You Can Use Price Structure to Improve Sales

When we think about price we are tempted to think often in a fixed total dollar volume. For example if were to produce cars, we might think about the MSRP. How we frame the price and communicate that to customers changes the way they perceive the value and what they perceive as the nearest competition.

When we describe the price of a car in terms of it's total MSRP, cars seem expensive. This is because the perceived competition is a major life expensive. We compare it to things like our annual salary, or the price of our house. The MSRP can shock us in a negative way to see the car as expensive and as a poor value.

Most car manufacturers have figured this out and so they have learned to reframe the price in terms of a monthly loan or lease price. When they do this, we compare the monthly payment to our monthly income and in this way the price suddenly seems palatable. In fact, the total price you will pay with a lease or a loan is actually higher, but see it as more feasible.

When we compare the price to something like our monthly income, not only does it seem more feasible we develop a positive association because we see how a car can help us get and maintain a job. We see the car as opening life possibilities, like seeing family more often, and helping our children get to a better school.

When you price, consider how the actual price itself communicates what your perceived competition is.