Whether you’re marketing a new product, selling on multiple channels and marketplaces, or just looking for a way to increase ecommerce sales, coming up with an effective pricing strategy can be a challenging and daunting task. It doesn’t have to be that way though. Pricing your products so that they fly off the shelves while still generating profits is much easier when you take into account the psychology of pricing to understand how your buyers think.
The psychology of pricing goes hand in hand with understanding how and why consumers making purchasing decisions. When deciding whether or not to buy a product or service consumers must feel compelled to take action. While price is often not the only factor that goes into a buying decision, studies show that psychological pricing strategies can be very effective when it comes to increasing sales.
To help you get started, here are 6 ways to sell more and grow your online business by using the psychology of strategic pricing to your advantage.
Understand How Weber’s Law Applies to Pricing
It may seem a bit complicated at first, but Weber’s Law is worth getting to know. It’s a psychological principle often used in marketing, but before you go brush off that psychology textbook, here’s one example of how Weber’s Law works: Imagine you are holding a 5 lb. bag of sugar. If you weren’t looking and someone added another tablespoon of sugar to the bag, would you notice? Probably not. But, if someone added another pound of sugar to the bag, you would surely notice the difference. Somewhere between that tablespoon and one pound of sugar is the “just noticeable” difference – the point at which you are able to perceive a difference in the weight of the sugar. Weber’s Law says the “just noticeable” difference in something is proportional to how big the original thing was. When applied to price changes, the “just noticeable” difference seems to be about 10%. That means that if the price of a product is changed by up to 10%, customers are not that likely to perceive a difference, or if they do, they tend to accept it. This number isn’t ironclad, of course, but the next time you consider increasing the price of a product, it can serve as a good jumping-off point.
Charm Pricing and The Power of The Number 9
You’ve probably noticed that prices often end with the number 9. This is an instrumental part of charm pricing, which involves reducing the leftmost digit from a round number by one cent or one dollar. In a study conducted by MIT and the University of Chicago, researchers found that prices ending in the number 9 increased demand for retailers. This pricing strategy creates a psychological queue, which makes us perceive the price to be disproportionately more compelling than the actual monetary difference.
Use Price Anchoring
Price anchoring is when a buyer uses an initial piece of information to make subsequent judgements. In sales, it is used to appeal to a customer’s desire to get a good deal. For example, imagine you have a watch that is priced at $100. It may be a good, competitive price for that particular item, but when you place a similar watch next to it that is priced at $250, the first watch looks even better. The customer feels like they are getting a deal with the $100 watch. And hey, if you sell the $250 watch to some customers, bonus for you.
Be Precise in Your Pricing
Studies have shown that using precise prices (odd numbers or decimals) makes the pricing more believable to customers. For instance, a laptop priced at $783 or $817 seems to have a higher value to customers than the same laptop priced at $800. This strategy is an easy one to implement. Even changing the price of a product minimally – $400 to $399 – can change a customer’s perception of value.
Simplify Your Prices
According to a paper from the Journal of Consumer Psychology, customers are more drawn to prices that contain fewer syllables. This may seem a little, well…out there. However, the researchers proved that when presented with three different visual options of the same price (e.g. $1,499.00, $1,499, and $1499), the prices that had more syllables when said out loud seemed to be far higher. So, seeing $1499 is more appealing than $1,499 because saying “fourteen ninety-nine” has fewer syllables than “one thousand four hundred and ninety-nine.” This may seem silly, but making this change costs you nothing, it’s just a matter of changing the way your pricing looks.
Give Your Customers Variety
In a study from Yale, researchers found that customers are more likely to buy a product when it is priced differently (even slightly) than a similar product, than if the two products are priced the same. The study used packs of gum to demonstrate this. When two similar packs of gum were priced identically at 63 cents, customers who were given a choice to purchase one pack of gum or nothing, bought a pack 46% of the time. However, when the prices of the two similar packs of gum were changed to 62 cents and 64 cents, sales shot up to 77%. The similarity in pricing seems to demotivate consumers from buying. You don’t have to go change all of your prices immediately to experiment with this strategy, but give it a try on a couple of items and see how it works.
These strategies, while backed by ample research, are not the be-all and end-all to successful pricing, but they are a good starting point for some experimentation of your own. The next time that you are listing new inventory try implementing a couple of these psychological pricing strategies and see if your sales increase. Give your pricing purpose, not just a passing thought, and see what works for your business.