Why Clients Undervalue Your Work (And How To Change It)

Do you know why some clients consider you too expensive? Sure, it’s easy to chalk it up to them not having enough money or being too “cheap,” but that’s not what’s happening in many cases. Sometimes the number a prospective client gives you isn’t set in stone and will change for the right company.

You see, many times this number was set by one of your competitors; one that will “design” an entire website and host it for them for a ludicrously low price. What you’re experiencing here is the outcome of something Dan Ariely calls “arbitrary coherence.”

Arbitrary Coherence

This basically means that the act of making a decision (or simply considering it) will influence the way similar decisions are made in the future. Being aware of this while keeping in mind how the decision-making process works will go along way towards helping you avoid becoming a victim of low-balling competitors.


The way this relates to pricing is that once a buying decision has been made (or considered), it will shape what people are willing to pay for related items or services. The key here is that simply looking at pricing isn’t enough. It’s the act of buying or truly considering it that creates a pricing anchor.

This doesn’t mean that once pricing has been anchored in this way, anything above that price won’t be considered. A range is set with an upper-bound limit (typically) above the anchor but the original anchor is always referred to when making a buying decision.

Some Examples

There’s a very interesting experiment that was conducted by Professor Ariely which shows arbitrary coherence  at work:

“… We would ask them to jot down the last two digits of their social security numbers and tell us whether they would pay this amount for a number of products, including the bottle of wine. Then, we would ask them to actually bid on these items in an auction. What were we trying to prove? The existence of what we called arbitrary coherence. The basic idea of arbitrary coherence is this: although initial prices are “arbitrary,” once those prices are established in our minds they will shape not only present prices but also future prices (this makes them “coherent”). So, would thinking about one’s social security number be enough to create an anchor? And would that initial anchor have a long-term influence? That’s what we wanted to see.”

When he analyzed the data back at his office it showed that the students with the highest-ending social security digits bid highest, and the ones with the lowest-ending digits bid lowest. This amazing behavior led to pricing differences of over 300%.

Another great example has to do with real estate. People that move to a new city remain anchored to the prices they paid where they previously lived. So when someone moves to a more expensive city they don’t typically increase their spending to match the pricing in that market. On the other hand, when they move from a more expensive city to a cheaper one, they tend not to decrease their spending so they end up buying a bigger/better home for the amount they were paying in their former city.

How to Fight This

The good news is that there are ways to fight this. The key here is to avoid having people refer to some other source for the anchor — you want to be the one setting that anchor.

Dunkin’ Donuts and Starbucks are a great example. Their pricing is completely different yet people know what to expect when they order a coffee or latte and are willing to pay more/less depending on where they’re getting it from. For Starbucks to be able to charge more, they focused on making the experience feel as different as possible to avoid having people refer to an anchor set by another coffee shop.

Everything about the Sarbucks environment is a deliberate attempt to create this different experience. Everything from furniture to the lighting, sounds, and smells was designed with this in mind. And let’s not forget the sizes; it’s short, tall, grande, and venti when you order at Starbucks.

So what’s the lesson here? Craft a different experience for your users if you want to avoid having them refer to someone else’s pricing as an anchor. Pay attention to the message your website is sending potential clients. More importantly, pay attention to the way these low end design shops look and feel and do everything in your power to be different while staying true to your core values.

This isn’t limited to your sales website. Make sure you’re mindful about the experience you’re crafting for your clients any time they interact with you. This means phone calls, contact forms, emails, proposals, and invoices shouldn’t be overlooked.

I suspect this will be a good thing. In most cases it means the more reflective of your personality these elements are, the less you’ll have to worry about. Differentiating yourself isn’t simply about cutting through all the noise; we now understand that it also directly affects how much people are willing to pay for your work.

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{ 17 comments }

Joey Beninghove

Great article and reminder Ruben. In your experience, how would you approach this with an existing client that you may have already given a “steal of a rate” to and eventually want to re-negotiate your rate. I recently attempted this, but was not successful, because the client has that set arbitrary number set in stone in their head that they “couldn’t imagine ever paying a developer more than X”.

Any tips in that context?

Thanks!

Rob

I like the thinking behind crafting an experience, if they are buying your “version” of the same set of design skills, but it’s named, and themed, and giving a uniquely “you” experience…it’s much harder to compare to a competitors vanilla flavored package, or even their unique package…they can be more easily seen as separate offerings.

Ruben

@Joey – I’ve totally been there and haven’t handled it all that well in the past now that I think about it. This is a tough situation because the last thing you want to do is send the message that everything is exactly the same (they refer to that original anchor) but you’re going to charge them more. One important question I have for your example is: was there an understanding that this was a special rate at the start of the relationship?

Joey Beninghove

> was there an understanding that this was a special rate at the start of the relationship?

@Ruben,
Well, not exactly…unfortunately. :( That was my mistake, which I won’t make again. Basically this was my “jumping off” client which was the catalyst for me to go independent in the first place. And I’ve been wanting to go out on my own so bad, I was willing to take the initial pay cut. I also gave them a little bit of a steal because of my newness to some of the technology involved. The part where I’m kinda stuck is that this could turn out to be a very long contract (possibly years). And surely my “discount” based on my skill level wouldn’t make sense after a year of two of experience with the technologies in question. On the other hand, I’m very grateful to have a seemingly stable and long-term contract doing the kind of work I love. So something has to be said for that! :)

Anywho, I figured this is just going to turn out to be a tough learning experience for me. Glad to hear I’m not the only one who’s made this goof though. Thanks for the tips!

Moutasem Al-awa

@Ruben Thanks for such article that states the truth about customer pricing and relations build up.

@Joey I am currently experiencing the same problem for the same reason, it was my first chance to freelance i was so interested to initiate a relation with any client based on any price just to roll the beginning of freelancing. I am still stuck with it i even tried to increase the price but i faced a big NO.. i think we will reach a certain point where we either stop providing our services, or agree on a better price.

Wish you all the best guys keep it up

Ruben

@Joey, @Moutasem – It’s definitely a tough situation and there’s something to be said for being prepared to lose the client if they won’t budge. The way I would approach it nowadays if I was in that situation is that I’d tell the client that because I was pricing myself under market value for my skill set, keeping up with demand is a problem and I’m adjusting my hourly rate to an appropriate level. This happens all the time and it’s a great way to throttle demand. (Also, I’m signaling value to the client at the same time.) Either I throttle demand by adjusting my rate or I work 70 hours a week. I think we all prefer option #1.

Mikael Davis

Ruben,
Exceptional article, and I agree 100% with your comment to Joey and Moutasem. I faced this exact same situation with my first clients and didn’t know how to address it. To avoid alienating clients when demand forces you to raise your rates, I’ve learned to offer existing clients a coupon code on my website that allows them to get a certain discount for a limited time only. Not only does it encourage them to buy future services, but they see the price of their services discounted after they put in the code, so they feel rewarded for being a loyal customer. Each purchase that they make entitles them to a certain amount of “loyalty points” that can be redeemed on future purchases. So they get a volume discount as opposed to continuing to pay a rate that is not fair based on the natural improvements to my services over time.

Ruben

Mikael, thanks for the insight on your interesting approach! If done well I can see how it would show value and reward loyalty. I think the key to an approach like that is to ensure that it’s not a perpetual discount but that it is indeed driven by a certain dollar amount (possibly combined with number of projects).

Hugh Macken

What I’ve found to be helpful is to always reference my standard (anchor) pricing first. Then, once I’ve gone through that pricing, I show them the discounted pricing I am willing to offer them.

Cassandra Bryan

Great article. Pricing websites can be challenging if the client does not understand the value that goes along with a well designed and well programmed website. I try to highlight the benefits of having a professional website design experience to backup our prices.

Patty Gale

Great article, Ruben. We have a prospective client who wanted us to quote a project and they said, “please understand we get 3 or 4 quotes.” So, I wrote back saying, ‘sure, we’ll quote the project, but if you’re basing your final decision on price alone, then our company may not be the best fit for this project and here’s why…..”

It’s a time intensive project and I will not reduce our fees just to win a project. I have done that in the past and totally regretted it. You lose so much money in time.

Jared Latigo

Ruben,
Great article and it really hits home for me. I’ve been struggling with positioning and I think that’s really what you’re getting at here, at least in my eyes. I currently have a similar situation to some of the people that commented awhile back on this and I definitely see it as a branding/positioning thing all around. If we were to step back and say, “what is the position of my brand in my current industry?” I think we could all see exactly where we are “anchored.”

I am in the midst of changing alot about my company and services and want to define myself a bit more in terms of this anchor your mention. I really like the way it helps me to define a certain “floor” but on a different level than any other web designer out there. Maybe I’m not a web designer…maybe I’m a web interface designer, or interactive usability engineer (probably too long :D) But I think you get my point that if we were to redefine what we actually are, we may be able to achieve the same thing as setting us apart and not just another “web guy”. Because we all know there are millions of those out there.

Thanks for all the info, I’ll be sure to put this to good use!

Ruben

@Jared – Thanks! Well said; you’re exactly right about avoiding being known as just another “web guy”.

Heman

Hey Ruben,

Over the past few weeks, I’ve been searching the internet for a winning proposal writing solution without success. Fortunately for me, I stumbled on your site: http://www.bidsketch.com and I’m glad this discovery has put an end to my search and proposal writing worries.

You’re the man! You rock!!

Anas Younus

Thank you so much for such a constructive and helpful article.

Tim Cull

Fantastic article, thanks! Of course I’d thought about anchoring within myself and whenever I’m directly positioned next to other competitors, but it hadn’t occurred to me before that the client simply *considering* a previous proposal on remotely related work would create an anchor

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