How To Increase Your Prices (3 Tested Methods) – Endowment Effect Explained

You may have noticed that when you are buying something there is a little bit of a conflict of interest between you and the person selling. It feels like the person think his good or service is worth more than the value you attribute to it. There is all these negotiations going on in your head, their head, and sometimes out in the open.

https://www.youtube.com/watch?v=PMJOhZloGWw

Sometimes you will be willing to concede and think the deal is fine, but other times you are more interested in saying the deal is a lot of money and asking to negotiate. Let’s talk about this situation from the point of view from the seller so you can understand how to make more money, grow your business, and increase your prices.

This is something called the endowment effect, which is when you are selling something, it feels like a loss up to a point because you are losing an item you got and might have had for a while. You are slightly attached to this thing, not at the top of mind, but there is a psychological trigger in your brain that when you have something, you automatically attribute more value to it than someone who is buying it. The person buying it automatically attributes less value to it. What happens then, is the price seems too high and the buyer seems too unreasonable.

How do you fix this?

There are three solutions you can use to fix the endowment effect in the person is buying it so you are able to charge more money for your product or service.

Focus their attention on attributes

The first method is to put their attention to the attributes of the item you are selling that they have not noticed yet. They may have not noticed some features and benefits of the product because they are really focused on, “oh my God it is more than I am willing to pay.”

If you put their attention to thinking, “I actually want this and there are all these other benefits and features that I noticed and I could do all these other things with this item,” their attention will be less focused on the price and more focused on the features and benefits that they could not, or would not, notice in the past. This is the most well-known and highly-used method.

Compare with a familiar purchase

The second method is to compare the price to other things that they have bought in the past. For example, if a person was buying a new car you would say something like, “The car you drove here with, how much did you pay for it? Oh, it was $5,000 more than your current car? Wouldn’t it be reasonable to spend a little bit less money and you can get a better car at the end?” This is a very simple example but you are basically comparing the value of what they bought before and something they are familiar with, to what you are selling now.

You can also say, “I charge $25,000 to some clients, most other clients pay $15,000 for a similar service, and clients on a small budget pay $5,000 and get some of the value.” When you put the price in perspective, what happens is that middle price, the $15,000, does not seem as bad because there is a huge one, a medium one, and a small one. People do not want to get the cheapest one and they may think the biggest one is too expensive at $25,000, but the middle option in this comparison seems just right. An added benefit is that you are giving people a choice and when people have a choice, they tend to buy more.

Change their frame of mind

The third method is to get people to touch, hold, imagine owning the product, and imagine all the things they would be able to do with the product or service.

For example you would say, “What would happen in your life if you built this business? What would happen in your life if you had more free time? What would happen in your life if you took this holiday?

Let them imagine all the things that would happen in their life and all the god emotions they feel. What actually happens here is you are taking away their attention from the present and bringing it to their better future they are going toward. This is a very powerful sales technique and the least used. Online marketers and info marketers tend to use this way too much but most sales people actually do not

But for example, if you go to Apple and try to buy an Apple Watch, they will let you hold it and put it on without really pushing you for the sale. A lot of Apple’s sales strategy is based on people walking into an Apple shop without a lot of sales people bugging you. You can just go in and play around with the iPads, iPhones and so on, without anyone annoying you for as long as you want basically. This actually is enough for a lot of people to go ahead and buy it while conveying a lot of confidence in their products and services.

These are three methods you should test and implement into your sales strategy because many people do not use these strategies and it costs them large amounts of potential sales. If you have used one of these techniques, or plan on using one, let me know how they have worked for you.