eBusiness Weekly
Robert Gonye
“People tend to be clueless about prices, pricing in a multi-currency economy like ours. Contrary to economic theory, we don’t really decide between price A and B by consulting our invisible price tags and purchasing the one that yields the higher utility. We make do with guesstimates and a vague recollection of what things are ‘supposed to cost’.”
How can you stay ahead of the curve and price your offering the smart way? The answer is simple, rely on rigorously tested behavioural attitudes that work.
I’m going to do some of the heavy lifting for you and try to provide you with a breakdown of some of the worst pricing mistakes you should never attempt in business, this is informed by some of my favourite research studies on pricing.
(1) Using comparative pricing
Driving your message about your low prices can actually hurt your chances of persuading customers if you do it the wrong way.
Research indicates outright asking customers to closely compare your prices against a competitor (without a solid case as to why they should) can decrease their trust in you. The mere fact that we ask them to make a comparison causes them to fear that they are being tricked in some way.
With comparative pricing, consumers may decide not to buy at all or to minimize what they perceive as a heightened risk, instead of following the advice that the marketer/salesperson had in mind.
The thing to keep in mind here is that this only applied to “explicit comparisons”, or when customers were outright asked to compare prices (which to a certain extent is not allowed in certain markets).
Many customers make unspoken comparisons when evaluating their options, but marketers should be wary of triggering customers to think about a competitor’s price, and should instead sell to customers based on value derived unlike price.
(2) Selling money over time
Famous brand researcher, Aaker and her colleagues were able to prove that when prices were already low for an item, the best way to invoke positive thoughts about the product was to remind customers of the time they enjoyed with it or the time they saved by investing in it.
Think of it this way: Does Coca-Cola want you thinking about how affordable their drink is, or do they want you to recall a hot summer’s afternoon you enjoyed by drinking cold drinks over a meal with good friends? When you’re selling bargain products, it’s ideal to invoke these positive moments in time, rather than trying to sell customers on your already-low prices. Value is never driven by price, rather by the ultimate benefit.
(3) Not trying out an old classic
Does ending your prices with the number 9 really work so well that companies should keep doing it? Isn’t it trite and overdone by now?
Well it’s still working in any economy or business. Prices ending in the number 9 are so effective, they actually outsell lower-priced goods.
A study compared price points such as $39 and $34 for items of clothing, and the researchers were shocked to find that the $39 dollar price point actually outsold the cheaper price point by as much as 24 percent.
(4) Not incorporating the power of context
So there is one very interesting phenomena, buying the same product from two different stores sold from an upscale location versus a regular store with two very distinct prices, customers willing ability to pay more from a higher location. Consumers have no objections to the higher prices when asked what they would pay.
What does this mean for you? Your prices can be raised by simply changing the context in which you’re selling.
Are you selling products, or full-feature solutions? Is your book for sale, or is your complete training tool-kit available for customers and ready to solve all their problems? These wording choices may seem trivial, but on the web they’re often your best way to express your product’s value — and part of your product’s value is based off of the context in which customers view it.
5) Not framing in rightly Re-frame your product’s value
We all struggle with large numbers, they just aren’t as easy to digest as smaller amounts are. That being said, extra conservative buyers have a really hard time evaluating potential value for long-term expenses.
Here’s an example: If I told you my service would cost $1 000 per year, you’d be a bit hesitant to buy, right?
Right, that’s because $1,000 isn’t change. What if, instead, I told you my product was $84 a month? You’d be able to see (much more easily) if the $84 gave you enough value each month to justify a purchase.
The thing is, those two price points are actually the same amount overall! For tight spenders, though, being able to evaluate price on this smaller time scale has been shown to make them much more likely to buy.
Referencing the cost of your product in smaller time spans can definitely help increase sales if you have a lot of conservative spenders.
(7) Not keeping prices simple
This is one of the most surprising studies on pricing that I’ve ever come across.
As research would have it on behavioural economics, Prices that contain more syllables when spoken seem drastically higher to customers. What does that mean exactly? Compare the prices of:
$1 499,00
$1 499
$1 499
They all mean the same thing, right? That’s right. But according to study, the subjects felt both the first and the second example were much higher than the third. Despite the fact that the prices were the same value, when the extra syllables and commas are added into the pricing, it feels like a higher cost to those in the study.
The researchers indicate this phenomenon occurred even when the prices were not stated out loud, meaning that reading the price aloud in their head was enough to make it feel more expensive.
What does this mean for you? Ideally, you have to avoid any and all “unnecessary” additions to your pricing’s structure. It may seem trivial, but the research proves that you should have a “$2 500” product rather than a “$2 500,00” product, despite the fact they represent the same cost.
I hope this was insightful and will allow you to relook at your pricing models as see what adds value to your business.
The views given herein are solely for information purposes; they are guidelines and suggestions and are not guaranteed to work in any particular way.
Robert Gonye is a Business Growth Influencer. He writes in his personal capacity. Comments and views: [email protected]
