Did you know the price of your product can be your best salesman? Soon you’ll discover 7 research-backed psychological hacks to optimally price your product, so you can double your sales. At the end of the post, I’ll also share a pricing mistake that most people make and that you should absolutely avoid. Let’s rock.
1. IMPLICIT > EXPLICIT
Explicitly comparing your product pricing with your competitors can backfire in a major way – be very cautious when you’re tempted to say to your customers: “look, we’re cheaper!”
Itamar Simonson, Sebastian S. Kresge Professor of Marketing at Stanford, conducted a series of experiments and discovered that while implicit comparison leads to great sales, explicit comparison does not.
Implicit comparison is a comparison that customers make on their own. In a CD auction test, a CD with a starting price of $1.99 was flanked by the exact same CD with either a price tag of $0.99 or $6.99.
$1.99 /// $0.99
$1.99 /// $6.99
The second scenario fetched a much higher auction price because the customer made an implicit comparison themselves.
However, if researchers explicitly told the customer to make the price comparison, then the results between the two scenarios became statistically insignificant.
“It can easily backfire. Consumers may decide not to buy at all or to minimize what they perceive as a heightened risk…the mere fact that we had asked them to make a comparison caused them to fear that they were being tricked in some way…the very fact of being told to make the comparison made people much more risk averse.”
Bottomline: Don’t explicitly compare your prices with those of your competitors.
2. SHORT & SWEET
Keep your price visually short so customers will perceive the price of your product to be lower.
In a paper published in the Journal of Consumer Psychology titled “Comma N’ cents in pricing: The effects of auditory representation encoding on price magnitude perceptions” researchers discovered:
“Participants rated pricing numbers that were shorter to read or say to be smaller.”
Consumers rated the first price to be smaller than the second, which was in turn rated smaller than the third. This effect was achieved by simply removing the comma and decimal places, so the price looked smaller in size.
Bottomline: Keep your price visually short. Take out cents and the comma separators to make it appear smaller.
3. DROP THE $ BLING
The rap and hip hop music fans love their $$ gold chains, but getting rid of that $ sign can increase sales. Building on the previous hack, removing the $ sign from your price helps to shift the customer’s focus from the price to the value of the product.
In a study conducted by Cornell University titled “$ or Dollars: Effects of Menu-price Formats on Restaurant Checks” researchers discovered:
“Guests given the numeral-only menu spent significantly more than those who received a menu with prices showing a dollar sign or those whose menus had prices written out in words.”
The first one brings in more sales compared to $25 or “twenty-five dollars.”
Bottomline: Take out the dollar sign from your price if it makes sense and if you have control over labeling.
4. SIZE MATTERS
The font size of your price can have an impact on peoples’ perception. Often, we make the mistake of putting our sales prices in large red font. Turns out, this isn’t the optimal choice.
Research conducted by marketing professors from Clark University and The University of Connecticut revealed:
“Consumers perceive sale prices to be a better value when the price is written in a small font rather than a large, bold typeface.”
Professor Vicki Morwitz from the Stern School of Business also says,
“In our minds, physical magnitude is related to numerical magnitude.”
Bottomline: Make sure your price font size isn’t disproportionally bigger than the rest of your message.
5. LUCKY NUMBER 9
Logically, we know $99 is essentially the same as $100. But despite this knowledge, prices that end with the number 9 perform uniformly better and bring in more sales.
In a paper titled “Effects of $9 Price Endings on Retail Sales: Evidence from Field Experiments” conducted by the University of Chicago, researchers discovered:
“A dress at $39 outsold the same dress priced at $34 by 24%.”
Bottomline: Make sure your prices end with the number 9.
6. ANCHOR IT UP
Anchoring your product’s price gives it context. For instance, if I tried to sell you a scarf for $50, you have no idea whether that’s expensive or cheap or what the quality of the product is. But if I gave you 3 options, a basic scarf at $20, a normal scarf at $50, and a premium scarf at $100, you now have a much better idea where the $50 scarf stands.
Let’s take a look at the now-famous Williams-Sonoma Bread Maker case study:
– Premise: Introduced bread maker at $275.
– Result: Abysmal sales.
– Follow up: Introduced a 2nd, slightly better, bread maker at $550.
– New result: The original bread maker’s sales skyrocketed.
Why? With a single bread maker at $275, people had no context. But when the new premium option at $550 was in place, people thought $275 was a bargain.
In the book Priceless: The Myth of Fair Value by William Poundstone, the author examined a beer study. 3 beer options were initially presented:
$1.6 /// $1.8 /// $2.5
Most people chose the $1.8 beer.
In the exact same scenario without changing any other variables, a new set of prices were introduced:
$1.8 /// $2.5 /// $3.4
Then, most people chose the $2.5 beer.
Despite the fact that the $1.8 option was available in both scenarios, people thought $2.5 was the reasonable choice when anchored against the much higher $3.4 beer.
Bottomline: Anchor your price. If your objective is to sell a $50 widget, have a cheaper version and a super premium version along side.
Caution: Don’t offer too many products and prices, as too many choices will demotivate people from making a purchase.
7. TRANSACTION UTILITY
You can buy a bottle of Coke from the vending machine for $1.5. However, the exact same Coke can cost $8 at a fancy bar – and the crazy thing is you’d pay for it! Why? Transaction utility.
In a research study published in the Journal of Behavioral Decision Making, economist Richard Thaler conducted the following experiment:
– You’re sitting on the beach with a friend.
– Your friend gets up to buy a drink from the only store in sight.
– He asks if you want a beer, and then subsequently how much you’d pay for it.
– In one scenario, the store in sight is a run-down convenience store, while in the second scenario, it’s a fancy boutique hotel.
– You’d offer to pay more for the exact same beer from the boutique hotel, even though you’ll be drinking it on the beach.
We don’t make decisions solely based on usage, in this case, having a beer on the beach. Fairness and proportionality kicks in because subconsciously, we know the boutique hotel has higher overhead and costs.
Bottomline: If you want to charge a premium price for your hardware, make sure your website, product packaging, and delivery are also premium.
BONUS: AVOID THIS MISTAKE
Almost all hardware (widget, physical product, eCommerce) businesses make this mistake: DISCOUNTING.
Discounting is deadly for your business in the long term. Sure, you’ll get short term spikes in sales, but as soon as customers see discounts, your product loses intrinsic value in their eyes. Worse yet, this erodes your brand value overtime, which will slowly kill your profit margins.
In a study published in the Journal of Consumer Research, participants who purchased a jar of organic tomato sauce for $8.95 were offered some spaghetti:
First scenario: spaghetti offered for free
– When asked how much they’d pay for the spaghetti, the average figure was $2.95
Second scenario: spaghetti offered for a heavily discounted price of $0.5
– When asked how much they’d pay for the spaghetti, the average figure was $1.83
Discounting cheapened the value of the spaghetti.
So what should you do instead? The solution is to add more value. Rather than discounting an existing product, give people more. For instance, rather than discounting your coffee mug, add bonuses like a sleeve or an extra set of mug lids with the purchase.
Bottomline: Do not discount. Instead, offer value by including bonuses with the customer’s purchase.
Which of the above psychological pricing hack will you implement in your business? Let me know in the comment section below.
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