You may have seen the optical illusion where a line appears longer when it is presented vertically rather than horizontally. It’s the same with pricing. It’s now what you offer but how you offer it. A Harvard Professor has found that 95% of purchasing decisions are subconscious. A perfectly crafted pricing strategy allows you to convert browsers into buyers. Psychological techniques show that buying decisions do not have to be based on the lowest price. One saying exemplifying this idea is: ‘Sell the sizzle, not the steak’.
In this article, I will reveal how to reduce the pain of paying, how to simplify the decision making process for the consumer, and how to successfully expand into global markets.
The Old Shows the Way
Let’s begin with the scenario where you are planning to launch a new, more expensive version of an existing product. How would you price the old one? Many will reduce the price of the old product and gradually discontinue with it. A study by Baker, Marn and Zawada (2010) shows how ineffective this strategy can be. By lowering the reference price, your new product will appear way more expensive. But, if you increase the price of the old version, the perceived value of the new launch would be greatly boosted. This will create the favourable conditions the new product needs.
Anchoring Prices
When consumers are evaluating a list of products, the few on the top set the reference price in their minds. In order to establish trust, show your products with the best features at the lowest price.
Making Payment Easier
A rewarding strategy is offering payment in instalments for products and services that are on the higher side. If you can allow the lump sum to be divided into smaller payments, you can get the buyer hooked on to the reduced instalment rate instead of the total sum which may be overwhelming.
This is not to suggest that the buyer is gullible, as the study by Muzumdar and Sinha (2005) shows that consumers definitely compare prices subconsciously. But your product would have a better appeal to your customer if they know that they need not shell out a lot of money at once.
Options to Make Better Choice
Research on consumer behavior shows that if there are only two options for a product, a buyer’s personal preference to make the decision will come into play. But if you employ a decoy tactic by adding a third option, then you can influence the consumer to take the more expensive of the two original options. Let’s say you have the options of a small bucket of popcorn for $3 and a large one for $7. Most people will go for the smaller bucket as per their needs. But if you add the option of a medium bucker for $6.50, most people would buy the large bucket because they are enticed by the idea of getting extra popcorn for only $0.50 more. Value for money is indeed a classic strategy.
Encouraging People to Stay
If you have already taken a customer on board then you are set to sail. But to make the sailing smooth and lasting the psychology of loss aversion can be a huge boon. People do not want to lose what they have and if you can induce just the right amount of fear of losing some service benefit that they have been enjoying then you can make them continue with their commitment towards your goods or service.
You can look at one of the ways in which LinkedIn retains their premium membership subscriptions through an in-mail credit system which expires after ninety days, provoking the members to continue with the subscription.
Attractive Pricing
Purchase decisions are not always made rationally. Many of them are emotional or impulsive choices. Often, there may not even be any real need for the product. Wadhwa and Zhang (2015) have found rounded pricing (e.g. $20) to work better for emotional purchases. It takes the edge off the price, can be processed quickly in the mind and therefore psychologically feels just right for buying.
Emotional Purchases
For rational purchases, the reverse strategy is the formula for success. When a consumer wants to take a logical decision to fulfil a specific need then non-rounded prices (e.g. $99.75) give them enough to think about. You should consider pricing your product accordingly if it fits this category.
Rational Purchases
The Design Matters
How you arrange the information on the page is important. As a thumb rule, whatever you want to emphasize in positive value must be placed on the top and towards the right. Negative phrases like ‘Majority of stock sold’ make an impression when placed in a low position. You must also be consistent in the designing.
Words around Price Count
The words that you use around your pricing must be of low magnitude with reference to the features of the products. Coulter and Coulter (2005) discovered the effect words of smaller magnitude have on consumers. Instead of highlighting the high performance benefits you should show how your product makes something easier, requires less effort or has less of a certain feature which makes it more desirable.
Red Is Attractive
The colour red seems to have an impact on men when making purchase decisions. A study by Puccinelli et al. (2013) has found that men gravitate towards buying a product if the price is displayed in red. Since most men like a hands-on approach to problem solving, the colour holds their attention and becomes the singular most important information they use to decide in favour of the product. Red is not only an enticing colour but men also associate red pricing with savings.
The Price Shouldn’t Sound Heavy
You must remember that a consumer while looking at the numbers indicating the price is ultimately spelling it out in the mind. Several studies like Coulter, Choi and Monroe (2012) , (Dehaene, 1992). Coulter et al. (2012) have analysed how auditory syllabic length effects price perception. Longer words will have more syllables, which means that the consumer must process greater amounts of information. This makes one feel that the price is heavier even if the two prices have the same written length. To give you an example, ‘forty seven dollars eighty four cents’ sounds more than ‘forty eight dollars sixteen cents’ even though the second one has the higher price. This is a trick played by sense perceptions which you must take into account.
Conclusion
Pricing strategies are fundamental components of marketing. The measures that you take for your business to expand are guided by pricing in a profound way. The ones discussed above can be implemented to psychologically encourage consumers to buy your products without necessarily having to lower the rates. Whichever strategy you choose, the effectiveness in enhancing sales and the overall growth of your business will be decided by how your brand has perceived customer value and how your marketing efforts make your customers return to your brand.
