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Is Your Business Charging Enough? The Psychology of Premium Pricing
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Ever wonder why the same cake can taste dramatically different when presented with different price tags? The psychology of perception is a powerful force that influences every purchase decision we make.
Our latest episode dives deep into a fascinating experiment where identical cakes—one priced at $15 and another at $55—created completely different taste experiences for consumers. Those sampling the "cheap" cake found it dry and disappointing, while those tasting the "premium" version described it as delicious and creamy. This powerful demonstration reveals how our brains automatically equate higher prices with superior quality, affecting our actual sensory experiences.
We explore several real-world examples of this phenomenon, from luxury car brands that maintain prestige despite reliability issues, to hilarious marketing pranks where influencers raved about $90 microwave ramen and paid hundreds for Payless shoes rebranded as designer footwear. These stories highlight an important truth for business owners: your pricing strategy doesn't just affect your bottom line—it fundamentally shapes how customers experience your product.
Drawing from personal entrepreneurial experience selling handcrafted leather wallets, we discuss the strategic considerations of premium pricing. Could charging more actually result in less work for the same revenue? How can small businesses leverage the psychology of pricing to enhance perceived value? The key insight: when raising prices, ensure your presentation matches the premium positioning you're establishing.
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The Cake Shop Experiment
Speaker 1So this is a price , like a pricing strategy , I guess , or just more of like a perception of price , like a customer's perception on price . So yeah , very , very interesting .
Speaker 2So what we're doing is we're opening a cake shop . We have two kinds of cakes that we're making . There's a $15 cake and there's a $55 cake that we make . We're trying both , and so we want to get some feedback from people who are buying First the cheap cake . It's a little dry . What are you thinking ? Not enough frosting .
Speaker 3This is dry .
Speaker 2Seems like the $15 cake left a bad taste in their mouths . I don't know . I'd be kind of disappointed if this was better than the cake . What do you think people think of the more expensive cake ?
Speaker 4Mmm , it's delicious , delicious . Yeah , this is the fancy one . Much better , much better yeah .
Speaker 2This is really good , dear .
Speaker 4It's like creamier .
Speaker 2Well , maybe not , because there's a twist to this game Cake 1 and Cake 2 are exactly the same .
Same Cake, Different Price
Speaker 4That's right . They're the exact same cake , made with the same ingredients in the same oven at the same time perception at work , our brains assume higher price equals higher quality , even with something as basic as taste . This impacts all our buying decisions . Have you ever bought something just because it was pricey ? Share your experience .
Speaker 3That's interesting yeah , I think , um , a higher price , higher price typically . Uh , for some reason you , you put that it's higher quality in your head . Right , like , right like . I mean I think you can take a Land Rover , for example . If you talk to mechanics , they're like
Status vs Quality Perception
Speaker 3oh yeah . That's terrible they never reach 100,000 miles . They always break down , but they're expensive . So people are like , yeah , Land Rover , right .
Speaker 1And I think it's . In this case , it was quality right , Like it was a comparison on quality of the product . There are certain products that are more status right , which I think Land . Rover kind of falls into that category , like , hey , we know that this is kind of a crappy , unreliable . Not a crappy car , but an unreliable car in the long run .
Speaker 1But I don't care because I only want it for the status . I'm going to sell it once it gets to 50,000 anyway . 50,000 miles right . So they don't care if it breaks down to 100 , because they're going to sell it before it gets to that .
Speaker 4Yeah , that's interesting .
Speaker 1And they're just more concerned about the status symbol that that creates . But in this case it was . What do you think about the quality of this product that they're actually tasting ? It's not like they're just looking at something . They're actually trying it and their brains process something completely different .
Speaker 3And so yeah , so it's like we've talked about it before that Payless did an experiment very similar to this . It's hilarious . Where they set up a store and I forget . I forget the name .
Speaker 1So it was , so it was payless . That was doing it . Yeah , and they called their fake brand same products . Yeah , palessi palessi it was literally like kind of like italian , yeah , and they're like yeah , this brand new brand and store , here we go they invited a bunch of influencers .
Speaker 3Yep
The Palessi and Ramen Pranks
Speaker 3oh , I actually saw that . Well , anyway , we'll finish that . The they invite all these and they go chow on all these shoes and talk about how good quality , amazing , they're so good like that , they look so good . Another influencer did this and I watched it and it was one of the funniest things ever . He he opened up a ramen like a noodle uh restaurant and he invited all these things in . All he focused on was the social media , a few videos and kind of how the inside looked . Invited a bunch of influencers . All these influencers came and what he was doing in the back was heating up a cup of noodles like the ramen , oh wow , and literally heating up and giving it to him and he was charging like $90 a plate and they were going crazy for it . This is amazing . I would love to have another cup . All the stuff , and he was literally in the back .
Speaker 1I thought you were going to say they're going to take the top ramen .
Speaker 3Yeah , that's what I mean , but you went even more .
Speaker 1Yeah , they went even . It was like Top of .
Speaker 3Ramen , a couple of noodles , but it was like the , it was the , it was just this prepackaged thing and all they were doing was heating it up in the microwave in the back and like fancying it up in a nice bowl and then taking it out . And all these people were , oh , it's so amazing .
Speaker 1So it probably was presented .
Speaker 3really well , it was presented well , but the taste should be the same . $1.25 to now , probably more now , but it's so cheap and it's all perception , it's all how you present it and I think that kind of shows that too yeah .
Speaker 1So me and my wife
The Leather Wallet Business Story
Speaker 1, we used to back in the day with one of my 100 million business ideas that entrepreneurs do . We're kind of sick in the head that way . But we made leather wallets . Nice , and it all came from . I saw a YouTube video of a dude making something out of leather and it was so beautifully done . Great music , it was almost ASMR type to where you could hear the knife cutting the leather . It was so relaxing and it just made me be like I want to get into leather working . So I bought everything leatherworking stuff .
Speaker 1And I was like I'm going to make these wallets right , and so I think this was back in like 2015 , maybe even 2013-ish , but so we started making them and selling them and we sold them for like $40 , right , handmade wallet . I mean , it was a painstaking process to make these things and I always wondered what would happen if we priced it at like 200 yeah , you know yeah like well , I think we get less
Speaker 1volume yeah , but would we even care ? Would we ? Would we end up having less work for the same , like for less work , but getting the same amount of revenue ?
Speaker 3yeah , and I think I mean as a company grows , any company they kind of weigh those as things go on . It's like , hey , we're priced here , but we're super busy . We could probably price ourselves 50 more and then have a little less volume , but most people are still going to buy so we can make more money . We're going to be making more money but less work . Yeah , I think that that's a natural evolution of it . Also wild fact I've never had Top Ramen in my entire life , are you serious ? Yep , never once tried it .
Speaker 1You want to try it ? I got some .
Speaker 3No , I don't , I'm pretty sure it's like eating a brick of salt , right Like the amount of sodium .
Speaker 1So eating a brick of salt right like the amount of sodium , so we don't put as much uh of the packet like the flavoring packet .
Speaker 3We do like half . What do you mean ?
Speaker 1a flavoring packet you don't even know . So it's the noodles , is it ? So is it ?
Speaker 3the block one , or is it the cup ? Yeah , it's , it's the block one , okay , and it comes with the packet of seasoning so you , you get the noodles and then you put , and then you put in the seasoning yeah so you only do like half , and then it's not as much salt , but I'm sure it's terrible for you .
Speaker 1I've seen videos about just the noodles themselves and it's probably awful for you . So I don't think you're missing out on too much .
Speaker 3It's pretty wild , though , right you figure in college , I probably should have been eating that .
Speaker 1Oh 100% .
Speaker 3I kind of stuck to just quesadillas and beans . That's pretty much all I ate during college . You know , that's cheap too . Yeah , so that , and like pancakes , you could buy the five-pound pancake mix from Sam's Club or Costco and it lasted forever , so I just had pancakes all the time I was also very overweight . So there's that being overweight .
Speaker 1I don't know how you didn't do ramen . It's just such easy filler , anyway . So random little sidetrack there . But yeah , I would say , if you're a business , try testing out different pricing strategies and see
Pricing Strategy Considerations
Speaker 1what works . Yeah , you may sell less , but is it going to be less work for the same amount of revenue ?
Speaker 3Or in this video , if you're pricing yourself at $15 , they're thinking it doesn't taste as good because it's cheaper . Maybe bump your prices up and be like yeah , I just spent $55 or let's say $30 on a cake and you're like like , yeah , it's a pretty dang good .
Speaker 1so bump your prices up , but also make sure that the presentation of whatever you're selling reflects that price point yeah right , the quality that you're trying to put out there you can't just like up the price , like like , like this ramen shop , like right they . They presented it in a fancy way and that signaled to people's brains like this is a higher quality .
Speaker 3Yeah .
Speaker 1And so obviously you can play with pricing to some extent without changing anything . But I think if you want to go into that next level of pricing , I think you need to
Final Thoughts on Premium Pricing
Speaker 1make sure that your presentation matches that level , agreed . So yeah , just kind of an interesting topic . So if you want to buy our course , it's about $20,000 . Go and buy it today .
Speaker 3It's really , really good quality . We were going to price it at $9 , and now it's $9,000 .
Speaker 1That's funny .
Speaker 3Thanks for listening . Every week we go over news , tips , tricks and best practices to help you grow your small business , so follow and subscribe below For more information .
Speaker 1Check out our website at launchingproscom , where you get access to a bunch of free resources and courses designed to launch and grow your business online . Check out the links below .