Quick Insight
You need to make your effort and expertise visible to be valued by your customers. Showing more effort justifies higher prices in customers’ minds.
People judge the fairness of a price based on the perceived effort of the service provider, not its value to the buyer. A truly rational person would only compare the price paid to the value received.
One example is the story of a locksmith, as told in Dan Ariely. When the locksmith was just starting, they sometimes struggled to unlock a door. Over the years, they learned how to quickly open similar doors.
Now, here’s the interesting part. When they struggled, and the customer was aware of the struggle and time, the customer had no problem paying the fee. When the locksmith quickly opened the door, saving the customer time and providing better service, the customer would see the same cost as unfair. The customer justified the cost by the effort of the locksmith, not the value of the unlocked door.
In a study, different people were given different quotes on recovering data. People were more willing to pay higher prices for longer recovery times. Once again, they correlated longer time to more effort to a higher price. Rationally, they should pay more for faster recovery times, which is more valuable to them.
Here’s an implication of these stories. Showing more effort justifies higher prices in customers’ minds. Let’s say you are a consultant. You will get less pushback on price if you show your customer how many hours you worked. Provide them with reams of data, which is perceived as effortful to produce. You may even want to throw in some stories of difficulties you encountered and how you overcame them with your massive expertise.
You need to make your effort and expertise visible to be valued by your customer.
By the way, did I mention how hard it was for me to write this article? 🙂
I wish you well.
- Rob Stephens
Further Insight
CFO Perspective Resources
Get all the CFO Perspective resources with a FAST (Finance and Strategy Toolkit) membership.