What part does price play?

I have often discussed with clients the need to understanding where price is placed with respect to importance when people buy something. I thought it would be good to put this into an article to better communicate this to you in order to help you learn what you need to know in order to grow your business.

I don't know how many times that clients have said that price is the primary reason why people buy their product. This is simply not true! Yes, your customers may choose to buy your product because it is being sold at the right price, but there are a number of other factors that come into play before they even notice the price.

Just recently I spoke to a lady who was getting a free service and was unsatisfied. How could this be? She was paying nothing, then why should she expect anything more than nothing? Because the service she was getting was vital to the success (or failure) of her business.

She decided to go and pay money in order to get what she needed. Which brings us to the first reason people buy something:

Need: If the product or service does not fulfill the client's needs, then they simply will not by it - e.g. would a delivery company buy a Ferrari to deliver goods with if it was cheap enough? No! Because a Ferrari has no capacity to transport bulky items. They need a delivery van - not very glamorous, but it fulfills their needs.

Here is a list that was made up by a number of sales and marketing professionals over a period of time. Some of them may have little relevance to your product or service, but the basic ideas are good and worth noting (see here for full article: http://www.grokdotcom.com/2007/06/25/what-makes-people-buy/) 
 

1. Basic Needs - We buy things to fulfill what Maslow describes as the bottom of his hierarchy; things like food and shelter.
2. Convenience - You need something now and will take the easiest or fastest path to get it. Think about the last time you were running out of gas, or were thirsty and found the nearest beverage of choice. This could also be choosing the safe vendor (no one ever gets fired for hiring IBM), purchasing something to increase comfort or efficiency.
3. Replacement - Sometimes you buy because you need to replace old things you have (e.g., clothes that don't fit or are out-of-date). This could be moving from a VCR to a DVD player.
4. Scarcity - This could be around collectibles or a perceived need that something may run out or have limited availability in the future. Additionally, there's a hope to gain a return on investment, such as collectible or antiques; anything that accrues value over time.
5. Prestige or Aspirational purchase - Something is purchased for an esteem-related reason or for personal enrichment.
6. Emotional Vacuum - Sometimes you just buy to try to replace things you cannot have and never will.
7. Lower prices - Something you identified earlier as a want is now a lower price than before. Maybe you were browsing for a particular large screen TV and you saw a great summer special.
8. Great Value - When the perceived value substantially exceeds the price of a product or service. This is something you don't particularly need, you just feel it's too good a deal to pass up. (Like the stuff they place near the end caps or checkout counters of stores.)
9. Name Recognition - When purchasing a category you're unfamiliar with, branding plays a big role. Maybe you had to buy diapers for a family member and you reach for Pampers because of you're familiarity with the brand, even though you don't have children yourself.
10. Fad or Innovation - Everybody wants the latest and greatest. (iPhone mania.) This could also be when someone mimics their favorite celebrity.
11. Compulsory Purchase - Some external force, like school books, uniforms, or something your boss asked you to do, makes it mandatory. This often happens in emergencies, such as when you need a plumber.
12. Ego Stroking - Sometimes you make a purchase to impress/attract the opposite sex; to have something bigger/better than others, friends, etc. To look like an expert/aficionado; to meet a standard of social status, often exceeding what's realistically affordable to make it at least seem like you operate at a higher level.
13. Niche Identity - Something that helps bond you to a cultural, religious or community affiliation. Maybe you're a Harvard alumni and Yankee fan who keeps kosher. (You can also find anti-niche identity by rebellion, assuming you're pretty comfortable with irony.)
14. Peer Pressure - Something is purchased because your friends want you to. You may need to think back to your teen years to think of an example.
15. The "Girl Scout Cookie Effect" - People feel better about themselves by feeling as though they're giving to others, almost especially when they're promised something in return. Purchasing things they don’t need–or wouldn't normally purchase–because it will help another person or make the world a better place incrementally is essential certain buying decision.
16. Reciprocity or Guilt - This happens when somebody–usually an acquaintance, or someone rarely gift-worthy–buys you a gift or does something exceptionally nice and/or unnecessary. Now it's your turn to return the favor at the next opportunity. Examples:
17. Event - When the social decorum of an event (e.g., wedding, bar mitzvah, etc.) dictates buying something or another.
18. Holiday - 'Nuff said.
19. Empathy - Sometimes people buy from other people because they listened and cared about them even if they had the lesser value alternative.
20. Addiction - This is outside the range of the normal human operating system, but it certainly exists and accounts for more sales than any of us can fathom.
21. Fear - From pink Taser™ stun guns to over-sized SUV's to backyard bomb shelters–and even stuff so basic as a tire pressure gauge–are bought out of fear. So, before you go knocking "fear" as a motivator, ask yourself: Are you Y2K compliant?
22. Indulgence - Who doesn't deserve a bit of luxury now and then? So long as you can afford it, sometimes there's no better justification for that hour-long massage, that pint of Cherry Garcia ice cream, or that $75 bottle of 18-year single malt scotch other than "you're worth it" (best when said to self in front of mirror with a wink and/or head tilt).

You will notice that price does not come into the equation until other basic needs have been covered. While it can influence someone to 'take a second look', ultimately the final decision will be based more on other important factors that determine whether the product has any value to them, right now, according to their current needs.

I wanted to simply cover these points with out 'laboring the point' to give you something to think about. You can learn more about how and why people make buying decisions by reading more in-depth information - e.g. http://en.wikipedia.org/wiki/Buyer_decision_processes, which covers the psychological reasons behind how and why people do anything. I have my own theories based around beliefs, but more on that later.

Remember, be careful to place price in its rightful place. Do not get so focused on the price of your products and services that you loose your primary focus, which is to provide the best quality of product and service to meet your clients needs - all at a price you can afford to sell them for.