Friday, 4 July 2008

Pricing on Perception

I had the opportunity to shop at the Silk Market, Beijing. It's a one-stop market for tourists which offer varieties of goods from apparels, shoes, handicrafts, silk, watches, electrical products and a lot more stuff. The Chinese government sort of "guarantee" the quality of the products sold, although it does not mean all products are original. Hey, I was in China, the global producer of many things, genuine or otherwise.
What was interesting is the way the goods were offered. Most of the vendors were ladies who could speak descent English, enough to close a sale. They would always start by offering you at quite high prices, around 300 to 400 Yuan for a piece of cloth. You are supposed to bargain, sometimes at 25% of the price. And if you just move on if you could not get the price that you offered, they would grab you and close the deal. Such a practice maximises the price that they could get out of you. Since there were people from many parts of the world, everybody would have different ideas about how much, for example, a t-shirt is worth. By quoting high prices and getting the customers to counter offer, they could gauge the value that the customers attach to the t-shirt and would conclude the sale if the prices were good enough for them.
The customers, on the other hand, felt good since they were "successful" to get bargains, although the chances are they could have paid much higher prices. The comfort of Silk Market provides additional "good" feeling to the customers. Given the size of Beijing, customers tend to buy most of what they wanted at the market as it would not be convenient to go to another market, which may be 40 minutes to an hour away, under normal traffic conditions.
The whole case study demonstrate that price is not the function of the cost, but is more influenced by the perception of value attached to the goods and other physiological factors such as time, convenient and purchasing power.
By understanding the driver behind the perception of value towards a particular product, vendor could position the product in the way that stimulates the perception which attract highest value, hence price. Off course, by having lower product cost, the flexibility of pricing would provide the vendor with greater edge over competitors with higher production cost.
How do you price your goods and services?
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