We basically come up with prices based on the following factors:
- Production cost
- Reasonable profit
- Market competition
But if your competitors are selling better even when you have the cheaper and better service or product, you might be doing pricing wrong.
There is psychology behind product pricing, and here are ways to make your product prices right to maximize your sales.
Anchoring is rawly defined as “a cognitive bias that describes the common human tendency to rely too heavily on the first piece of information offered when making decisions.”
Sometimes an expensive product is perceived as premium or top of the class at the first impression – the concept of perceived value based on price. An item would be priced so ridiculously high so that the customer would think he got a good deal by opting to a presented cheaper option. These items are usually put side-by-side for immediate comparison.
Some retail stores do so well on this by putting products “on sale”. Items are actually just priced higher than they are originally to compensate for the “markdown”. For example, an item on sale at 20% off is priced $100, when originally it was just $80.
This can work on customers who haven’t tried the product yet, nor its competitors, and haven’t done research on the market. This is also effective if you have complete monopoly of your product market.
Think of a “smartphone + smartwatch” bundle. Smartwatches may be new to most smartphone users, hence an expected low increase in sales. To cope with this, smartwatches are being sold together with smartphones but in a “cheaper” price altogether e.g. “save more than 30% off on the X smartwatch when you buy the X smartphone bundle” when in fact even with the 30% markdown, the original total price for both items is already compensated.
This approach also works well on products that aren’t selling well, or anymore. If you have a high-selling product and a low-selling one, try bundling them together. The profitable one can help in introducing the low-selling product to the market, and at the same time the latter (which can also be offered as a freebie) can help increase the sales of the high-selling one.
Putting limits to product availability or access can influence a customer’s purchasing decision.
For instance, putting items on sale for a limited time or quantity makes the customer think he might run out of time, or may not be able to buy the product due to shortage if he doesn’t hurry.
4. Staggered Pricing
Let’s say you’re selling a software license or offering a service at $300 yearly – quite a big amount on the first impression, right? Divide that same price by the number of months, and stating it’s just $25/month would make it be perceived as more affordable.
To make it better, you can put up an annual but discounted price e.g. “get 2 months free when you subscribe to our annual plan”.
5. Whole Numbers
Disclaimer: This section is debatable, and it’s just my own opinion.
I perceive 11.50 to be cheaper than 11.45 or 11.49. Saying it’s just 11.5 (sans the hundredths zero) is also better. Best? Saying it’s just 11 or 12 but not 11.00 or 12.00 (nor 10.99 or 11.99).
State your price in its shortest possible form. Eliminate the decimal point.
What do you think of these methods? Do you have your own approaches in pricing? Let me know your thoughts in the comments section down below.