Lacy Kirkland

Brand Strategist + Marketing Maven
Portland, Oregon

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Cost Psychology: Is Price Equivalent To Expectations?

Not only is payment a form of exchange for goods or services, it is a determining factor for human beings to gauge how much we invest ourselves and expect from the experience we’ve bought into.

Written Jul 05, 2009, read 3321 times since then.

Yes, absolutely! Not only is payment a form of exchange for goods or services, it is a determining factor for human beings to gauge how much we expect from the experience we’ve bought into.

Think about it, when you sit down to a meal at a two star restaurant, you expect two star food and two star prices, you also expect to trade your money for the food provided. The same is true when you sit down to a five star restaurant, however, not only do you expect five star food and five star prices, you also expect five star service, five star people, and a five star experience. Heck, we even dress the part of our expected experience… “Just a minute honey, I’ve got to change into something nicer for dinner,” we might shout from the top of the stairs. Restaurants even impose dress codes in certain cases to make it very clear that you’ve selected a top-notch experience.

So, as you might imagine, when I was posed with the following question by a friend of mine last week, I referenced this same restaurant philosophy:

“Why should Tony Robbins expect anyone to pay $2000 or more to hear and see him speak in his limited engagements? And to that point, why should his appearances be so limited? He creates an energy that can’t be duplicated by a fill-in. Why would he want to hold that back or charge a fee to be around it that only a handful of people can afford? I look at other professional speakers who are certainly not to the level of fame and fortune of Tony Robins, but they could charge a lot more than $200 a day if they should choose to.”

What does this question actually tell us? A lot, actually. It proves that we value motivation and inspiration so much so that these great speakers are able to charge $2000 for a one day seminar just so that we may feel alive, renewed, believed in, supported, awakened and inspired. We sure will pay a lot to feel better and feed that natural human craving and soulful tug to do more, have more, and be greater than we are in the present.

There has got to be something else, but what? … I am reminded of a great conversation with a fellow coach who shared her process with me along with her services and fees. I asked why she restructured her fees to a higher pay scale and imposed a mandatory 3 months pre-paid commitment to her coaching clients. She said that in doing so, she now attracts people who are ready for coaching and who are serious about it. She also found herself attracting more of her target demographic.

She reminded me that money is a trade in services and a trade in expectations as well. It is a form of commitment and follow through. And her findings were based on experience. She stated that starting out in her coaching business, she had lower rates and struggled with clients missing appointments, showing up late, and overall had clients who just didn’t seem as committed. She changed her fees (still honoring the lower fees for those who were committed from the get-go) and noticed that her clients came to the calls fully prepared, experienced greater success, higher follow through, and seemed generally more excited and proud of their accomplishments.

When we pay $50 for a seminar as opposed to $2000, we not only prepare ourselves more aptly for the experience, but we seemingly program ourselves to obtain exactly what we are expecting from it. It is, after all, the best way to make it all worth it. Not one of us would attend a $2000 seminar and either not know what it was about or expect to get nothing from it, nor would we do so and leave saying, “That wasn’t for me. I got nothing from it and I hated it.” It would mess with our entire social and human psychology, would it not?

Therefore, it seems that we financially rate levels of gratification, commitment, and importance based on how much we invest financially. And those who pay more, receive more, because they’ve come prepared and have arrived with a greater sense of expectation in positive results and will go to greater efforts to make that investment worth it.

So the next time you attend an event remember that you’ll get what you invest and for those of you planning on delivering a class, seminar or specialized service, decide who your target audience is, how serious they are, and what it will take for them to commit to the level required to best receive what you are offering. And to everyone, believe in the goods and services you and others provide; they exist because we need them. There is plenty for us all to enjoy our lives. Plan for success, expect great things and live bold!

To Exceeding Expectations,

Lacy

Learn more about the author, Lacy Kirkland.

Posted by Karen Kleinwort, Wilsonville, Oregon | Jul 06, 2009

Lacy, you are amazing and what you are writing about in this article is something every one of us can relate to. Thanks for such a great article. Namaste, Karen
Posted by Naomi Whitmore, Yakima, Washington | Jul 07, 2009

Fantastic article. I love the idea of "those who pay more receive more". So true! This is an inspiration for me as I think about what I pay for and how that changes what I bring to the experience, and also as I think about how to price my own organizing services.
Posted by Hoby Van Hoose, Seattle, Washington | Jul 07, 2009

So you're saying, the more we pay for something, the more we delude ourselves into believing that it was worth it? I guess that's true.
Posted by John Voris, Carmel, California | Aug 03, 2009

Lucy,

A few years a ago, I owned a delicatessen and did a great deal of catering including weddings.

I just wrote an article where I thought I was doing the public a favor by offering 30% less than my competitors at a wedding fair.

While I was the nice guy, everyone else got the business. I left that weekend with nothing.

The following year I dramatically increased my prices and signed 19 wedding engagements.

Lesson: Who wants a cheap reception.

Excellent article.

John Voris - Motivation Analyst
Posted by josh davis, Kansas City, Missouri | Aug 27, 2009

Lucy, Great article! Satisfied customers that pay more are happier. Kind of funny and ironic. For me this goes back to the principle of sacrifice, the harder you work for something the more you sacrifice the more you appreciate.

John I love your example.
Posted by Lacy Kirkland, Portland, Oregon | Sep 16, 2009

Thank you Karen, Naomi, Hoby, John and Josh!

John, your story is an excellent example. And you're a quick learner, too!

I hope you all are finding and feeling the value in your work.
Posted by Jeppe Kilberg Moller, Copenhagen, S Denmark | Mar 17, 2010

Great insight - and good to hear about the sales psychology from anothers perspective. The same actually works for iPhone apps and games, where many people avoid the cheapest applications (0.99$) and by increasing the sale price you can at times increase the price to 1.99$ and even 2.99$ and in there increase sale numbers and income.
Posted by Lori Kim Bergland, Bonney Lake, Washington | Mar 18, 2010

Great article, Lucy, I appreciate how you wove investment and expectations together!
Posted by Lacy Kirkland, Portland, Oregon | Mar 20, 2010

Thank you Lori! It's amazing how many people discount there services here, or neglect to charge the going rate there, thinking they're "wowing" the customer. In reality, if your service is as good as you say it is, people want to pay the fee. Why cause them to question it?

I watched a video the other day by internet marketing guru, Perry Marshall, who said, "Don't discount your services, improve your products." I couldn't agree more.

Lacy
Posted by Clarence Hendricks, Laguna Beach, California | Mar 22, 2010

Lucy, I thought your article was right on point. Customers want to be immersed in satisfaction and are willing to pay more for a brand experience that delivers everything they expected and hoped for.
Posted by Lacy Kirkland, Portland, Oregon | Mar 24, 2010

Thank you Clarence!

It sounds to me like you speak from experience. Think back to a product or service you received for free... Sure, you were excited and welcomed the gift, but looking back at the experience, did you really get as much as you would have had you paid?

Payment secures emotional, mental, and monetary investment. It says, "I'm in this! I demand value from it. I am here physically, mentally and emotionally. Give me what I came here to receive."

Perhaps you offer a free product or service... is is serving you to offer it free? Is it leading you to more clients, or just providing a "sweet free thing"? I ask myself this all of the time. Some coaches offer free complimentary sessions, others refuse. What to do, what to do!
Posted by Lacy Kirkland, Portland, Oregon | Mar 24, 2010

Jeppe,

Great point! I just met with a web developer friend who was doing research to see if his services were in line with what others were offering to develop websites of his caliber. He wanted to remain in the middle of his competition, not too high or too low.

We got to chatting about how people wonder "what's wrong" when something appears too cheap, meanwhile assuming it's a great product if it's expensive... not outrageously expensive, but just enough to let us dream and drool about it as we save every last penny to have it.

In some cases, it's almost too good to be true, or it's junk... and you better believe we don't buy junk, do we?! Certainly not in iPhone land :) iPhone and a variety of other services certainly prove this point, particularly when they've received the buy-in loyalty of the customer.

Remember when we couldn't believe we had to PAY $0.99 for a song? My how things have changed!
Posted by Deb Pang Davis, Beaverton, Oregon | Apr 23, 2010

Lacy ~ Fantastic article and a very helpful reminder. Pricing and fees can be such a struggle to figure out. I wonder if people approach or think about creative services in the same way? It's an interesting dynamic and food for thought!
Posted by Lacy Kirkland, Portland, Oregon | May 02, 2010

Deb - Thank you! I'm glad you gathered something from this article.

Cost Psychology in the creative field is interesting as well. I just spoke with a friend of mine who owns a web design/development firm about this as well. He mentioned the need to provide exceptional service, birth the brand of a company and yet be paid for the work done. Therefore, there must be costs built in that cover the front end work for proposal creation, consultation, etc. that you typically wouldn't get paid for in the beginning.

And then there's structuring your business itself in a way that serves the client with clear open communication, solid expectations for the scope of the project, and turnaround.

And when it comes to fees... who can get away with charging $40/hr for web development and when is $80/hr valid? If you ask me, it's all dependent upon the level of service you provide and your target market.

What's your take, Deb?
Posted by Chelsey Williams, Newberg, Oregon | Sep 16, 2010

Lacey-Thanks for a great article! I often call this the 'Nordstrom' mentality.

Recently, I had a past client who was in a financial pinch approach me for my services. I went against my better judgment and gave them a VERY reduced price for a project. Boy am I sorry. They took my agreement to another accounting professional who charges four times my rate and because of my inexpensive quote, they began to distrust that I can do what I said I could for the price I quoted. Despite the fact I have now bent over backwards to provide referrals, background checks, heck at one point they hinted at wanting to look at my college transcripts. I should have just charged twice my regular rate!!
Posted by Sharon Larson, Davenport, Iowa | Jun 01, 2012

With my TeleSeminar starting in just a few days, I'm finding your article to be quite true. Once I raised my prices, I found I gained double the TeleSeminar participants.

Now...I'm also thinking that I still don't have the seminar priced nearly as high as it should be if I use value as a price guide.

That being said, thanks for the kick in the pants to take a good look at the value of the program I offer and determine a price from there!
Posted by Lacy Kirkland, Portland, Oregon | Jul 01, 2012

Thank you for sharing, Sharon! Isn't it wild how those clients who pay the least, require the greatest amount of our time? I hope you've found success in planning the cost of your products/programs.

How did your seminar go and what did you learn from it?

Lacy