeah.
Yeah. And there's no, no, um, apology for that. There's no like.
Right. But they're trying to wrap it in a feeling of exclusivity.
Yeah.
So it's fake.
But it makes people feel good that they have it, right?
Yeah, it does make people feel good. But I mean, you don't go to Aldi to feel good. You go to Aldi for a bargain.
I mean, you quite like them, Central Aldi's, don't you? I thought.
I do, but that's not the point. That is not the point.
It's just so many different things like, um, Aladdin's cave in there, isn't it? Um, what about, um.
You know when, so say you go to La Prairie and you get their thousand-pound moisturizer.
And I'm sitting here really smugly going, "I would never pay that." Of course I bloody would if I had the money because I know what I'm like.
Wouldn't you?
Well, of course I would if I had it. Um, but they give you when you buy things from those kind of stands in in Selfridges or whatever, they always throw in all these extras in these little tubes that you're never going to use and you never throw them away.
So.
What is the point of that? I get it obviously in terms of like, smell it and you'll want to buy it, but I've never gone back and bought whatever I was given a sample of. What about doing things like bundles and stuff? What, what's the deal with those?
Oh, I mean, bundles are great if they're done properly, as long as you know it feels, um, curated and it's done with generosity, but doing it wrong feels like you know it's a clearance sale, doesn't it?
Yes.
You know, it feels like you're just getting rid of the leftovers, isn't it?
Yeah. Yeah. A bit like going to Boots at Christmas and they've got these.
Right. Bags and you have all of these together. But bundling when done properly for anything, it doesn't take. You can bundle services together. You can bundle consultancies together. You can bundle products together as long as it's not TK Maxx, for example, who says, "We have, you know, 600 of this stuff. We need to get away with it. Bundle it all together and put it in a plastic basket or something."
Yes. But if you do it properly, especially bundling works really well when you when you're selling to men because.
Yeah. And the reason it works well is because men will go in looking for a present or a gift.
And they won't know what to buy at all. So when they see a bundled product, a basket of moisturizer and toner and all the stuff they don't understand.
And a shower perfume. There's always a shower.
And they go, "Oh yes, I'll have that." And the reason I'll have that is because I'm able to spread the, um, the danger. One of these things is going to hit home.
Oh my god, that's.
And it also looks good.
You. No, it's not. It's very intelligent. You also have to remember that men are hunter shoppers. So they don't go in to browse in most cases.
They go in.
This is how I shop. In and out. Go.
Yes. But that's because you're particularly odd.
Um.
That's valid.
But they go in with intent and they shop with intent. So generally speaking, once they see something that fits the bill, they buy it.
Rather than having to go around and pick all of those products by themselves, which would cause cognitive overload, and they would just leave going, "No, it's too much."
Oh, their poor little brains.
Which is why they're very easy to sell to as a sales assistant. But I mean, that's that's.
That's another chart.
Something we can talk about another time. Okay.