The magic rule of 3 – how to use pricing to your advantage
Don’t get stuck slashing prices. Use the Rule of 3 to re-frame the competition.
If you’ve ever lost out on a job due to price, you’re going to love this article. Let’s face it, price wars are a pain in the neck for everyone, except the buyer. And if you don’t have deep pockets and can’t sustain the price cutting, you’ll be the only one who loses out.
So, wouldn’t it be great if you could keep your price higher than the competition while actually increasing sales?
But by using the magic Rule of 3 beloved by all marketers, you can turn your competitor’s lower price into a competitive disadvantage.
It’s no secret that if two products are virtually identical, people will buy the one that costs less. However, research has consistently proven that if buyers are exposed to a third product that costs more than either of the original two, people will usually pick the mid-priced product, rather than the cheapest one. By ‘anchoring’ the mid-range price point as the standard price, everything more expensive than that will seem ‘too expensive’, and conversely, everything cheaper than that is, well, cheaper. Less than. Not quite right. For the cheapskates. You get the drift.
Create A Third Price Point
Here’s a practical example of how you could do that.
Let’s suppose you’re selling a service for $2,000 that’s similar to a service that your competitor is selling for $1500. You could offer your service for $1000, but that’s just playing the price war game and the only one losing is you.
Instead, offer three versions of your service: one for $1000, one for $1,500 and one for $2,000. The three services don’t have to be wildly different as long as you label them appropriately – most companies use Silver, Gold, and Platinum packages or give them names like Deluxe, Premium and Standard.
This way, you have a product for all price point and when a customer says they ‘can’t afford $2,000’ you can easily direct them to the lower priced products and still retain their custom. Most people will always pick the mid-priced point so make sure that this is the package that is of most value to your audience and best represents you. If they like that product, chances are they’ll upgrade to the higher package when they need more of what you have to offer.
Customers are hard to find so it pays to offer them a range of price points that enable them to find something that suits their budget.
Know Your Customer
You can also provide a much cheaper price point – even a free product – that you can use as a lead generator to introduce them to you, your product and your company. This is known as the Ascension Model. You’ll see lots of companies offering free seminars who then upsell you whilst you’re at the seminar to a 1-day course for $997 and then upsell you at that next seminar for a 3 day course for $2997 and so on. It’s a successful way of marketing a high end product and it can be used for all sorts of products and services.
Most people want the best product and don’t mind paying for it. By taking price off the table as a factor and showing customers the range of services you have, at different price points, you’re more likely to gain a customer at a price point that suits them, and you.