What’s the difference? To charge 5 x £50 one day tickets to an amusement park or 1 x £250 for a 5 day ticket? In this Vlog, Grant explains that it all depends on the results you want…
When thinking about pricing, people get obsessed with what they charge, but that’s not the only thing that matters.
When they charge also counts.
Professors, John Gourville and Dilip Soman, discovered that the closer to when someone pays, the more likely they are to use your products or services.
Let me give you an example. A company may charge £1200 a year for gym membership. Often, what businesses do, is they’ll charge the money up front with a discount because it’s great for cash flow.
However, here’s the problem. Someone that spends £1200 at the beginning of the year on gym membership is very lightly – by about halfway through – to stop using the gym or not use it as much.
Whereas someone that is paying £100 a month; because they are paying every month and, therefore, that purchase is coming out their account, they’re much more likely to use the gym on a regular basis.
Of course, this matters for renewals. Someone that hasn’t used the gym for quite a few months is less likely to renew than someone that goes frequently. That isn’t to say that companies should never charge money upfront. It really depends on the outcome that you want.
Think of a family theme park. It costs £50 a day to go. Now the theme park could charge £50 per day for five one day passes, or they could charge £250 up front for a five day pass.
However, if someone pays £50 a day for five one day passes, they’re less likely to skip a day than if they paid £250 up front for a five day pass.
Now the theme park may very much like people to skip a day, because they’re not always at full capacity, so really you have to think about the outcome that you want from the usage, about how you charge.
So it isn’t just the amount, but you also want to think about outcomes, when you think about the way that you’re going to charge.