9 Psychology-Based Pricing Strategies

Guardado en Dropbox 16/05/2017 12D26 p.m.

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9 Psychology-Based
Pricing Strategies
You Can Use Today
(+ Swipe File)

Jordie

If youre anything like me, you

spend hours thinking about how
your business can solve problems,
give customers value,[RESOURCE]
DOWNLOAD but also
make a nice profit.

Those thoughts usually lead to

pricing

and when it comes to running a

profitable business, pricing is
everything.

Charge too little and you run the

risk of not getting enough revenue.
Charge too much, and potential
customers will run for the hills.

Its important to get it right.

And it isnt as simple as just

charging what you feel is best.

Its about getting into the mind of

consumers to understand what
theyre happy paying so you can
eectively price your product to
increase sales.

And the way to do that is to

understand pricing psychology.

So in this article, Im going to show

you 9 dierent psychology-based
pricing strategies you can use, how
you can increase prices without
losing your customers, and real-life
examples of the strategies in
action.

Swipe these
pages to improve
your pricing
strategy
Coming up with an
eective pricing page isnt
easy. It takes time,
consideration and
research.

But the task is 10x easier

when you have a curated
list of some of the best
pricing pages to base your
eorts on.

Ive put together a bonus

resource with 10 of the
best pricing pages to help
inspire you to create or
improve your own.
 Free
Downloadable
Bonus Get access
to our swipe file of
the 10 best e-
commerce pricing
pages right now.

What are psychology-

based pricing strategies?

The thing about pricing, its

comparative, never absolute.
Nothing is ever cheap or expensive,
without first having something to
compare it to.

Without a thorough understanding

of economic theory, its hard to
price your products just rightat
the sweet spot that encourages
people to buy.

But whether you like it or not, our

decisions are guided by a degree of
cognitive biases.

The same goes for pricing.

Thats why psychological

economists put so much time into
studying the spending habits of
consumers.

So, with that in mind, here are 9

pricing strategies you can use
today in your online marketing.

1. Charm vs. prestige

pricing
The Charm price, also known as
magic number 9, or left-digit
eect, is a strategy were all
familiar with.

You might not even know it had a

name because youre so used to
seeing it everywhere.

This strategy is most common with

products ending in .99, e.g. $2.99
or $39.99.

It works because consumers ignore

the 99 and focus on the left digit.

In its simplest terms, it works

because psychologically it makes
the price feel lower. $299 seems
closer to $200 than it does to $300,
even though that simply isnt the
case.
A price change of $3.60 to $3.59
wont make a psychological
dierence because the left digit
doesnt change.

But $3.00 to $2.99 is a huge

dierence because the left digit
changes to a lower number.

In a study conducted by MIT and

the University of Chicago, they
tested the cost of a clothing item at
three dierent price points: $34,
$39 and $44.

Its no surprise then, the $39 item

sold better than the $34 and $44
price points.

But why do people do this, and

more importantly, is it eective?

Lets look into this further.

Apple, who have recently declared
to have a quarter-trillion dollars in
cash, use the power of 9 on all of
their products. This method does
work.

Rounded pricing, where items are

priced with whole numbers such as
$4000 or $50, is an alternative to
charm pricing.

If you look at high-end, luxury

stores like Versace, you will see
they often take advantage of this.
A 2015 study, by Kuangjie Zhang
and Monica Wadhwa, showed
rounded numbers are processed by
relying on consumers feelings,
rather than cognition.

For high-end, luxury products,

where youre not trying to sell
value, the prices are processed
quicker because theyre driven by
feelings of do I want this item, as
opposed to, is this item good
value for money?.

Whether you use charm pricing or

rounded pricing, will depend on
what youre trying to sell.

A hedonic purchase, something

someone either wants or doesnt
want (e.g. a flat screen TV), might
benefit from a rounded price.

Whereas a utilitarian purchase (e.g.

a washing machine) works best in
price-conscious markets and might
benefit from non-rounded prices
because consumers are looking for
value.

2. Comparison pricing
anchor strategy
$1000 is neither expensive nor
cheap.

Think about it like this.

If you were going to buy a house,

and the seller told you it would cost
$1000, that would seem cheap,
right?

What if you were going to buy a

chocolate bar and the cashier told
you it would cost $1000?

Suddenly, that seems expensive.

It seems that way because you are

anchoring the price youre shown,
with a price in your mind, or a price
you feel you should be paying.

When we make purchasing

decisions, we rely on the first piece
of information the anchorto
make further judgments.
Consumers are now able to browse
products online, compare brands
on cost, and decide which provider
is best for their needs.

This strategy works especially well

for those trying to sell services,
especially if you adopt a tiered
system.

Oering potential customers

dierent versions, or packages of
your product means theyll naturally
compare because you explicitly
encourage them to do so.
The price gap between the
Garden and Estate package is
only $15, a small amount. In doing
so, Freshdesk encourages their
potential users to compare the
packages and look for value.

How many times have you seen a

tiered pricing structure and opted
for a higher tier because it felt like a
better deal?

While you might anchor your price

to a figure consumers have seen
elsewhere or a figure they have in
their head, you can also use your
own products to anchor your
pricing.

A study in the book Predictably

Irrational, noticed The Economist
was oering three dierent
packages:

This pricing strategy encouraged

consumers to think about the value
theyd get. They stopped hunting
bargains, looking for the best deal,
and instead looked at the value
oered.

In this scenario, why would

consumers opt for the print
package when they could get the
web and print package for the
same cost?

The study showed including the

print-only package changed the
consumers mindset.

Without the print-only option, it

would be impossible to compare
prices. Most people would opt for
the web package simply because it
was cheaper.

It meant The Economist were able

to generate 43% more revenue.

If you want to guide consumers to

a more expensive option, you need
to be tactical and price anchoring is
an easy way to achieve this to
make an expensive item seem
more appealing.

3. Bundle extras
Lets imagine the scene. Youve
bought a car and invested a great
deal of money in it.

The cashier asks whether you want

an accessories bundle for another
$100.

They tell you there are 6 items in

the bundle to help you get on your
way.

You agree.

Now lets imagine the same scene.

Only this time the cashier asks if
youd like to buy:
Even though the items equate to
the exact same amount, it suddenly
feels like more of a commitment to
purchase all these dierent items.

Amazon does a great job of this.

When I went to buy this camera, for
example, they listed other items
customers frequently bought
together.

While they list the individual prices

of the items, they also include the
total price of $966.97.

Because theyve bundled the prices

together, it seems like youre
getting a good deal. You dont feel
like you have to make four dierent
purchases.

Bundling items, removes any

friction or reservations the buyer
has, and encourages them to
spend more.

4. Fragmented pricing
For a customer, $83/month sounds
much more aordable than
$1000/year, even though theyre
the same price.

Its a much bigger investment to

pay $1000 in one go, as opposed
to $83 per month.

Thats why so many companies

adopt a fragmented pricing
strategy.

Fragmented pricing splits the cost

of something to show the
daily/monthly cost making it seem
more reasonable to the consumer.

Barkbox uses fragmented pricing

for their subscriptions service.
Rather than paying $150 upfront,
consumers are able to split the cost
on a per-month basis.
Its much less of a commitment to
pay $25 a month for 6 months than
invest $150.

5. Selling time over

money
When it comes down to it, whats
more precious: time or money?

Time, of course.

Economists think long and hard

about positioning products in
accordance to how much time
theyll save the potential customer.

But how does this aect your

pricing?

Its simple.

Putting emphasis on time rather

than money shifts the emotional
response consumers have to a
product or service.

In an experiment conducted by
Mogliner and Aaker (2009), a
lemonade stand had three dierent
signs, each focussing on
something dierent.
Participants in the study were able
to pay whatever they wanted
between $1 and $3 for the
lemonade.

Time outperformed both money

and neutral with participants
paying twice as much for the
lemonade stand that focussed on
time.

This is because time increases

focus on product experience.

When pricing your products and

writing product copy, if you can,
shift the emphasis to the time
consumers will spend with your
product. Itll make the product
seem more appealing.

According to Aaker,
 A persons experience with a
product tends to foster feelings
of personal connection with it,
referring to time typically leads
to more favorable attitudes and
more purchases.

6. Adding a sense of
urgency to purchases
Hurry, whilst stocks last, This
oer is only valid until how
many times have you seen copy
like this and felt compelled to take
action?

Groupon let you know the product

youre looking at has a limited time
remaining. They want to instill a
sense of urgency in you
encouraging you to make a
purchase.
Thats because of fear of missing
out (FOMO). We, as consumers,
dont want to miss out on
something.

So, if someone slaps on a hurry

sign, were much more likely to
take action than we would if we
knew we could spend a few
minutes, hours or even days
thinking about the product.

Booking.com follow a similar

strategy letting consumers know
how many other people are looking
at the hotel right now and how
many rooms are left.

If youre considering this hotel, you

know you need to take action
sooner rather than later to avoid
missing out on a great deal.

7. Raising or lowering
prices
A simple, but eective pricing
strategy is to raise or lower your
prices in order to increase revenue,
or to pay for outgoings like sta
etc.

But have you ever considered the

psychological eects of raising or
lowering your prices?

Often, when an item has a high

price point, it conveys a sense of
quality.

In the same vain, lowering your

prices attracts bargain seekers
people who are looking for quality
but dont wish to spend much on it.

So its important to think about

what lowering or raising your prices
will do for your products perceived
value.

For example, suppose you owned

an electric bike e-commerce store
with bikes costing $3000+.

If you lowered these prices

drastically, potential customers
might question the quality of your
products, or wonder why you had
to lower the prices so much in the
first place, when theyre used to
paying $3000+

8. Reduce the pain of

paying
If nothing else, the dollar sign is a
symbol of spending money. No one
likes that.

Removing the dollar sign, like some

restaurants do can help alleviate
the pain of spending.

Research by Cornell highlighted

that price formats do influence
customers spending. Where no
dollar sign was visible, spending
was higher.

For an online business, removing

the dollar sign might not be the
best decision as it can lead to
confusion.

So how do you get around it?

The answer lies in making the dollar

sign smaller. BuzzMonitor help
consumers focus on what theyre
getting, rather than the money
theyre spending.

9. Discounts
Its no secret we love free stu and
discounts. Often businesses use
discounts to help promote a
product and reassure their potential
buyer their product is the best on
the market.

Its an eective psychology-based

pricing strategy because it
highlights the perceived value a
consumer might receive.

Discount strategies such as buy

one get one free (BOGOF),
percentage discounts or discount
codes or vouchers are all eective
strategies to use, if done correctly,
for the right reasons.

When the aim is to compete on

price, discounts are an eective
strategy.
Think about the black Friday and
cyber Monday sales, people flock
to websites and stores to buy,
because they dont want to miss
out.

Everyone likes getting something

for free and thats why BOGOF
works so well.

Granted, it doesnt work in all

industries. I think everyone would
be skeptical if your local car
dealership was oering BOGOF.

But when people believe they get

something extra in return, theyre
much more likely to purchase more.

Its important to note, when oering

discounts, you should be careful
not to oer too much discount on
any single product or too much
discount on too many products.
Doing so can lead your potential
Swipe
customers theseyoure
to believe
desperate to sell the product. And
pages to improve
with desperation comes a lower
yourvalue
perceived pricing
and credibility of
yourstrategy
products.

Coming up with an
eective pricing page isnt
easy. It takes time,
consideration and
research.

But the task is 10x easier

when you have a curated
list of some of the best
pricing pages to base your
eorts on.

Ive put together a bonus

resource with 10 of the
best pricing pages to help
inspire you to create or
 improve your own.

Free
Downloadable
Bonus Get access
to our swipe file of
the 10 best e-
commerce pricing
pages right now.

So what does this all

mean?

Like everything in this industry,

theres no one-size fits all
approach.

Often businesses will struggle to

price their products. But remember,
our purchase decisions dont
always depend solely on whether
the price is reasonable or fair.

Take time to think about your own

pricing strategy and the ways you
can influence people into making a
purchase.

When youve successfully

implemented a psychology-based
pricing strategy, youll appeal to
your customers emotions rather
than logic. You will increase the
chance of a customer making a
purchase and boost your
conversions, sales, and revenue.

People respond to pricing

subconsciously. it evokes emotion.
And its important to get it right if
you want sales. Dont sell a product
or servicesell value.

Once youre in the habit of selling

value, your pricing will speak for
itself. What pricing strategies have
you used that have worked for your
business? Comment below, Id love
to know.

Jordie

Jordie is a content marketer at

Sleeknote. She is a writer by nature and
a nurtured marketer. She loves books,
her dog and good food.

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