Any business selling products knows how important the profit margins are to its success.
What if I told you that you could increase those profits without altering the products?
Well, I’ve got good news. This is easily attainable if you can enhance the perceived value of your items.
Then, you can charge more money for the same products you’re already selling and get sky high profits.
But there’s a science behind this method.
If you’ve been selling the same item at a $5 price point for the last ten years, you can’t just start selling it tomorrow for $500 and expect people to buy it.
It’s all about creating a brand image that’s perceived as high class, luxury, or exclusive.
For those of you who have been promoting a bargain brand for a long time, this strategy is not as easy to implement as it is for other businesses.
But for new businesses or existing companies selling products at a price point that’s not too low, there are subtle changes you can make to increase your perceived value.
Granted, this won’t happen overnight.
Consumers may already have a certain perception of your brand and products.
It’s your job to change that perception so you can charge more and benefit from higher profits.
I’ll explain how it’s done.
Narrow your target market
Charging more for your products means not everyone can afford what you’re selling.
Take a look at the cars for sale on the Range Rover website:
They’ve got base models starting at over $80,000.
That’s more than double the average transaction price of a car in the United States, which is roughly $35,000.
Higher prices mean you’re alienating the majority of consumers from your brand.
You need to analyze the current trends and focus your marketing campaigns on a specific audience.
Sure, deep pockets may be a good place to start, but you’ll have to dig a little deeper than that to zoom in on a target market.
Segment potential consumers by factors such as:
- marital status
Next, create a customer journey map to put yourself in the shoes of your customers.
That will help you identify whether your perceived value is high enough to charge premium prices.
Quality is important too.
For example, when you eat at a global fast food chain, you have modest expectations of quality you will get there—with a matching price.
But when you order a steak and lobster dinner at a fancy steakhouse inside a 5-star resort, you’re expecting the quality to be much better.
Each place I described above has its own target market.
Promoting your brand to a narrow niche creates a feeling of exclusivity within the target demographic.
They like the idea not everyone has the means to buy what you’re selling.
Produce a limited quantity of each item
Now that your target audience has changed, you don’t need to produce as many products.
Just focus on selling whatever you manufacture.
If you’re making a high-demand item, you can produce even fewer quantities to make them rare.
The luxury brand made only 209 of the LaFerrari Aperta models.
Ferrari wanted to keep nine of the vehicles for themselves, so they put the other 200 up for sale.
They sold out right away.
No, that’s not a mistake in the CNBC headline.
The price for each vehicle is $2.2 million.
That’s $440 million in sales.
Now, I don’t know the exact cost of manufacturing of these vehicles, but I can guarantee those profit margins are astronomical.
Let’s reflect on our last point for a minute here.
Ferrari doesn’t care about the millions of drivers across the globe.
They just need 200 people to buy this product.
Owning one of these vehicles makes people feel as though they are part of an elite group.
This strategy drastically differs from that of other companies such as Honda Motor.
To compare, the Japanese car manufacturer sold over 360,000 Honda Civics in the United States alone in 2016.
Their brand targets a mass audience, so they have to produce enough products for everyone.
Limit the buyer’s choices
In addition to producing fewer items of each product, you should also limit your product lines.
Giving people too many choices ends up hurting your conversions.
Louis Vuitton recognizes this and limits their product lines accordingly:
If you’re shopping for a Nano bag on their website, you’ll have only four products to choose from.
Having hundreds of options available would confuse the customer.
It’s too difficult for them to decide what they want, so they may not end up buying anything.
If they do end up selecting an item from a large field, they will be more likely to have buyer’s remorse.
They’ll keep reflecting on decisions they could have made instead.
That’s not the feeling you want your customers to have after buying something from your company, especially if they are paying lots of money for it.
Those negative feelings will give them a bad association with your brand and could prevent them from buying something else from you in the future.
Here’s a study to illustrate my point about too many choices, the jam study:
As you can see from the research conducted by this grocery store, customers were much more likely to buy the product when they were offered fewer options.
The data also suggests that not as many people were attracted to the jam when fewer choices were available.
We already established we’re marketing to a narrower target market.
As long as your conversion rates are high and you’re selling everything you’re producing, you won’t have anything to worry about.
Enhance your packaging
Think of your packaging as an extension of your product.
If you’re selling something like a ring, necklace, watch, or another piece of jewelry, you should consider packaging your products in a carrying case.
Have you ever bought a pair of cheap sunglasses from a kiosk at the mall or a vendor on the street?
They usually package them in some kind of soft cloth that won’t protect them from damage if you drop them.
But sunglasses that come with a durable carrying case can enhance the perceived value, and the price can reflect it.
It makes the customer feel that what they’re buying is worth protecting.
But don’t stop with the functional parts of the packaging.
Everything else needs to be enhanced too.
For example, if you go to big box stores, you’ll get all your items tossed in a standard plastic bag when you check out.
But if you shop at a luxury retailer, your purchase will be placed in a customized bag that’s durable and sleek, possibly with a cloth handle.
Your purchase may even be wrapped in tissue paper or have something else to make it look nicer.
These shoeboxes are much more than just a way to get your sneakers from the store to your house.
The packaging makes it a collector’s item.
That’s why Jordan is able to sell out basketball sneakers priced at over $200.
Stand by your products
If you’re selling at a high price, you have to go the extra mile when it comes to your customer service.
Offer the customer things like:
- free shipping
- extended warranty
It will put the customer’s mind at ease and make them more willing to spend the extra money.
If you have physical retail locations, make sure your staff are trained properly to relay these messages to the customer.
For those of you with an ecommerce store, clearly and proudly display your guarantees on your website.
Look at this example from Red Wing Shoes:
Red Wing lets customers return their purchases within 30 days of the sale, even after they’ve worn the shoes.
That’s a huge incentive for customers, especially since this company is known for selling work boots.
You can buy a pair of boots and wear them in the snow, dirt, and rain every day for a month.
If you’re not happy, bring them back for a refund.
Guarantees like this enhance the perceived value because them make the customer assume they’ll be satisfied.
Nobody would offer a return policy like this if every pair of sold shoes were brought back in.
Red Wing is able to charge more money for their products because of this.
You can easily apply the same strategy in your business.
Produce high-quality products, and back them up with an outstanding return policy or warranty.
Use social proof
Social proof drives sales, especially if your brand partners with a celebrity.
In 2013, Adidas teamed up with hip-hop icon Kanye West.
They let Kanye design his own shoes:
When celebrities endorse a product, it enhances the perceived value.
After consumers see a celebrity wearing something, they want to buy it too.
But Adidas also used one of the strategies we talked about earlier and produced only limited quantities of these shoes.
If you look at their website, you’ll see all of the sneakers are sold out:
These sneakers are such commodities that they are sold on the secondary market for thousands of dollars.
Obviously, those aftermarket sales don’t generate more profits for Adidas.
However, they definitely enhance the perceived value.
That’s because Adidas focused on a narrow audience, produced a limited quantity, and used celebrity social proof as a branding strategy.
So they can charge more money for these sneakers compared to other items sold on their website.
Raise the prices, and don’t offer discounts
Sometimes just raising your prices can be enough to enhance the perceived value.
Let’s say you’re sick and go to the pharmacy to get some medicine.
As you look through your options, you see a generic, store brand medicine for $3.
Right next to it, you see a name brand medicine for $11.
You might say to yourself, “I recognize the name of this brand, and the product is more expensive. So it must be better, right?”
Maybe not everyone will feel this way, but if you’re sick, you might not want to take the chance of buying medicine that might not make you feel better.
Here’s a visual representation of different pricing segments for wine:
As you can see, the more expensive the wine gets, the higher the perceived value becomes.
If you’re comparing two bottles of wine based on the price alone, it’s natural for you to think the more expensive bottle is better.
Furthermore, if you’re trying to establish your brand as high class or luxurious, you shouldn’t offer discounts.
Items on sale lower the perceived value.
It can also deter customers from buying your products at full price. They may wait until you send them some kind of promotion.
While coupons and sales incentives are normally a great way to market your products and drive sales, it’s not the best way to enhance your perceived value.
Remember, you’re marketing to a narrow target market.
These people don’t necessarily need items to go on sale to be able to afford what you’re selling, so just stick to your current prices.
Let’s look at the Gucci website:
Notice anything strange here?
You don’t see any words like:
Those terms aren’t part of their branding strategy.
Instead, you see a limited quantity of luxury items that are perceived to have a high value.
That’s why they are able to put high price tags on these products.
You can charge more for your products if you change the consumer perception of your brand.
This strategy may require some rebranding if your company has been in business for a while.
Don’t expect to see results right away.
Slowly implement the strategies I described here to your products and start to raise the base prices.
You need to focus your marketing efforts on a narrow target audience.
Less is more.
Produce limited quantities of each item, and limit the buyer’s options within each product line.
Enhance your packaging, and make sure your brand stands by everything you sell.
Celebrity social proof can also make your products appear more valuable.
Sometimes having high prices alone are enough to enhance the perceived value.
Don’t offer any coupons, discounts, or sales promotions if you’re pursuing this strategy.