I learned an interesting lesson a few years ago when I was helping a friend sell a used boat trailer that was worth roughly $1,000. At first, we were trying to sell the trailer on Craigslist at a deep discount – around $300. We didn’t get any calls in four weeks. Then I remembered some of my grad school economics theory and said “let’s try premium pricing and see if that moves it”. We put it back up on Craigslist at $2,500 and it sold on the first day with three other offers as backup. Why did this work? Let’s check with Wikipedia:

Premium pricing (also called prestige pricing) is the strategy of consistently pricing at, or near, the high end of the possible price range to help attract status-conscious consumers. A few examples of companies which partake in premium pricing in the marketplace include Rolex and Bentley. People will buy a premium priced product because:

1. They believe the high price is an indication of good quality;
2. They believe it to be a sign of self worth – “They are worth it” – It authenticates their success and status – It is a signal to others that they are a member of an exclusive group;
3. They require flawless performance in this application – The cost of product malfunction is too high to buy anything but the best – example: heart pacemaker.

I don’t usually direct-quote but I couldn’t put it better myself. In the case of the boat trailer, people were pounding down the door to buy it at almost ten times the price we were willing to let it go for because they believed it the higher price to be an indication of good quality. You can try the experiment yourself next time you want to sell something. Be prepared to play around with the price. We lucked out by guessing the right price on the first try. Here’s an excellent example of premium pricing in action:

This is a tough market. Selling $2 hugs right next to someone giving hugs away for free. Why would anyone take the $2 hug? Either people would do it to piss off the guy giving the free hugs or they really want a hug and believe that the $2 hug is better. A third person could have taken this hug experiment a step further by offering $20 hugs. This would drive increasing business to the $2 hug in a strategy called “Goldilocks Pricing”. Goldilocks Pricing is when you put a range of product offerings in front of consumers with one base-model product, one mid-range product and one ridiculously over-priced product.

The theory is that the overpriced product will make the mid-range product look even more attractive to the consumer. The lower-end product does the same thing if it enhanced the perceived value for money of the mid-range product. So, if we had someone offering $20 hugs, it would drive business to the $2 hugs because the $20 hugs don’t seem like good value. As the guy in the video demonstrated, by highlighting the flaws of the free hugs, the $2 hugs seem like good value. While I don’t recommend mud-slinging to enhance your own business, you could have three people from your own company selling hugs and play around with these pricing strategies.

I’d suggest having someone relatively unattractive (like me) with garlic breath offer up $0.50 hugs. Have a clean and reasonably attract person offer up the $2 hugs and have someone ridiculously hot offer up the $20 hugs. I would bet money that at the end of the day, the $2 hug person would make the most money.