As a business owner, you’re focussed on profitability ( costs, revenue and profit). So choosing the right prices is critical. Too low and you lose money, too high you miss out on sales.
Of course, you need profit to be a viable business but instead of just focussing on and leading with pricing (which can be a race to the bottom). You need to lead with “value” and what your product (or service) offers as part of that value exchange. Show how your product will either a) solve a problem for the customer or b) improve their lives and you’ll boost profit demand and customer satisfaction.
They don’t buy your product for the sake of the product they buy your product for how it improves their lives. What other products are consumers considering when choosing your product? What do they charge How can you differentiate value?
If you remember the popular video game “Super Mario Brother” you were looking for that flower, not just because it was pretty but it made you a super version of Mario. So if you can clearly demonstrate how your product will improve their life and is unique compared to competitors you’ve got them on the hook.
Ever heard the saying perception is 9/10 of the law? Well, it’s true for your product and its perceived benefits by your potential customer.
Product Perceived Benefits
- Primary Drivers -> product features
- Level 2 Drivers -> benefit of features
- Level 3 Drivers -> emotions of goals the benefit satisfies
- Basic Drives -> biological drive behind motions or goals
(There are 4 basic biological drivers: avoidance of pain, pleasure, time, money)
So now you know the perceived benefits customers are searching for (both consciously & sub-consciously). You need to list your product benefits for each of the drivers above.
Then for each of those buying reasons research your competitors and what they are charging for their product(s)?
Pricing in a vacuum
Price on its own means nothing its only important in comparison that how we decide if we’re being ripped off of getting a good deal.
E.g. would youtube happy to pay $80,000 for a car?
(YES if it was a Maserati OR NO if it was a Toyota? That’s because we know $80,000 is cheap for a Maserati but expensive for a Toyota we came to that conclusion easily when we had context)
So it’s all about how your price is framed on your site and can it be improved?
Yes. There are ways to reframe how your price is perceived, you may have seen some example on infomercials e.g. WAS $499, TODAY ONLY $199. We dismiss they are used because they work and convert viewers into customers because they perceive they are getting a good deal.
E.g. “Wow, only $199” but do you think they would say that if they didn’t see $499 first? This technique is using anchoring mixed with urgency.
Want to know the best way to sell a $2,000 watch? List it beside a $12,000 watch. It looks cheaper by comparison!
Another anchoring example is from optinmonster (lead generation software) they are placing the highest-priced plan on the left subsequently their next plan down looks more attractive and “cheaper” at $199 compared to $499. They are also playing into the fact that customer read websites in an F pattern.
7 Price Framing Methods
- Decoy Effect
- Centre Stage Effect
- Anchoring (as above)
- Social Proof
A brilliant book to get on the subject of Pricing psychology is called: The Psychology of Price: How to use price to increase demand, profit and customer satisfaction by Leigh Caldwell
Then you can learn more but it’s a quick read so well worth the time spent reading it for the valuable information you gain.
These are another way to improve the price perception of your products:
- Charm prices: the numbers 9, 99, 95 tend to be effective
- Specificity of price: “rational” purchases tend to benefit more from being specific whereas emotional one with round numbers
- Monetary cues: it was found in a study of restaurant menus customers spent more when the price was listed without the symbol “$” or word “dollar”.
(Source: BP&O/Bravo Company)
Once you’ve nailed your profitable price and used the above techniques to show why your product is the best for them solves their problem and happy to pay, they add it to their cart.
You need to make sure you make the checkout process as painless as possible you don’t want to them to abandon their cart now after all the work you’ve put into the other pages e.g. home page, category page, product page.
It can be easy to forget about check out page. The way the website is design or laid out (UX) is so important it looks simple to fill out then they will think it is even. We do judge books by it cover they me which form you would prefer filling out?
So left look hards right? But actually the right has more fields:
A: has 7 required fields
B: has 10 required fields
So make sure aven at this stage in the process you’re framing the value for the customer. When you look at your current process (test the buying process yourself so you can see what they see from start to finish), how can the process be improved?
Understanding the psychology of product and pricing can help key parts of your business. So use this information to nail down your profitable figure and display it in terms of the value it provides to your prospective customers. Before you go rush off to implement them all, don’t lose your head. Test them one at a time so you know what worked if you change 3 things and have an increase in sales you don’t know which change worked.
So test one by one and if one doesn’t work no problem you tried it so roll back the change e.g. you try $39 because its a “charm” number instead of your current price of $37.50 and suffer a drop in sales so you revert to $37.50 leave $39 on the site but cross it out e.g. WAS $39 NOW $37.50 that way you can test the next pricing framing.
I learnt all of this information from the fantastic on product and pricing as 2 separate modules in CXLs Mini Degree in Digital Psychology and Persuasion and I’ve discovered that I was blind to certain aspects of pricing and how robust (or service) are perceived from a customer point of view. This course really showed me what i was missing out on and the experts they had teaching the modules are world-class in their own right so you know you’re learning from the best.