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You Get What You Pay For

Alan Smith
© Alexander Sviridov | Shutterstock.com

You get what you pay for. Right?

There is a lot of truth in the adage that you get what you pay for? The UK Government certainly found that out last week when outsourced services provider Carillion went bust as a result of unrelenting pressure on price from civil service procurement teams. They need to learn that if you don’t pay very much for something you can’t expect that the quality will be good.

And sometimes that may be fine. The quality of much of the disposable fashion that my kids are into is suspect at best. But frankly that is not an issue because they don’t expect it to last, wear once and throw away (my mother would be appalled, as should anyone with a passing environmental conscience).

But is the opposite true too. If we pay a lot for something does it mean it is also good quality? Seems that may to an extent be true.

A recent study at Stamford University suggests that there is something quite odd about our attitude to products based on how they may be priced.

They offered two groups of students an energy drink prior to engaging them on a series of problem-solving tasks. Both groups were given the same drink but some of them were given the drinks at full price whilst the others were offered the drink at a discount. In three separate studies, the group of students offered the discounted drinks solved significantly fewer problems than their full-priced colleagues.

The researchers were struck by the strength of the research results. They thought pricing might shape behavior at the margins, but it turned out to be a pretty strong effect across the board. They ran the study again and again, not sure if the results were chance or fluke, but every time they ran it we got the same outcome.  Moreover, it was clear from the studies that people had no idea that price was actually influencing their performance. The results signaled that this was largely a non-conscious effect.

I had some personal experience of this from my previous career (when I had a real job!) in marketing. We were tasked with developing branding and packaging for a new fragrance, and set about the task with great gusto. We found that the same fragrance with three different names in three different packaging derivatives had a huge impact on what the customer would be prepared to pay, but what really freaked us out was that they had a totally different view of what the smell was and who would wear it!

Perception makes a significant impact on what people will pay.

As we continue to navigate through uncertain times and challenging financial situations how we think about pricing and value, and the confidence and ability to protect our position by negotiating effectively is critical to the commercial viability of our organizations.

This week the mayor of Venice was in the news labelling as outrageous, the £1,000 bill given to four Japanese tourists for steak and chips served with water at a distinctly average city center restaurant.

He said the rip off put the good name of Venice at risk and promised to post advice to tourists in future to warn them away from such bad behavior. Suspect this restaurant will not be popular in future.

Pricing is not an exact science but, get it wrong, and you could be losing out on either side of the value fence.


Alan Smith
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