My husband made an interesting point the other day. It’s one that has a huge impact on how you market your products or services, and what people are willing to pay.

He said, “Do you realize people are whining about the high cost of gas, yet happily paying more than $5.00 a gallon for bottled water?”

Last I checked, gas prices here in Seattle are averaging $4.33 a gallon. While on average, people are paying more than $6.00 a gallon for something they already have—water, at a cost of pennies for a gallon—in a bottle they’re going to throw away (or hopefully recycle).

Why are people willing to pay so much for bottled water? Because there is “perceived” value in it, even though there might not be “real” value. Let’s look at both sides of that coin, shall we…

• Bottled water is convenient, so you drink more which is good for your health. But is it really more convenient than buying a bottle you can refill at any tap?
• It’s “natural spring water”, so it’s better for you. Maybe. Maybe not.Back in 1999, the National Resources Defense Council (NRDC) published the results of a four-year study—that were fairly well publicized—where researchers tested more than 1,000 samples of 103 brands of bottled water and found that, “An estimated 25 percent or more of bottled water is really just tap water in a bottle—sometimes further treated, sometimes not.”

  Yet, according to a study noted on the Amber Waves Website in June 2007 http://www.ers.usda.gov/AmberWaves/June07/Findings/SoftDrink.htm
  “From 1997 to 2005, per capita consumption of bottled water increased by 90 percent”! Perception wins again!!

• Bottled water a way to donate to a worthy cause (Athena water donates all profits to breast cancer research, for example). Sure, but you could just donate outright. Then your cause gets more money and you get a tax write-off. Plus, you have to factor the environmental costs into the equation as well, then see if you still feel good about it.
• Everyone else is buying bottled water, so there must be something to it. Hmmmm…To quote my mother, “If your friends all jumped off a cliff, would you think that was a good idea and do it too?”

The bottom line is that marketing is all about perception. Something is exactly what people think it is—regardless of whether they are right or wrong. This is where value-based pricing (versus cost-based pricing) comes in.

Think about it…Water costs pennies per gallon (at most), and the bottles are probably only a few cents as well. Yet people happily pay a couple bucks for a small bottle to get all these perceived benefits.

Now, hopefully, you have some real value and benefits to offer your customers. In which case you can absolutely set prices based on value instead of cost (though cost should be a factor you take into consideration too). As long as you can get your clients and prospects to see the value in what you do, and that value is something they want, they’ll pay higher prices to get it.

The key is to understand a bit about the psychology of the average consumer. One way to do that is to ponder this question…

Why are people so willing to pay through the nose for bottled water (something they already get practically for free anyway), but are up in arms about the rising cost of gas (something that clearly costs a lot to extract, refine and transport—and has very obvious and real benefits or value)?

I’ve got my own theories, but I’d love to know yours. Please do leave a comment with your answer below.

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