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Pricing is one of the most difficult decisions a business owner has to make. Will you be more expensive or cheaper than your competitors? Should you have a larger profit margin and forfeit sales? There should be careful research and numerous split tests used when deciding a proper price range. Here are a few studies that may help you make a better decision:

Researchers at Stanford created a study group to study the price of wine’s relationship to its taste. Subjects were given a $5 bottle of wine to try, then given the same bottle of wine relabeled a $45. A $90 bottle was also presented with its original price tag and a $10 label. Finally, to add a distraction, the subjects were also given a taste of a $35 dollar wine.

In every case subjects claimed they tasted 5 distinct wines and they always insisted the more expensive labeled wines tasted better. Researchers, of course, came to the conclusion that a perceived price can affect a human’s perception of quality and value.

What price point do you set your product or service? Are your creating enough perceived value for your product? Do not raise your price through the roof quite yet. This study uses wine as an example. Wine is notorious for being extravagantly expensive for the “good stuff.” If your niche is to be the generic or bargain brand this advice is not for you. However, if you are trying to increase the perceived quality of your work, make sure your price reflects such a status.

Another study was conducted by Professors of Marketing to discover how pricing specifics can affect perceived value. Subjects were shown a high-end plasma television set priced at three different points, $4,997, $5,000, and $5,012. They were asked to estimate the trade value of the tv they were shown. The group who were shown the $5,000 price tag estimated a trade value much lower than the $4,997 or the $5,012.

Apparently, humans have a mental measuring stick that they apply to values they see. If a round number is presented, their mental measuring stick has larger, rounded increments. Therefore a $5,000 television may be perceived to be worth $4,800 whereas a $4,997 television may only drop to $4,975 or $4,917. It is already common thought that $.99 seems cheaper than $1.00 but this study just strengthens your incentive to keep your prices at specific values.

-Matthew