Making money in your small business comes from understanding your customer. As much as we like to believe as consumers that business can’t influence us, the human psyche behaves in predictable ways. It all comes down to perceptions.
The perceptions of your buyer greatly influence their buying decisions and behavior. A typical pricing strategy for a small business is to look at the market and copy similar pricing and go lower. Never compete on price alone. It is a fast way to erode your profit margins. Instead understand your customers' perceptions, your bottom-line will show the results.
Disney Masters Wait Line Perceptions
Disney is a master at understanding customer perceptions. Nothing can play greater havoc on a customer’s experience than waiting in line for a long time.
To make the perception of a long wait more pleasant, Disney uses several strategies. By adding entertainment to help customers pass time, the wait seems shorter. Another simple method is to form multiple lines so the perception of a long line means a long wait is reduced.
Not one to rest on their laurels, Disney created an innovation to help customers have a better experience and deal with the issue of long wait times. In 1999, Disney introduced a virtual queuing system called the FASTPASS system. By purchasing a FASTPASS customers come back to an attraction during a specific return time and wait in a special line instead of standing in the normal line. This gives customers greater freedom than waiting in line all day. The system is so successful that Disney owns the patent on it.
The Decoy Effect
A clear example of how buyers's perceptions outweigh logic is the decoy effect. The decoy effect is when considering buying between two products the addition of a third alternative will often increase sales of the original higher priced product. The decoy is the introduction of a third choice; a high price, low value product for the purpose of increasing sales of the other product.
For example consider the following options for speaker systems:
Clearly, choosing C isn’t an attractive offer but buyers will be more likely to purchase option A than the lowest price choice.
The Take Away Candy Shop
A classic learning on the influence of perception is the story of the candy shop. Two candy storeowners compete on the same street near a school. One shop owner charges a slightly higher price for candy and the other is the low cost provider. Everyday the majority of kids after school go to the higher priced shop. When the children are asked why they visit the one shop, they reply “The other store takes candy away from us.”
The lower price shop owner serves the kids by piling candy on the scale and removes from the pile to reach the desired weight. The other shop owner starts with a little candy on the scale and keeps adding till the desired weight is reached. The simple approach of over piling and taking away creates the perception of loss. Although the same amount was sold in each store the perception of what the buyer received was very different. People will buy at a place where they perceive they get more value for their money.
So when you want to increase sales and gain greater profits consider your buyers perceptions. It’s all a matter of perception. As Ralph Waldo Emerson once said, "What is a weed? A plant whose virtues have not yet been discovered.”
[via about.com]
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