Exclusive excerpt from Melina Palmer’s third book, The Truth About Pricing: How To Apply Behavioral Economics So Customers Buy. Used with permission.
Pricing and Customer Experience
To many, pricing strategy is like a “necessary evil” of business: something you know is important, but you absolutely loathe the idea of working on. The problem is, properly set prices that allow you and your team to sell confidently are critical to your company’s success. When you get it right, you can sell more of the right things, easier, and have customers that often happily pay more (in a way that is, ideally, also more profitable for your business). Get it wrong, and it can be a race to the bottom that no one wants to win.
So, what do you do? Where do you start? How do you find your “perfect” price?
Well, I’ve got good news and bad news for you – perfect pricing doesn’t exist. And, whether or not someone buys something often isn’t about the price at all. Instead, everything that comes before the price matters much more than the price itself.
Pricing isn’t about the number on the tag.
It’s about the value, the perception, and the entire experience surrounding the product or service.
(Related: Price vs. Value: Brands Should Add Benefits When They Charge More)
Take, for instance, a designer handbag and a generic one. While their functionality may be the same, consumers pay vastly different prices for them. This is because the designer brand has been able to create a perception of luxury and exclusivity, adding a value that goes beyond the physical product.
People pay all sorts of prices for all sorts of things. Even two very similar products can command vastly different prices depending on factors like brand reputation, marketing, and consumer perception. Your job is to understand the foundational and psychological aspects so well that your brand (and everything it stands for) is cohesive and aligned when you start to apply the concepts from behavioral economics to your buying experience. This creates a smoother experience for your customer that makes it easier for them to purchase from you when they get to the pricing and buying phase.
Here’s the catch: This only works if you believe it will. And that is why we are starting here before we move on to anything else. If you or anyone on your team has limiting beliefs about how much you can charge or how you “have to” approach pricing, it can keep you stuck in a nonoptimal strategy. So, to help convince the skeptics that you can charge any price for pretty much anything, here is one of my very favorite examples (from a very unexpected place):
Grilled Cheese, Please
When it comes to sandwiches, a grilled cheese is about as basic as you can get. Even people who can’t cook can likely whip one of these up pretty quickly at home, right? What do you think the ingredients are worth if you were going to make one of these bad boys? A dollar? And if you were going to buy one at a restaurant, what is the most you would pay for one? Five Guys has one listed on their menu right now for $4.39, so that can give some context.
Now, I want you to imagine the fanciest grilled cheese ever. Or maybe think of what it would be like if you were craving one. How much would you be willing to pay for it? What is the most outrageous price you or anyone else would pay for a grilled cheese sandwich? And, yes, you can even get fancy and assume it has a cup of tomato soup to go with it.
Now that you have your number in mind, let me introduce you to Serendipity3, a New York City restaurant with a penchant for the extravagant. In addition to the regular items on their menu, they also have a few very special items, including The Quintessential Grilled Cheese Sandwich, which costs $214.
Yes, you read that right. Two hundred and fourteen dollars. It holds a Guinness World Record as the most expensive sandwich. Serendipity3 has a few other record-holding staples on their menu, including:
- World’s Most Expensive Fries: $200
- Le Burger Extravagant: $295
- Golden Opulence Sundae: $1,000
Sure, these are primarily for PR purposes, but that doesn’t mean people don’t buy them (nor that their mere existence doesn’t support the overall brand). In 2017, when an article came out about the grilled cheese, they had already sold dozens of them. The fries were added in 2021 as a way to announce they were back open after the COVID-19 pandemic closures…and the waitlist for them at that time was eight to ten weeks. For two-hundred-dollar french fries.
Paying More For An Experience
This grilled cheese sandwich is a perfect example of anchoring and relativity (two concepts from the “It’s Not About the Cookie” framework I discuss in depth in Part III of The Truth About Pricing), because the extravagant prices of Serendipity3’s record-holders help everything else they sell feel more reasonable in comparison. This makes it so that even if their regularly priced menu items are higher than the competition, it doesn’t matter. The price feels better because of these high anchors. Also, consider how many people choose to eat at the restaurant and post photos of the experience on social media (social proof)—even if they don’t choose one of the record-holding items. The whole experience is built up by the expectation of decadence, opulence, and delight. This expectation of indulgent extravagance can lead to customers gladly paying more for the experience—and feeling happier afterward than they would have been paying less somewhere else. For example, customers at high-end restaurants often willingly pay premium prices not just for the food, but for the luxurious dining experience.
But we’re not done with grilled cheese just yet! Even though Serendipity3 won a Guinness World Record for the most expensive sandwich, this isn’t actually the most someone has paid for one. Do you remember the Virgin Mary Grilled Cheese?
Let me refresh your memory: A woman in Florida claimed to have been eating a grilled cheese sandwich, and that when she looked down, she recognized the face of the Virgin Mary in the bread. She promptly stopped eating, placed it in a clear box with cotton balls inside, and put it on the nightstand next to her bed for ten years. After a decade of sitting in its box (apparently, not getting a speck of mold), she posted it on eBay with a starting bid of $3,000. After thirty-eight total bids, her ten-year-old half of a sandwich (minus one bite) sold for $28,000.
Of course, most people wouldn’t pay that much for a new sandwich—let alone one that was gathering dust for a decade. But there was a market for it. Thirty-eight bids got it up to that astronomical number. While this final grilled cheese is a bit of a silly example, I hope it will drive home the point that there aren’t limits on your pricing. Right now, all I want you to do is start breaking through any constraining beliefs on the upper limit (knowing, of course, that it isn’t just about charging more).
How might your business change for the better if you were able to confidently sell more of the right things at the right price, easier, to more of your best customers?
Melina Palmer is founder and CEO of The Brainy Business and the host of a podcast by the same name. You can purchase her newest book, The Truth About Pricing, on Amazon. Money image by Julita from Pixabay.
