A huge new resource rounds up just about everything psychologists have ever figured out about how to price your products.
When asked what he wishes he’d known before starting up, Neil Patel, co-founder of Web analytics start-up Crazy Egg, answered: “I wish I knew how to price test. When we first released the product, we based pricing based off of what we wanted to charge, versus optimizing price to achieve maximum revenue and profitability.”
Chances are, Patel isn’t the only entrepreneur with this regret. To the novice, pricing can seem both vastly important and totally tricky. Customers are known to have all sorts of odd biases and unexpected preferences when it comes to what they’ll pay, while at the same time, valuing your products correctly can mean the difference between healthy revenue and eating way too many packets of Ramen.
So how do you avoid Patel’s regret without spending your incredibly limited time reading every resource on pricing out there? A gigantic new guide to the psychology of pricing can probably help.
Put together by psychology-obsessed marketer Nick Kolenda, the hefty list of customer quirks and strategies to take advantage of them offers no fewer than 29 ideas to help you master the dark art of pricing, including:
You’re probably already familiar with the most common tactic that falls under Kolenda’s broad category of “charm pricing” — using numbers that end in .99. But those aren’t the only prices that are weirdly (and irrationally) seductive to customers. Kolenda offers tons of other tactics, such as avoiding good, old .99 for emotional purchases and using a round number instead.
“Round prices (e.g., $100) are processed fluently,” he explains. $98.76? Not so fluent. “Could one choice generate more sales? Researchers think so. Wadhwa and Zhang (2015) found that round prices–because they are fluently processed–work better for emotional purchases. When consumers can process the price quickly, the price ‘just feels right,'” he concludes (though the post offers a major caveat).
Another tactic? Choose prices that take fewer syllables to say. “Our brain uses more resources to process phonetically longer prices (which triggers a fluency effect). Since we use a larger amount of mental resources, we falsely infer that those prices must be larger,” Kolenda writes.
“But Nick! When I see a price, I don’t say it out loud. I just read it,” you might object. “Same here. But according to research … that doesn’t matter,” he assures readers.
Reframe your price
Besides our odd attraction to some numbers and aversion to others, customers are also deeply influenced by the context in which they see a price, a fact Kolenda mines for tons of effective pricing techniques. So, for instance, shipping and handling should always be separate.
“When you use ‘partitioned pricing’ (i.e., breaking up your total cost into multiple components), you anchor people on your base price, rather than the true total cost (Morwitz, Greenleaf, & Johnson, 1998). When people compare your price to a reference price, they’ll be more likely to pull your base price into the comparison,” he explains.
Another trick? Try “reframing your price into its daily equivalence (e.g., $0.87/day). … You should still make your regular price the primary focus. Simply mention the daily equivalence.” For even murkier psychological reasons explained in the post, using small fonts and physically putting your price on the left (of a webpage, say) may also nudge people toward thinking it’s relatively low.
If you’re intrigued by these ideas, be aware that they really only scratch the surface of the suggestions on offer in this truly vast resource. For those struggling to price their products, the full guide is definitely worth a read.
How to Price Your Product or Service
Strategic advice from John Katzman, co-founder of 2tor and founder of the Princeton Review, and Scott Gerber, founder of the Young Entrepreneur Council.