Steve Osborn: Good Brands Do This.

Steve Osborn

Managing Director, Identity Marketing

Good Brands Use Framing to Set the Price Customers Are Prepared to Pay.

Framing is like creating a box for consumers to think in. Take Nespresso for example. A classic Nespresso pod will set you back about $1.50 each. Sounds reasonable, right? Nespresso makes it seem that way by telling you how to compare their product. They frame it as a cafe experience where you’d expect to pay upwards of $7.00 for a coffee, implying it’s more than you should have to pay. Compare this with something like instant coffee. It’s $6.00 for 100 coffees. You now view it as cheaper and therefore inferior. For Nespresso, the worst thing they could do is put their product too close to instant coffee on a supermarket shelf.

A lot of companies make the mistake of comparing their product to their competitor’s product, which means they’re ultimately competing on features and price instead of creating their frame of reference. Create your own frame of reference and tell customers how to price your services.

Good Brands Tell You How to Price Their Product.

This is called the anchoring effect. It’s a cognitive bias where people rely heavily on the first piece of information they receive when making decisions – even if that piece of information is irrelevant.

Steve Jobs famously did this when he introduced the iPad. When revealing the product for the first time on stage, he said, “If you listen to the pundits, we should price it at $1,000”. A giant $999 appeared on the screen, followed by “I’m thrilled to announce that we’re offering it at $499”, and a giant $499 crushed the $999. He intentionally didn’t compare it to a laptop, which was the most obvious comparison. He compared it to a more expensive price point, making the actual retail price seem like a bargain. The first price your customers see anchors them. Always show them the most expensive option first.

Good Brands Know Dollar Symbols to Make Things Feel More Expensive.

In 2007 Stanford University Professor Brian Knutson, studied purchase behaviour based on neural activity. Subjects were put into a brain scanner and shown pictures of boxes of chocolates, some with the price, others without. With each photo they were asked to press a button if they wanted to buy it. When the big beautiful dollar symbol was on screen, an area on their brain activated: the insula. This is the same area associated with physical pain. In other words, spending money equals pain. That’s why a lot of people say they hate shopping – because they associate it with pain. So by finding ways to remove the dollar signs from, say, a proposal document, you’ll be able to reduce your vendor’s pain.

Good Brands Subtract Instead of Add.

In a study aimed at understanding how the structure of an offer can influence sales, researchers working in both America and Italy, asked consumers to build a pizza. They were given two options to do this: build from the base up, or start with a fully built pizza and take away toppings. In either instance this would add or subtract from the total cost. 

When participants added from the base up, they put about half the toppings on and paid less for the pizza. But when they subtracted toppings, they kept twice as many toppings and paid more for the pizza. This was consistent in both countries. So the lesson is adding things after a sale equals more pain, while removing things after a sale equals a reduction in pain. Always start with the fully loaded option and let the customer reduce the price.

Want another opinion piece from the world of Real Estate? Check out Josh Phegan’s piece on being a role model in the industry.