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You've Got to See This for Yourself ... a $14 Million License Plate?

You've Got to See This for Yourself ... a $14 Million License Plate?

July 01, 2008

One thing I know for sure is that pricing has very little to do with cost.

Of course, you want to make a profit and keep your prices well above your costs, but that's a given. What's not so obvious is how much your product or service is worth to the hungry fish in your pond.

That's why one very rich and very vain Abu Dhabi businessman made headlines and the Guinness Book of World Records earlier this year when he paid $14 million for a license plate sporting a "1." His cousin paid $9 million for "5" - the second-largest sum ever paid for a tag.

I'm not making this up. Businessmen in the United Arab Emirates have gotten so rich off the rising oil prices that just driving a $180,000 Ferrari isn't enough anymore because so many people have them now, according to the Wall Street Journal. They need more to stand out. And license plates are now the most sought after status symbol.

Every month, the government auctions off 100 vanity plates in front of thousands of spectators where the tags fetch big bucks. Three-digit plates sold for $123,000 - $150,000 last month. Check it out on this You Tube video - it's amazing to see! In all, the government has brought in $120 million from 900 plates (I already did the math for you - that's an average of $133,000 per plate!) It plans to build a new trauma hospital with the money.

What's the most someone would pay for your product?

Before you go rushing out to plunk down your hard earned millions on a new tag, think about how you're pricing your products or services.

What are you basing it on? Your cost? What you need to earn? Or are you basing it on the perceived value among your hungry fish?

The only way you're going to find out what you're fish are willing to pay is to test your prices. Please don't make the mistake of doing a survey. Believe me, I've seen so many people try to find out what people will pay asking customers and then find out that their survey results were completely inaccurate. Your customers have no idea what they'll pay until they're asked to pay it. That's when you really know what they'll be willing to pay.

I'm often amazed when we do price tests and we find that the higher price outperforms the lower price. Why? Because if it costs more, it has a higher perceived value. For instance, a Rolex keeps time just as well as a Timex. But, a Rolex costs $10,000 and therefore has a higher perceived value than a $10 Timex. Higher price = higher value.

In past tests, we found that an $87.95 item beat the same item priced at $49.95. We're not exactly sure why, but when we test, we determine which price points work and which don't. Testing is a necessary part of the game. Start off by offering a product for one amount and see how it sells. You can always modify a price.

How can you add more value?

Next, consider ways you can increase the value for your fish and make it more irresistible. This is another great strategy to help you stand out from your competitors.

The extra value you create doesn't have to cost you too much up front. I've had clients add an information package and include books or manuals to a product. It only cost them a few dollars to produce, but they sold it for hundreds of dollars because the value to the client is so high.

For example, let's say you have a stress-management system you're selling for $14.95. Take that same stress-management system and tailor the system and packaging specifically for attorneys and you can sell it for $495. The attorney buying the system will rightly assume that the system creator understands his needs as an attorney innately, and can thereby help him more directly.

It cost you about the same amount of money to produce the same system, but you've increased the perceived value of the product - and you increased the price by about $480!

Remember, the price you charge has everything to do with perceived value - not cost.

Always taking you from where you are to where you want to go,

Jon

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