The Virtues of Being Expensive

How much to charge is the thing about which many designers I know, myself included, have the biggest doubt. We don’t (mostly) doubt the quality or value of the work, or our ability to complete it and exceed our client’s expectations…we just don’t know how much to charge. Here’s my advice:

Charge More. Here’s Why:

1. It’s an interesting (and useful) piece of consumer psychology that people value the things they pay a lot for more than things that they pay less for. They are more likely to be certain that they made the right decision if they chose to spend as much as they could conceive of.

1.1 An interesting corollary – For many, the fear of choosing a good or service that doesn’t fit their need far outweighs the fear of spending too much money. Spending more is almost like an insurance policy against fault. After all, no one is going to blame you for hiring the best attorney in town, no matter how much she charges. Even if you lose, it’s not your fault.

2. People are less likely to waste something valuable. If they’re paying you a lot for your time, they’re less likely to waste it by making you sit through unnecessary meetings, making needless fear-based changes, and making you interpret meaningless twaddle like, “It just doesn’t pop,” or “I want it to be edgy.”

3. It weeds out the cheapskates. People who don’t think the thing you do (in my case, design) is worth what you’re charging won’t hire you…and that’s worth something. To illustrate, let’s look at a client of mine as a case study:

For the last year, I’ve been working with a company to brand a luxury shaving cream. Early on I was convinced that they were going to underprice their product, so I assembled a case for raising it. I ended up recommending that they price their product at $32/8 oz. tub (which is enough to last me for over a year). In the end, they were scared price it above the traditional English creams, which normally sell for ~$30 for a 5.3 oz tub, so they priced it at $27.50.

Now that it’s been on the market for a few months, the reviews have been rolling in, and they’ve been overwhelmingly positive. Most of the reviewers compare the product not to the $30 English creams, but leapfrog them and go straight for the $60-80 French and Italian stuff.

Sounds good, right? Mostly, yes.

Remember when I said the reviews have been overwhelmingly positive? Note that I didn’t say ‘Universally Positive.’ There have been a (very) few people who have reviewed the product negatively. They’ve criticized it, principally, on price. Their reviews routinely go something like, “I don’t know how they can charge $27.50 for this when I can name a half dozen shaving creams that are better, for half the price.” They then rattle off a list of much cheaper products that aren’t really fair comparisons, and clarify their primary concern even further: Price.

The error my Shaving Cream People made here, in my opinion, is pricing their product low enough that a cheapskate can rationalize it as a good value. (Which, it is. I’ve been using my tub for 4 months, during which time I would have normally used 4 $8 tubes of Neutrogena junk, and mine is still about ~70% full.) If they had priced it at $32 as I recommended, or at $40, as my analysis revealed would have been a reasonable $5/oz. for a Luxury Shaving Cream of this caliber, the chance that the people (or person) who have negatively reviewed it would have bought it all would be much, much lower.

Of course, it’s not a mistake that is unique to my Shaving Cream people. It’s a mistake I see all the time, and have been guilty of myself. People assume that pricing is all about competition, and they a low price is an edge, but pricing is a blade that cuts both ways. Lowering prices attracts consumers that don’t understand the value of your good or service. PC manufacturers have successfully run their industry into the ground by consistently lowering prices, which forced them to lower quality, which lowered consumer expectations, which lowered the value of their brands, lowered the perceived value of their products, and lowered the amount of money people were willing to pay for them, which necessitated further lowering of prices, ad infinitum, until no one can make money off the damn things anymore. If big companies with armies of MBAs, like HP, Dell and IBM can make the same mistake, it’s hard to ‘blame’ a small business for underpricing.

Pricing, however, is about much more than figuring out what people are willing to pay. It’s also about Positioning, which is to say it’s about figuring out how much which people are willing to pay. It’s as much about understanding who you want to buy your product as it is understanding who you don’t want to buy it.

I’ve told people frequently that every time I take on a cheap project, for whatever reason, they require the most effort, make the most revisions, and are the least interested in participating in the process than any other clients. The reason is simple, and it’s the same reason, regardless of the good or service: Perception of Value.

Some consumers, no matter how much you try to ‘educate’ them, will never understand the value of your good or service, because they don’t value whatever additional value you offer over your competitors, and they never ever will. So price high enough that they won’t consider hiring you (or buying your product) in the first place.

Let them scoff…and then leave you the hell alone.