The Psychology of Pricing – Strategies to Increase Sales
Building relationships is key when it comes to increasing sales. Repeat customers increase transaction sizes, thus expanding your revenue stream.
Pricing psychology can be an effective strategy to expand customer reach and grow revenue. Learn about various psychological pricing tactics used to influence consumer behaviors.
Anchoring
Anchoring pricing strategies entail setting an initial price higher than you think customers are willing to pay, then offering discounts that make the new lower prices appear reasonable in comparison. This process is known as anchoring and adjustment heuristic.
Other pricing strategies tied to product value may include paying in cash, purchasing season tickets or making advance purchases and subscriptions – these can help ease consumers’ stress about using up all their money quickly.
Anchoring bias may backfire if initial information is misleading or deceptive, however. For example, starting off your customer on an unrealistically high price for a caffeine-based drink with immunity-enhancing ingredients could make them feel outraged by any subsequent increases. It’s crucial to avoid anchoring bias whenever possible, so fixed-price models may be more suitable in these instances.
Decoy Pricing
Decoy pricing is one of the most effective psychological strategies used to increase sales. This involves positioning a product so it becomes the dominant choice of consumers; oftentimes this tactic is employed in order to persuade them to select high-end goods or services they otherwise would have bypassed.
The decoy effect works because consumers tend to avoid extremes in product choices – they will opt for products in the middle as it offers them greater value compared to either cheap or expensive options. An example would be magazine subscription services offering $59 digital plans or $125 print options; many consumers will go for the cheaper online subscription, which seems more reasonable given its reasonableness compared to more costly options.
Decoy pricing, similar to anchoring, can help businesses upsell premium offerings by giving the impression that customers are receiving an amazing bargain. Charm pricing also utilizes this tactic by eliminating the first digit of any price to take advantage of “left-digit bias.”
Perceived Value
When pricing products, business owners often consider several aspects such as competitive analysis, market research and human psychology – yet many overlook one of the most significant elements: perceived value.
Customer perceived value is how customers view your product or service based on manufacturing costs, reviews, and other considerations. Perceived value varies greatly among customers but can be an effective tool for increasing sales.
One way to increase perceived value is with the “power of 9” pricing strategy. This method involves setting items at prices ending in 9 or 5. This tactic can encourage buyers to spend more than intended, feeling like they made an impressive deal and wanting to come back later – but should only be employed as short-term strategy since customers could become distressed by feeling like they have been “manipulated.”
Social Proof
Many business owners rely on tried and true pricing strategies derived from market research and competitive analysis, but may overlook human psychology, which can greatly alter how customers perceive price points and product values.
When they feel uncertain, buyers seek guidance from those similar to themselves for guidance in making decisions of their own. This practice, known as social proof, can be leveraged by ecommerce businesses to increase conversion rates.
One way of doing this is incorporating user-generated content, like customer reviews or testimonials, into your marketing campaigns. Lingerie retailer Yandy successfully increased their CVR on Facebook Dynamic Product Ads by including customer photos and reviews in their ads – this way demonstrating that its products offer good value to its customers who purchased items and proved they were satisfied with them – something which helps build buyer trust by showing that social proof exists for your products or service.
