Are you using pricing psychology to sell more products and services for your business? If not, you should be. In an earlier article, I spoke about the various pricing strategies that companies pursue in the market place. Those operate on a macro level. This article goes a little further in depth and focuses on the list price that companies list on product tags, service packages and subscriptions. The price that customers see and pay for.
Pricing psychology purports that customers can be manipulated into thinking that the price displayed is the best possible value they’re getting for their money.
Types of pricing psychology
Pricing psychology say’s that certain prices appear larger to customers than others and that the psychological impact can be minimized if the prices are intelligently displayed.
One method that has been in use for quite some time now is ‘Charm pricing’ where products are priced just below a whole number. We often see prices listed as $199 instead of $200 or $2.99 instead of $3.00. The reason for this is because the brain processes these two numbers very differently. Customers read the price from left to right and in doing so are influenced by the left-most digit. In the latter example above, the price would be associated more with $2.00 than with $3.00, even though the real difference is one cent. This practice works for higher denominations too.
Ever notice how car dealers list prices using charm pricing but when they announce a discount, they mention the whole number?
Anchoring is a cognitive bias that occurs when individuals rely heavily upon an initial piece of information that they are exposed to. That information then influences their assessment of further information.
For instance when you walk into a retail clothing store and see the latest collection on display towards the front, the prices you see set a benchmark. As you progress through the store you come upon a ‘clearance’ / ‘discounted’ section for the outgoing product line. Prices in this section would seem like real bargains by comparison to what you were exposed to before.
It is a customary practice in the restaurant industry. Menus usually devote prominent space to higher value items, making those on side look cheaper by comparison. Ask for the wine list next time and look for price anchoring in action.
In this pricing method, customers pay the full value of a product or service and receive something else of equivalent or lesser value free. A common example is the buy-one-get-one-free proposition. Freebie pricing focuses on human greed to propel action. Variants include offering a discount on the next purchase, extra membership points, gift cards etc.
Close on the heels of Freebie pricing is bundle pricing. Bundling occurs when products and services are grouped together and sold at a more attractive price than if sold separately. Bundle pricing creates the illusion a much better deal. It encourages the customer to spend more under the assumption that they are obtaining more value for money.
Relative pricing involves offering two almost identical items for sale at different prices. The logic being that the lower priced item would appear more attractive. Companies usually employ this pricing method when one item witnesses high demand and the other is slow moving. By raising the price of the former or decreasing the price of the other, customers make trade-offs and pick the more affordable version thereby helping clear inventory.
For example, you liked a particular t-shirt at a clothing store you visited. Unfortunately, it was a little expensive. Later you noticed the same t-shirt in a color that wouldn’t have been your first choice. However, it was priced attractively. Perhaps, you’d make a personal compromise to justify a selection.
Associative pricing occurs particularly in the case of unknown brands. When two similar products are sold simultaneously at different prices, the customer looks for peripheral elements to justify price variances.
For instance, you held up two very similar dresses and noticed a big price gap. You also find that the label on the more expensive one indicates an Italian design house while the other is written in Chinese. By associations you justify variances subliminally. It also works in cases where the origin of the product dictates presumed quality.
FLASH SALES PRICING
Enticing customers with the notion that an event is temporary creates a sense of urgency. Businesses use words like, “while stocks last” and “limited time offer” in their communication material to drive action.
SEASONAL & OFF-SEASONAL EVENT PRICING
These sales events are used to draw attention to the commencement or ending of a season. The intention is to create sufficient buzz to get customers through the doors in preparation for a season or to dispose of final stocks before it is over. By combining other pricing psychology techniques in combination with the seasonal circumstance, it encourages customers to spend.
In this method, business use a ceiling price to let customers know where the upper level of the price stands. It sets the expectation upfront. Perhaps you would have noticed large signs in store windows saying, “everything under $50”.
In comparative pricing, businesses place the new price side-by-side with what it usually retails for. Customers see a very clear bargain because they have a form of reference to compare the current price.
Pricing strategies are not carved in stone. You can alter them from time to time to gain statistical analysis. It’s advisable to give sufficient time to test each pricing method or combination of pricing methods before settling on what works best for your business.