What psychological tactics and tricks can you use with your product pricing to encourage more customers to buy from you..?
We’re all familiar with the old £Xx.99p tactic retailers use to make their price visually appear £1 cheaper by lowering the price by just 1p. Does that really work? And what other psychological marketing techniques are there that you can use to increase your sales? Here we’ll take a look at some of the most effective…
The first thing to bear in mind is that the vast majority of information that our brains process goes un-noticed by the conscious mind. There is simply too much data entering our brains every second for the conscious brain to process it all, so most of that information by-passes our conscious awareness and is filtered instead by the subconscious.
Most of our decision making process happens at a level we’re not consciously aware of. A decision whether or not to buy something usually happens at a subconscious and emotional level first, before our conscious brain then processes the decision, supposedly based on logic, allowing us to arrive at the decision.
However, that conscious, ‘logical’ processing part is usually our conscious mind justifying and backing up the decision that our subconscious mind has already made for us. Humans make decision based on emotion and subconscious cues – and then back those decisions up with conscious logic and reasoning.
If you can get in to your customers’ minds at the subconscious level and pull the right levers, you stand a much better chance of influencing their subsequent ‘logical’ decision making process.
There are many ways of doing so – and here are a few simple ones related to how your price your products, be that online or in a store…
REDUCING THE £ FIGURE BY ONE
The familiar tactic of dropping a price by 1p or 5p in order to make it appear cheaper is tried and tested and proven to work. It seems difficult to believe that anyone can still fall for this – we all know, logically and consciously, that the difference between a £2.99 and a £3.00 product is not significant. However, we’re not interested in dealing with the logical, conscious mind here – this is about influencing subconscious decision-making.
Our brains subconsciously encode information like numbers far more quickly than we’re consciously in control of. Within fractions of a second of your eyes seeing a number, it’s processed – and being used as a subconscious reference point against subsequent information, before you’ve even finished reading the digits on the page.
The important thing is to ensure your 1p or 5p price drops reduce the left-most digit. It’s no good reducing a price from £3.50 to £3.49, because it’s the largest digit in the price that our minds use as the ‘anchor’.
As our subconscious minds process data to help you make a decision, the more favourable ‘anchor’ (i.e. the lower left digit) will work in your favour. Even if on the surface we consciously understand a £2.99 product is effectively £3, our subconscious will have processed the more favourable left-most digit and used this as a positive anchoring factor when comparing against a £3+ product.
AVOID USING COMMAS IN PRODUCT PRICING
For products costing over £1,000 you should avoid using commas in the price. There are two reasons for this, the first being that a comma adds physical length to the number meaning it takes up more space on screen (or on a label). Our brains perceive prices that take up more physical space as being larger than those which are smaller.
The other reason is the number of syllables a price has when spoken aloud (or in your head). The longer the syllabic length of a price, the higher our brains perceive it to be. Take for instance “£3,499” – which we’d typically process as “three thousand four hundred and ninety nine”. “£3499” by comparison is often processed as “three four nine nine”.
Our subconscious perceives numbers that can be spoken with fewer syllables as lower than those with more. You should also avoid adding pence figures to the end of high priced items for the same reason (compare the syllables in ‘£3,499.99p’ with simply ‘£3499’).
Research conducted by Coulter, Choi and Monroe (2012) concluded that “…Consumers non-consciously perceive that there is a positive relationship between syllabic length and numerical magnitude” and that “the verbal encoding of a written price can influence assessments of the numerical magnitude of the price”.
USE PRECISE NUMBERS IN LARGE PRICES
Customers typically pay more when the items they buy are priced at seemingly random, specific numbers – particularly with high priced items. For example, a buyer is more likely to buy a car priced at £15,248 compared with one priced at £15,000). Research reveals two reasons for this…
Firstly, people are more inclined to suspect that rounded prices are artificially made up. It seems a precise cost has been calculated based on some form of cost price plus a specific percentage markup – a reasonable way of calculating a price. A cleanly rounded figure (e.g. £15,000 compared with £15.248) looks more likely to have simply been made up out of nowhere and therefore either artificially high or more susceptible to being negotiated downwards.
The other, more compelling reason, is to do with a subconscious association that we have between low numbers often being precise compared with higher numbers that we typically round up or down.
We normally think in terms of precise numbers when figures are low. For instance an item that costs £1 or £2 – we would normally think about and talk about that item’s precise cost, rather than rounding it. But a house that costs £550,000 we’d typically refer to using more rounded, general phrasing like “five hundred thousand” or “half a million”. We round and generalise higher numbers and are precise about lower numbers.
So when precise figures are used in high pricing, we’re triggering part of the brain that associates them with low numbers, making us attach a feeling of ‘low’ to a number – even if it is not low!
Check out the research by Thomas, Simon, and Kadiyali (2007) who analysed property sale transactions and came to this conclusion.
PEOPLE PREFER PRICES THAT REFLECT THEIR NAMES AND BIRTHDAYS
This is a difficult one to implement online, but it’s an interesting – although hard to believe – concept that’s backed up by plenty of research.
The principle is that if your prices can somehow reflect personal information about a customer, they are more inclined to buy from you at that price. An example might be someone named “Steve” who would prefer a price that includes the same first letter as his name (e.g. “seven hundred and seventy six pounds).
Alternatively, prices that contain digits that relate to a date that’s familiar to your customer – e.g. their birthday. Someone born on 9th February (i.e. 09/02) will be more favourable to an item priced at £90.20 or £9.02.
Bizarre and hard to believe, but check out the research on ‘implicit egotism in pricing’ by Coulter and Grewal (2014) to see this in action.
WHERE IN THE SALE PROCESS SHOULD YOU REVEAL YOUR PRICES?
There is often debate around how early on in a sale process – be it on or offline – that you should reveal your product’s price to the customer. The answer is dependent on what you’re selling and whether it’s perceived as a high quality / luxury item or low quality, cheap commodity type product.
When customers view a product in absence of its price, they begin assessing and processing it subconsciously based on its quality or performance. If your product stacks up favourably in these regards, this is the behaviour you’ll want to encourage in your customers. When they don’t immediately know the cost of an item, their attention is focussed on its quality. If you have a high quality, premium or luxury product, this is exactly what you want.
Where the customer sees the price of an item first, they begin their subconscious assessment of it based on price, before quality. So if you’re selling a common low cost item (e.g. like a lightbulb or a pack of biros) where your pricing compares favourably with competitors, present the price so it’s immediately obvious before the full product detail.
If you’re selling luxury jewellery or expensive furniture, minimise the display of the price or move it to a position where the customer sees it only after having assessed the detail and quality of the product. This ensures their early decision making processes kick in based on the criteria you want them to assess your product on.
See the research by Karmarkar, Shiv and Knutson (2015) on the ‘impact of price primacy on consumer decision making’.
INCLUDE VISIBLE REFERENCES TO HIGHER PRICES
We know people subconsciously process numbers like prices using the ‘anchoring’ principle – i.e. that they make judgements on products based on prices of other products that are visible at the same time.
By showing other items at higher prices close to the item you are aiming to sell, you can manipulate customers’ frames of reference to make them ‘feel’ that the target product is cheaper.
For example, if you needed to sell high volumes of a particular product – say a mobile phone case – on a market stall, you could surround that product with similar items of higher value so that customers are exposed to the higher prices while looking at the target product you are trying to push.
This tactic is often used online, where the important, high value / high margin products are positioned next to products with a higher price in order to increase the attractiveness of the target product. You can also include ‘other customers also bought…’ or ‘you may also like…’ items on a particular product page, ensuring all these items are priced substantially higher than the target product.
BE CAREFUL WHEN REDUCING PRICES OF OLD PRODUCTS
What do you do when new product lines become available which replace old products that are being phased out or made obsolete? Most retailers discount their old products in a bid to sell off their remaining old stock to make way for the new ranges. However, this approach can have a negative effect on your sales of the new stock.
Your customers have no way of perceiving the value of any item other than to compare it with other similar products that they can see or are familiar with (i.e. establishing a ‘reference price’ or a pricing ‘anchor’). If their reference price is actually the same product, (just last year’s model) at a lower price than the new model, they automatically perceive the newly released product to be ‘expensive’ – even if, in fact, it’s the same price as you previously sold the old model for! Making the old model cheaper gives your customer a lower anchor point and therefore makes your new product feel more expensive.
Here’s an example from a bicycle retailer…
- 2016 Trek Caliber Mountain Bike – costs £750 in 2016
- 2017 Trek Caliber Mountain Bike – released in Jan 2017 – costs £750
- 2016 Trek Caliber Mountain Bike – remaining stock in store reduced to £650
Customers’ anchor price for the bike is then £650, making the new model appear more expensive to them in comparison. Of course this can work in your favour if your primary goal is to sell the lower-cost reduced stock. Just be mindful of the effect – both positive and negative – that price anchoring has in your customers’ minds.
OFFER ‘DECOY’ COMPARISON PRODUCTS
The famous example of this tactic, which many marketers know about, is the pricing strategy used by The Economist magazine to sell its web and print subscriptions, researched and reported on extensively by Dan Ariely in his superb book Predictably Irrational.
People can only truly understand the value of any product in relation to the cost of other products. We need things to compare with in order to make decisions on price and value – and your customers will often make these value comparisons against your other products. Without other similar ‘reference prices’, your customers brains have a harder time establishing the value of a product and committing to a buying decision.
The Economists’ famous subscription model was originally:
- Print and digital edition: $125
- Digital edition only: $59
Here, customers were forced to choose between the two options – and predominantly chose the lower cost ‘digital only’ version because it was cheaper – and what’s the point of paying more to have a printed version of something you can read digitally for cheaper?
However, The Economist benefitted from selling printed versions (more sales revenue plus also higher circulation meaning more ad revenue) and wanted to encourage more customers to buy the ‘web and print’ version.
So they introduced a third option, which on the face of it appears a completely pointless product…
- Digital edition only: $59
- Print and digital edition: $125
- Print only edition: $125
The new ‘print only’ option was one that they never expected to sell any of. Why would you buy the print only version when you could spend the same amount and get print and digital versions?!
However, adding this option immediately changes the customer’s perception of the ‘print and digital’ version. It’s no longer seen as the more expensive option, it’s seen as the better value option compared with the ‘decoy’ product (i.e. the print only one).
The Economist sales revenue rose 43% by simply introducing this apparently pointless decoy product option.
Try giving your customers a similar choice when they’re comparing your products and prices. Introduce a similarly or identically priced option, but which is noticeably worse than the target product you’re trying to sell. Hey presto, that target product immediately looks more attractive to your customers as a result.
WHEN DISCOUNTING ITEMS USE THE ‘RULE OF 100’
Discounts are generally presented to customers as either a monetary value or a percentage value (for instance ‘£10 off’ or ‘reduced by £10%’), but which approach is most effective?
When you’re presenting customers with a price discount, you should ensure you’re presenting the highest possible numerical value to them to represent the discount.
For example, you’re selling a bed for £500 – should you promote ‘20% off’ or ‘£100 off’? You’ll see that both prices end up the same – but the number ‘100’ is higher than the number ‘20’, so you should promote the offer as ‘£100 off’ rather than ‘20% off’. Your customers will perceive the discount as larger.
It’s known as the ‘rule of 100’ because for any price lower than £100, the reverse of the above will be true. Percentage discounts on prices below £100 will appear larger; numerical discounts on price above £100 will appear larger.
OFFER ROUND NUMBER DISCOUNTS
Remember the tip above about using precise numbers for your prices rather than neatly rounded ones? This is because people associate precise numbers with low values and rounded numbers with higher values.
The same principle therefore applies to discounts – and you want to use it in reverse. Never offer discounts like ‘12.5% off’ or ‘£5.52 off’. These precise numbers trigger associations in our subconscious with low values. Instead, round the figures to the nearest clean, round figure so customers associate them with larger values and your discounts will appear larger.
OFFER DISCOUNTS AT THE END OF THE MONTH
I often find when I re-fuel my car at the petrol station and I have a full tank of fuel, I’ll drive around far less economically than I do when the tank is almost empty. With a full tank, I’ll accelerate quicker and drive faster. When the gauge is almost at empty, I’ll tiptoe around carefully conserving fuel to avoid running out. It’s a stupid approach – why should I only be trying to save fuel when the tank is almost empty? I could have avoided the tank being empty so soon if I’d been more conservative when it was full!? And what does this have to do with pricing and discounts?
It’s because it illustrates our brains’ perception of the value of something when we don’t have much of it. For fuel in the tank, substitute money in our bank accounts. At the end of the month, in the week before pay-day, most people’s bank accounts are at their lowest – and at this time their awareness of pricing and product values is at its most acute.
At the beginning of the month, when their bank accounts are full with wages, they are less aware of product prices – and therefore more likely to spend money. So if you must offer pricing discounts, do so at the time when most of your customers are feeling more sensitive to the pain of spending money – i.e. at the end of the month.
BE WARY OF THE DANGERS OF DISCOUNTING
Many retailers have a love-hate relationship with discounting. In some cases, it’s a necessary evil – but can often just descend in to a race to the bottom, which you as the retailer can only ultimately lose.
Discounts train customers to focus on lower costs and to consider price over quality. When you discount a high quality product, your customers place more emphasis on the price of the item than of the features and quality of it. This is fine when it comes to shifting units at the lower cost, but when you end the discount and return your product back to its original price, the customer’s frame of reference, anchor point and attention remain on the lower price. They therefore become more likely to buy other lower cost, lower value items in future at the same kind of discount price, rather than to shift back to buying the higher quality goods at the higher price.
If you’re operating in a low-cost, discount market, then providing discounts is fine. However if you sell higher quality, premium or luxury goods, discounting is likely to be a bad idea as it devalues your proposition and trains your customers to expect lower prices in future. Focus instead on increasing the added value of your premium products. If you must offer promotions on premium items, consider including something additional for free – adding value to the customer’s purchase, rather than removing cost.
GRADUALLY INCREASE COSTS / DECREASE DISCOUNTS
The goal here is to invoke the well-documented ‘loss aversion’ principle in your customers’ minds. People feel loss far more profoundly than they feel gains. The level of emotion you’ll experience when you lose a £5 note for instance is far greater than that you’ll experience if you find a £10 note. Human brains are hard-wired to avoid loss – much more so than they are towards gaining things.
If you, as most retailers inevitably will, have to increase your costs, you can do so in a phased approach. This lessens the overall impact on your customers when they learn about the increase (an increase of a product from £10 to £20 is felt much more harshly than an increase from £10 to £15 to £20 for example).
These phased increases are also useful if you can let your customers know about them in advance – creating an urgency for them to avoid ‘loss’ (i.e. having to spend more in future) and therefore making them more likely to buy the product now to avoid the increase.
The same principle applies to how you withdraw discounts. If you can do so in a phased approach, you’ll create a loss aversion effect, prompting people to buy now to avoid the higher price in future. You’ll also lessen the unfavourable ‘price anchoring’ effect, which occurs when customers compare your product’s current price with its previously-discounted one.