I was recently shopping for an around-town car that I could use to commute back and forth to work. A used car. One that got decent gas mileage and one I wouldn’t worry too much about if I received (or earned) a door ding or two. While shopping on Craigslist, evaluating nearly identical vehicles (same year, same maker, same mileage, etc.) I felt myself instinctively drawn toward the more expensive option. But why?
In marketing circles, this is referred to as “Premium Pricing”. According to Wikipeida, this is the practice of keeping the price of a product or service high in order to encourage favorable perceptions amongst buyers. In other words, we assume the more expensive solution is the better solution.
Lest you think this only applies to consumer goods (shoes, cars, electronics), it also applies in business. For example, we often talk with customers who use Salesforce.com to manage their sales. On top of the initial set-up and licensing fees, they typically pay about $125 per user, yet only using about 10 percent of the solution’s features. When we explain – and even demonstrate – that TrackVia can do everything they do in Salesforce at $18 or $20 a user, something strange happens. They lock up. They freeze. Despite what they’ve just seen demonstrated right in front of them and what seems like an obvious decisions, many customers find it difficult to believe. Or maybe it just doesn’t compute that the lower-priced solution could also be the better solution.
Most customers quickly overcome this instinctive feeling. Of course, it’s often quickly followed by regret. Regret they didn’t move to TrackVia sooner.