Should I go lower? Should I go higher? Can I offer more for less?… The eternal dilemmas of pricing can indeed be overwhelming. Can neuromarketing help put things into perspective?
You’ve opened a hostel, invested substantial money in equipping and decorating it and naturally, you hope that the investment will pay off with profit. However, what no one told you prior to the opening is how to set prices. So, you find yourself analyzing the prices of other hostels in your city and more locally, in the particular area of your hostel, and inevitably you come across the eternal dilemma of whether to set higher or lower prices than the competition.
Higher prices definitely make more sense in terms of your business and profits you expect.
On the other hand, lower prices seem as a better choice when you take into consideration your current competition and the fact that every day there is more and more hostels and other types of accommodation opening near you, which can pose a potential threat to your business.
Then comes the decisive moment when you make a mistake that affects you but also your competition. You say, ok I’ll set my prices to be on par with the competition, because if I set them higher I will not sell anything. Or, you set them lower than the competition with the desire to completely fill the accommodation facilities. A mistake. Lower prices trigger a chain reaction where you are forcing all the participants in the game to monitor and lower their prices more and more until you melt the entire potential earnings. Not to speak about the combination of the lowest prices and full occupancy. Full occupancy almost certainly leads to greater dissatisfaction of guests (noise, crowdedness, poorer cleanliness, nervous staff, etc.) and much lower scores which are killing your business even more than your insanely low prices. And then, there is the impression of most hostellers that giving additional discounts and selling the room for almost nothing results in guests with highest expectations and prone to leaving the worst reviews.
Let’s back it up with some scientific facts. Neuromarketing, a rapidly developing segment of science, investigates changes in the brain activity, trying to figure out how consumers (in our case guests) make decisions. It’s very difficult to find out the true needs and desires of people on the basis of questionnaires, surveys and interviews, especially because the decision-making process takes place largely unconsciously. Numerous studies show very important results, but we’ll focus only on the impact the prices have on consumers, which can help us with resolving the “higher or lower” dilemma.
Although higher prices often deter customers from buying, because the brain of the customer perceives them as a loss, they also reflect higher quality, which certainly does affect the greater willingness to pay. An experiment was conducted which involved people during a wine tasting, using an fMRI scanner. What subjects did not know is that they are being served the exact same wine, with different price tags attached – one very low, the other very high. Of course, the results showed that the “deluxe” version of the wine had a far greater impact on certain regions of the brain and that the perception of the taste was a lot better in this wine. It should be noted that in most cases consumers don’t know how much they are willing to pay for a given product or where their limit is, which is an opportunity for you, and you should use it in the best possible way.
So, all being said, the task of pricing should be taken seriously, because, ultimately, individual decisions affect us all.