We are all in business to solve problems, add value and make a profit -- tasks which involve pricing your product or service. But how do you effectively price your product or service to increase sales and make more money with little or no effort?
It’s simple; use psychological pricing.
Psychological pricing is a pricing/marketing strategy based on the theory that certain prices have a bigger psychological impact on consumers than others. Below are five pricing strategies entrepreneurs can adopt:
1. Charm pricing: Reduce the left digits by one.
This strategy, often called "charm pricing," involves using pricing that ends in "9" and "99."
With charm pricing, the left digit is reduced from a round number by one cent (or peso). We come across this technique every time we make purchases but don’t pay attention. For example, your brain processes Php 300 and Php 299 as different values: To your brain, Php 299 is Php 200, which is cheaper than Php 300.
How is this technique effective? It all boils down to how a brand converts numerical values. In 2005, Thomas and Morwitz conducted research they called "the left-digit effect in price cognition." They explained that, “Nine-ending prices will be perceived to be smaller than a price one cent higher if the left-most digit changes to a lower level (e.g., Php 300 to Php 299), but not if the left-most digit remains unchanged (e.g., Php 360 to Php 359).”
In an experiment conducted by the University of Chicago and MIT, women's clothing was used to test the left-digit effect. First, prices were set for US$34, US$39 and US$44. To the amazement of the researchers, the items sold best at US$39 even though that price was more expensive than other options.
So, the message here is, if you want to increase purchases of your products and services, convert zero ending numbers to nines. A perfect example of this strategy can be found on Apple’s website, where each product price ends with a 9.
A postscript: Keith Coulter, associate professor of marketing at the Graduate School of Management, Clark University, has suggested that this effect may be enhanced when the cents are printed in a smaller font.
2. Prestige pricing strategy
Prestige pricing is the complete opposite of odd or charm pricing. Prestige pricing involves making all numerical values into rounded figures, i.e., Php 99.99 is converted to Php 100.
You may be wondering why. According to Kuangjie Zhang and Monica Wadhwa in a 2015 study, rounded numbers (e.g., Php 100) are more fluently processed and encourage reliance on consumers' feelings, compared to non-rounded numbers (e.g., Php 99.99), which are less fluently processed, and encourage reliance on cognition.
This means that rounded numbers "feel right" because the purchase is being driven by feelings and the price is processed quickly.
Zhang and Wadhwa realized that consumers were more inclined to buy a bottle of champagne when it was priced at US$40.00, rather than US$39.72 or US$40.28.
3. BOGOF: Buy one, get one free.
This is a pricing strategy in which customers pay the full price for one product or service to get another for free.
The psychological strategy at work here is, simply, greed. Once a customer comes across the offer, logic gets tossed to the wind and the main focus is making a purchase to get the free item.
Now, because this technique has been widely adopted and most people no longer take the bait, you could stir things up a bit by offering one of the following: (1) buy one and get 25 percent off your next purchase; (2) purchase one and get four bonuses valued at Php 60, for free, and; (3) buy one, get three for free.
To fully maximize this strategy, get creative with your discount offers.
4: Comparative pricing: placing expensive next to standard
Comparative pricing may be tagged as the most effective psychological pricing strategy. This simply involves offering two similar products simultaneously but making one product's price much more attractive than the other.
This is a psychological game of choice for the customer, who has to choose between two products that are similar but have different prices.
This strategy works well with fashion brands, which place side by side tuxedos with similar quality but different prices, to make customers pick the more expensive one, which is the desired purchase.
To the average human, if something is expensive, then it is "quality."
A perfect illustration of this strategy would be the case study on “The Williams-Sonoma bread maker”.
5: Visually highlight the different prices.
When you offer a sale with a previous price side by side with a new one, you make more sales because customers feel they are getting a bargain and are not interested in researching the drop in price.
To make the new pricing strategy work effectively, use the psychological trick of changing the font, size and color of the new price.
This trick triggers a fluency effect and consumers interpret the visual difference to a larger numeral distinction, according to 2005 research by Keith Coulter and Robin Coulter.
According to that research, simply changing the font, size and color of the signage for the current sale price and placing it a little bit away from the previous pricing will increase the number of purchases, because customers see the new price as cheaper and a better deal than the previous price.
So, given these psychological pricing strategies, you might try them out, remembering to split-test different ones on different pages and products to determine what works best for your business.
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This article originally appeared on Entrepreneur.com. Minor edits have been done by Entrepreneur.com.ph
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