Legendary venture capitalist Marc Andreessen’s #1 advice for companies is simple: raise your prices.
In an interview on the Tim Ferriss Show, he said:
“The No. 1 thing — just the theme and we see it everywhere — the No. 1 theme with our companies have when they get really struggling is they are not charging enough for their product.
It has become absolutely conventional wisdom in Silicon Valley that the way to succeed is to price your product as low as possible under the theory that if it’s low-priced everybody can buy it and that’s how you get the volume.”
Some of the largest companies in the world such as IKEA, Costco, Walmart, and McDonald’s aim for low prices. It’s a deliberate strategy because they’ve created infrastructures (which cost billions of dollars in investments) designed to profit while offering low prices.
For everyone else, we’re much better off trying to charge more money.
We both know that today’s environment is cutthroat. Customers are expecting free shipping, free returns, and stellar customer service. It’s free for the customers, but it comes out of your profit margins.
And everyone knows that traffic costs—the cost of acquiring a customer is only gonna go up each year.

The best way to compete is to increase your profit margins by increasing your prices.

The single most important decision in evaluating a business is pricing power. If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. And if you have to have a prayer session before raising the price by 10 percent, then you’ve got a terrible business. – Warren Buffett

It isn’t as simple as increasing your prices and calling it a day. It’s a delicate balance between price and conversion rates that you have to measure.
Increasing your prices is a long game. It takes a different strategy than what most affiliate marketers are used to.
Instead, increase the perceived value of your products and you can raise your prices without lowering your conversion rates.
This article was inspired by my experience of shopping for bedsheets.
For years, I’ve been sleeping on $30 bedsheets from Amazon Basics. They do their job well, but I’m always trying to improve my sleep. The more comfortable my sleeping arrangements then the better I’ll sleep.
So, I went down a rabbit hole of researching bed sheets. From there I discovered D2C brands like Parachute, Boll and Branch, and Brooklinen.
Imagine my shock when I saw that some of these companies were charging $400+ for bed sheets. And some of the bed sheets were sold out!
How the fuck are they getting people to pay that much for bed sheets? Especially when the main benefit is comfort—an attribute that online customers can’t see or feel.
But then I remembered…I’m a marketer. I’m sure part of the price point is because the material costs more, but so much of the markup is due to the perceived value.
That’s what this article is about.
I’m going to teach you about the concept of perceived value, and some actionable ways you can use it to increase the price point of your products.
I’ll be using e-commerce brands as examples, but you can apply the same concepts to pretty much anything that can be sold such as Software As A Service (SAAS), consulting services, and more.

Perceived Value is STILL Value

Imagine there are two shirts.
They’re made from the same factory, using the same material.
The cost of each shirt is $5.

However,

• The Shenzhen Trading Company sells it for $10. They sell it on Amazon.com, and it comes in a plastic bag.

• RuRuRemon sells it for $60. You get a really cute bag with quotes. All the top Yoga influencers are using their gear. And the website is full of amazing copywriting on how much technology was incorporated into this ($5) shirt.

All that extra stuff is perceived value because the shirts are identical. But some people are willing to pay that extra $50.
Some people think it’s shady and even borderline unethical. They say, you’re ripping off the customers!
Do you think Nike’s $200 shoes sells for anywhere near what they cost?
Here’s my take: perceived value is still value.
People underestimate the emotions when it comes to making a purchase.
There are some categories that I don’t really give a shit about – I’m fine with buying the cheapest office paper. Sorry, but Jim and Dwight aren’t convincing me of anything.
(Ok, maybe Asian Jim has a shot.)
However, there are some other categories that I’m more than willing to pay a premium for. I don’t mind spending $3k on a Macbook Pro or $200 for a simplehuman trash can.
One of the reasons is identity.
We all have a person that we’re trying to become. And we all want people to perceive us as that person. Buying certain products helps us feel like we’re closer to becoming that person.
I used to have guests over all the time for dinner parties and board games before COVID-19. I want my friends to think that I’m the kinda guy who has a simplehuman, motion sensor trash can, and not that plastic brown thing I used in college.
That’s why some people are willing to pay over $3,000 for a designer handbag from Louis Vuitton. They want others to perceive them as the kind of person that can afford an Louis Vitton bag.
And Louis Vuitton has spent centuries cultivating this customer identity.
The bag probably cost $150 in material goods, yet I don’t think the customers feel ripped off.
The best brands don’t sell products – they sell a lifestyle.
They sell a shortcut to feeling like you’re living your dream life.
When your products can elevate someone’s image, status, or self-esteem, you’re able to charge more money.

• Using the same product that your hero does? That’s value.
• Feeling joy from unboxing the product? That’s value.
• Understanding the story behind the brand and resonating with it? That’s value.

People really underestimate how strong emotions and identity can be when it comes to selling.

5 Levers to Increase the Perceived Value of Your Product

I’m going to share with you five ways to increase the perceived value of your product.
Furthermore, as a marketer, you should develop a curiosity anytime you see someone charging prices higher than what’s normal.
What are they doing so different than everyone else to justify their pricing? Oftentimes it’s not simply a matter of “our ingredients and materials cost more”.
Ask yourself, “what’s really going on here?”

1. Luxury Brands Are Selling a Lifestyle, Not Just the Product

I started getting into luxury fashion in my twenties.
As soon as I started making money from affiliate marketing, I felt the need to start flexing. I wanted people to see me as having money and luxury goods were the fastest way to do it.
So I headed to the Phipps Plaza mall in Atlanta and went to places like Louis Vuitton, Gucci, and Tiffany’s.
I was nervous when I went inside. It was a combination of heavy impostor syndrome, and fear that the security guards wouldn’t let me in because I didn’t look like a typical customer.
I couldn’t help but notice how different these stores felt. What was it about them that made the experience feel so premium?

• Every store had a security guard at the front. There’s a big difference between the security guards at luxury stores vs the ones at cheap one: their suits actually fit!
• I had to wait in line to get into Louis Vuitton. They wanted to maintain a certain level of experience and support for each client.
• The packaging was an experience. They didn’t just put my wallet in a plastic bag. They put it in a fancy box and wrapped it like a Christmas present. The receipt came in an envelope!
• The design and layout of the stores were different. Have you ever been to a Forever21 Store? They’re trying to jam as much clothes into the stores as possible. There was so much space as the luxury stores.There were aspirational photos everywhere. Gorgeous people in exotic locations wearing luxury goods.

Unfortunately, the items I bought did their jobs. People loved asking me about my Rollie whenever I went to a conference.
In a weird way, me buying items with massive perceived value, increased people’s perceived value of me.
The biggest lesson I learned about buying luxury goods is that you’re creating an “experience” for your customers.
People want to feel special. 
How can we convey the luxury experience in an online world?
This article was inspired by me shopping for bed sheets. Let’s take a look at the marketing of Parachute Home.
The first point of contact with this brand are the ads.

The production value of the video is high. We know subconsciously that this wasn’t filmed with an iPhone.
The formula and layout of the video is different too.
The typical e-commerce video would be something like pattern interruption, benefits of the product, testimonials, upbeat music, tons of subtitles, and a call to action at the end.
They’re not doing any of that here because they’re focused on selling you a lifestyle. The implication is that: people who have their shit together and are successful have bedrooms that look like this!  And buy Parachute Home, of course.
Next, let’s look at the product details page.

First, high quality images via a professional and a studio.
Next, there aren’t any cheap conversion tricks on the landing page.
You know what I’m talking about:

• Fake anchor prices. There’s no original price $500, Sale Today: $339.
• Countdown timers. The sale only lasts for the next 15 minutes.
• Email opt-in gimmicks. It’s OK to collect email addresses, but brands like this aren’t doing the spin the wheel to win a prize.

Finally, the packaging.
If you’re going to convey premium, it has to be communicated at every step of the process.
Don’t put in all this work only to send the product in a plastic bag and duct tape.
You can see below how they package their products. Opening the box is like unwrapping a present to yourself.

2. Explain Why It’s Worth the Price

Several years ago, my friend sent me a video of his “dream” camera. I couldn’t believe my eyes – it costs $50,000.
For that price point I’m assuming this is a camera that’s designed for Hollywood, or only for the best of the best photographers.
It wasn’t. This was a limited edition camera by Hermes and Leica.

What do you notice about watching this video?
Here’s What I Caught:

• There’s a story behind the product. The camera was made in honor of Jean-Louise Dumas, who was the president of Hermes. This adds an emotional aspect to the product.
• The video didn’t focus on the technical details. It showed off the artistry and craftsmanship of Hermes. People that can afford a $50k camera appreciate quality that you can’t get from something mass produced in a Chinese factory. The video is saying you’re not buying a camera – you’re buying art.
• It’s limited edition. There’s less than 100 of the Jean-Louise Dumas editions. When an item becomes a collectible, there’s no ceiling on the prices. Think about how much early versions of Superman comics are worth.

The storytelling was essential to selling this product. They could’ve said that the bag was made by hand, but isn’t it so much more effective to see it? Show, don’t tell.
There are multiple reasons why your product is priced high. Remember that your customers only care about themselves. How does the high price add value to the product, and ultimately to them?
They don’t care if you have a high cost of acquisition, or if you need a high salary to cover your child support.
Here’s a video by Parachute that shows off their factory, and how their products are made.

Some quick takeaways:

• It’s made in Guimaraes, Portugal. It’s a city filled with a strong heritage when it comes to textile. They have a museum director backing this up. If you want pizza, you want it made in Naples, Italy or Brooklyn NYC. You don’t want pizza made in Vietnam.
• “The textile factory was founded by my grandfather.” This gives me vibes similar to Jiro Dreams of Sushi. He explained that all his products came from families who have been doing this for generations.
• The manual process. The fabrics are cut by hand, and they’re inspected at the end by people. Quality control is a focus. We have a bias that humans = better quality.

• I’m getting strong vibes that they’re associating their product with history, heritage, and art. That comes at a price and they’re targeting the market that appreciates that. Yes, there are some people who are fine with $30 bed sheets, but there’s not much profit margin in that. And that’s not the target audience here.

Let’s tie all this together and talk about how we can show why the product is worth the higher price.
A. Research and Development
You’ve spent millions of dollars researching and developing the product. Purple, the mattress company, brags about how they have over 30 patents for their technology.
The research and development goes into a better product.
B. We Have Better Ingredients Which Cost More
Real Mushrooms is my favorite brand of mushrooms.
They took the time to educate me on the difference between their mushrooms and other brands. They also educated me on why mushrooms grown in China are superior.
They re-framed the situation.
Before: These RealMushrooms are expensive. Is the quality worth it over the competition?

After: The competition is selling fake mushrooms. No wonder they’re so cheap. If I want legit mushrooms, then RealMushrooms is the only place I can buy it. The $30 a bottle doesn’t seem so expensive after all.
C. Explain the Story Behind the Brand
We’re wired for stories.
In the book, “Start With Why,” Simon Sinek explains that great marketing starts by explaining why the company exists in the first place.
Bulletproof – The founder traveled to hike in the mountains of Tibet. He was exhausted until a local person gave him a traditional drink of coffee mixed with butter. He never experienced such mental clarity and wanted to bring it to the west.
Moleskine – These were inspired by the notebooks that Hemingway and Piccasso used.
Warby Parker – One of the founders lost their glasses on a backpacking trip. Because glasses were so expensive, he had to go an entire semester without them. That gave them the inspiration to create Warby Parker.
Why did you start your company and what does it stand for? Being able to tell a story is the first step in having your audience resonate with you.

3. Build an Unfair Advantage with Influencers

Let’s talk about moats.
We’re in an age where many things can be copied. Competitors can jack your suppliers, steal your product ideas, and even copy some of your marketing.
Moats are those competitive advantages that can’t be easily taken away from you such as holding a patent.
One moat I’ve been thinking a lot about is influencers. It’s hard to compete with Onnit in the Nootropics space because they have Joe Rogan as a spokesman. And you can’t steal him away from them because he’s part-owner of the company.
What would the Honest Co. look like without Jessica Alba? What would FentyBeauty look like without Rihanna?
Gap just signed a ten year deal with Kanye West for him to design clothing for them. That deal added $700 million to Gap’s market cap.
Most people think about working with influencers as a means of distribution. You’ll get traffic if they talk about you on their Instagram or YouTube.
However, a partnership with the right influencer can substantially increase the value of your product and company.
Look at BlendJet. They’re selling portable blenders that don’t seem to be differentiated much from the kind on AliExpress. But they have an insane perceived value because Jen Selter is a co-owner in the company.
Correction: I was informed via email by a representative that BlendJet has trademarks and patents on their designs, and that the ones on AliExpress are knockoffs.
Take a look at some of Rolex’s list of ambassadors: Roger Federer, Tiger Woods, and Phil Mickelson. They’re making a statement that the best only wear the best.
The main risk is having your product tied so much to one person. Subway took a big hit when their spokesman, Jared, was convicted of having child pornography.
And right now in July 2020, it feels like we’re in the age of cancel culture. I’m seeing so many celebrities getting “canceled” because of controversial things they’ve said in the past.
So if you’re working with an influencer, make sure you do a thorough background check on them.

4. Show Irrefutable Proof of Everything

Customers don’t trust reviews as much as they used to.
Maybe it’s because drop shippers have been writing their own reviews using Loox, or because Amazon sellers are giving away free products in exchange for reviews.
But regardless of the reason, there’s a trust issue.
Ask yourself, how can you go beyond what other people are doing to establish more credibility?

How can you show Irrefutable Proof that your product is the shit?
First, anyone can fake their own reviews. Having customers submit video reviews of the product comes off more trustworthy. Or fly in customers and create testimonials in a studio.
Second, the “as seen on GQ, Forbes, MSNBC, etc.” has been abused to death. Show proof of this. Include some thumbnail screenshots where they mentioned your company.
Do you have any experts to give you more credibility? Show them off.

GetRoman.com features some of the experts behind their company. People will fake “Lisa from NYC” reviews, but not many people will fake a doctor.
Your customers are skeptical.
Show them you’re different.

5. Don’t Let Them Price Compare – Turn Your Product into an Offer

Amazon’s the boogeyman of the e-commerce world.
Are you sourcing products from Aliexpress and selling them on a Shopify store? Then one of your biggest weak points is that you have several competitors selling the same product on Amazon.
The difference? They’re selling it much cheaper, and offering 2 day shipping through Amazon Prime.
It’s hard to compete against that directly. One way you can compete would be to turn your product into an offer.
Here’s an example from LadyBoss.

People have in their heads that protein powder is worth around $30 for a two pound jug.
LadyBoss sells protein powder, but they threw in all these additional products for free. If you’re new to fitness, wouldn’t it be valuable to get a recipes book and access to workout plan?
By creating an offer, LadyBoss can charge double the average price if they wanted to. You’re no longer buying just protein, you’re buying a solution to your dream body.
Again, this ties back to, #1, selling a lifestyle, a future, a new you. A new identity.
If you’re interested in learning more about this concept of making your product into an offer, I wrote more about this concept a few months ago:
Read: Increase Your Product’s Price and Conversion Rates with Value Stacking.

Keep Reinvesting in Value

Affiliate marketers are so used to pushing as hard as possible to get the sale. We don’t come from a world where we build email lists or build a brand. We get one chance, and one chance only to get the sale.
So we use every conversion trick in the book. That doesn’t work in the long term if you’re trying to build a brand.
You have to play the long game.
Louis Vuitton had a controversial practice. If their bags couldn’t sell them they rather burn them as a loss, than offer it as a discount. Why? Discounts hurt the brand they’ve spent centuries building.

Think about building a brand like climbing up a ladder. Pay yourself as little as possible. Keep pouring money back into reinvesting the brand.
If you’re bootstrapping your business, then it doesn’t make sense to start hiring professional photographers and A-list influencers at the start.
Think about your company like phases.
Let’s use a protein powder company as an example

• Phase 1: Buy bulk protein from China. Get graphics made by Fiverr.com. Give free tubs to micro-influencers.
• Phase 2: Buy quality protein from manufacturers within the USA. Pay recognizable Instagram / YouTubers to promote your brand.
• Phase 3: Own your own cows and build your own factory. Hire an A-list branding agency. Get your protein endorsed by A-list professional athletes.

Marketers love numbers. We love seeing the average order value and how much cash we have in the bank.
Some of the biggest value comes from what the company itself is worth if you were to sell it. A big part of that is brand equity which is hard to measure.
So keep playing the long game.
Image courtesy of Pixabay.