Deep pricing strategy work at your company can significantly increase revenue. We are talking about a study by Help Scout marketer, Gregory Ciotti, in the field of behavioral economics, which teaches the right pricing strategies.
Different pricing strategies: increasing sales
A study by Yale University has shown that varying prices for similar products can contribute to increased sales. When customers have the option to choose between several similar items with different prices, they are more likely to make a purchase.
In the experiment, researchers offered customers a choice between two T-shirts with different necklines. One was priced at $10, while the other was priced at $12. More than 60% of the participants chose the more expensive T-shirt, indicating that price diversity can stimulate sales.
Thus, differences in pricing positioning can be an effective marketing tool to boost conversion rates and increase sales. By categorizing similar products into several groups with different prices, you provide consumers with more options and opportunities to choose from.
- IMPORTANT
Excessive price diversity can lead to confusion among customers, so it’s crucial to strike a balance and offer an optimal range of options with different prices.
In this way, utilizing a diverse pricing strategy can be an effective way to stimulate sales and increase your business’s revenue. Test different pricing variations and analyze the results to determine the optimal pricing positioning for your product assortment.
The anchoring effect
How to sell perfume for $3,000? Place other models next to it for $15,000. The “Anchoring Effect”, known as a cognitive phenomenon, plays a role in this process. People anchor themselves to the first price they see and evaluate all other items in the store based on that anchor.
In this case, even though the perfume is being sold for 3 thousand dollars, they seem like a good deal because there are more expensive alternatives. If a shopper sees perfumes priced at 100, 500, or 1,000 dollars, their perception will be influenced by the initial numbers. Therefore, the first perfume (priced at $3,000) becomes an ideal choice compared to the latter, and there’s a high likelihood that the buyer will make their choice accordingly.
This explains why savvy marketers place products in a catalog, starting with the most expensive ones, to establish an initial price point that the buyer considers standard.
Weber-Fechner law
According to Weber-Fechner’s law, people perceive differences in price not in absolute values but in percentage terms.
For example, an increase in price of $50 will be perceived differently by customers depending on the initial cost of the product. If the product originally cost $100, a price increase of $50 will be more than 30%. However, if the initial cost of the product was $1000, a 5% price increase will not have a significant impact.
The most noticeable price increase is considered to be up to 10%. This means that an increase in cost up to this level will be barely noticeable and is unlikely to lead to a refusal to purchase.
It is important to note that Weber-Fechner’s law is not a strict rule that must be followed unequivocally. It is more of a recommendation that can be used for experiments with price increases of a product.
The power of the number 9
For a long time, experts have debated the effectiveness of using the digit 9 at the end of a price tag. However, research published in the journal Quantitative Marketing and Economics clearly indicates that it does indeed work. Products with prices ending in 9 often sell better, even if they are more expensive than similar products.
For example: when comparing the sales of sneakers, one priced at $35 and another at $39, the study showed that sales of the $39 sneakers were 24% higher.
Comparing prices with competitors doesn’t always work
According to a study by Stanford University, encouraging consumers to compare prices with competitors can trigger a negative reaction, especially if they are unfamiliar with the context. Researchers demonstrated that showcasing a lower price compared to other offers can sometimes raise doubts and undermine trust in the brand and advertisement. The research results showed that highlighting a more expensive alternative can also lead to doubts and result in consumers refraining from making a purchase or opting for a pricier item to reduce perceived risk.
This risk is associated with uncertainty about the affordability of the product. Another study also revealed that when comparing products, consumers pay more attention to their drawbacks rather than their advantages.
This can lead to choosing a more expensive option due to the subconscious belief in its higher quality. Therefore, for a successful comparison of your offer with competitors, experts recommend highlighting objective reasons for the price reduction:
- Efficient logistics;
- A long presence in the market;
- In-house production.
Symbols in pricing
According to the latest research, prices with a greater number of digits are perceived as higher. Let’s consider three price examples:
- $ 2,539.00
- $ 2,539
- $ 2539
The research showed that the first two prices appeared higher to buyers than the third one, even though they are all the same. Our minds perceive these numbers cognitively rather than just verbally.
For example: “two thousand five hundred thirty-nine” sounds more impressive than “twenty-five thirty-nine“. This “enhanced pricing effect” even occurs in visual perception of numbers, without their verbal interpretation. Therefore, experts recommend avoiding complicating price tags with unnecessary digits, such as specifying zeros in the cents field or commas (if not required by pricing policy).
There are other tactics besides pricing strategies. For example, the use of certain words can attract new clients and boost your sales. You can read more about it in our article.
Potential drawbacks of using pricing strategies
Pricing strategies like any controversial business practice, come with a number of possible disadvantages, and ethics in marketing is fundamental to ensure healthy and sustainable business relationships. Here is a discussion about the adventures of price manipulations and the importance of ethical marketing practices:
- Loss of consumer trust: when consumers perceive that prices are being manipulated unfairly or deceptively, they lose trust in the brand or company. This can lead to a decrease in sales in the long term and damage the reputation of the company.
- Damage to customer loyalty: they can make customers feel cheated or exploited. As a result, they may become less loyal to the brand and look for alternatives that they consider more ethical and transparent.
- Impact on competition: they can distort competition in the market, making it difficult for companies to compete fairly and equitably. This can lead to anti-competitive practices and erode diversity and innovation in the market.
Ethical marketing practices are fundamental to building and maintaining trust and credibility with consumers. This helps to strengthen the relationship between the company and its customers in the long term. Companies that prioritize ethics in marketing tend to develop stronger and longer-lasting business relationships with their customers, suppliers and other stakeholders. This can lead to higher levels of customer loyalty and satisfaction.
Conclusion
Marketing research today is so deep that it’s challenging to understand the true motivations and triggers of the target audience on your own. We hope our article has helped you discover interesting ways to increase sales and gain some insights into the psychology of pricing.
