Emotional Pricing

According to statisticbrain.com, the rate of failure for services businesses is 45% after four years. Since Tuesday, October 1, 2013 is Milestone’s fourth anniversary, I am pleased to report we are among the 55% of survivors.

Upon closer review I was surprised by an unexpected reason for failure in the report. You always hear about undercapitalization, our running out of money, being the primary reason for going out of business. I’m sure that’s true, but it doesn’t explain why. The number one major cause cited in this report, representing 46% of all business failures, is incompetence.

That makes sense, and most of the specific pitfalls listed seem logical; lack of planning, not enough knowledge and/or experience, etc. The one that took me by surprise was emotional pricing.

Being a marketing person I’ve spent a fair amount of time thinking about pricing (after all Price is one of the four P’s of marketing). I couldn’t recall coming across the term emotional pricing before so I did what everybody does these days. I Googled it. I read five different articles about this fuzzy subject and found this one most interesting.

The subject of emotional pricing reminded me of the positioning statement I worked on for Milestone more than four years ago with Arthur Mahoney from the Small Business Development Center. Here’s an excerpt:

People justify purchase decisions based on logic, but they actually make those decisions based on emotion; and customer acquisition and retention are the result of personal relationships.

It’s about perceived value. Which in essence, is the whole point of branding and effective marketing communications, right? But I’m still not sure why emotional pricing is cited as a specific pitfall of incompetence, or one of the main reasons why roughly half of all businesses fail within four years.

Does it mean those business failed because they were charging too much or too little for their products and services? Or does it mean they did a poor job of communicating the value and justifying the cost? Sounds like a marketing problem to me. But then again, I think most business problems sound like marketing problems.

Until next week,

Matthew Anderson, President
Milestone Marketing Associates, Inc.