Almost every store, website or product seems to be running a discount of one type or another. Sure there’s solid evidence to show that pricing is important, but price isn’t everything. Nobody buys a Ferrari because it’s on sale, they usually buy it for the shiny badge and it’s ability to turn heads. That’s it’s added value compared to any other car on the market.

Not many people buy Ferrari’s though, so let’s look at something a little more real, I pay for Netflix because of it’s content and the convenience of being able to stream from almost anywhere. That’s why I didn’t flinch when Netflix prices increased by a couple of dollars. Yes Netflix lost 138 thousand subscribers when the prices went up, but given their 151 million subscribers that’s a 0.0009% impact – oh and they still grew the total number of subscribers by 2.5 million that quarter. So really it made no difference. There are always customers that are price sensitive, those are the ones who left. Majority of the customers however felt that Netflix provided more value to them than the $1 – $2 dollar increase, and decided to pay the higher fee.

Creating real value

That perceived value, which makes customers say ‘it’s worth $1-2 more’ is what’s critical to your product. When comparing like-for-like solutions, the perceived value is the deciding factor – even if the price difference is substantial.

graph showing subscriber growth

Source: Netflix shareholder letter (July 17, 2019)

Take for example QB-House & K-Cuts, they have dozens of hair salons across Singapore, almost every mall or major street corner in Singapore has one of their $10 hair cut places. So why pay $35 for a haircut in a hard-to-find, out of the way barber shop in Geylang like Panic Room? It’s far more effort to get there and you have to book in advance. The ambiance and environment is certainly far more exciting, but really the overall experience (including the styling) is worth paying more than three times as much.

So when you’re building your next product or trying to figure out how to price your solution, don’t try to undercut your competition. Don’t devalue your product. Instead understand your customer better, understand what will make their experience so much better, that they’ll be ready to pay a premium for your product. Focus on adding value to your customer.