Pricing to Persuade: Psychological Strategies in Modern Marketing
95% of purchasing decisions are based on the subconscious mind. Therefore, your pricing model can hugely affect the behaviour of your customers. This is your guide to different pricing strategies and techniques, including how to steer your customers towards certain products or services. Consumers often lack a clear understanding of what things should actually cost and the price they are willing to pay is also highly malleable. The ‘pain of paying’ is something most people experience; there are very simple ways to begin combatting this. Something as easy as removing the ‘£’ logo from a menu, or setting prices with fewer syllables, can help your prices to be perceived as reasonable and affordable. These methods are crucial for businesses looking to maximise their sales and profitability in today’s competitive marketplace.
Key Psychological Pricing Strategies
Price Anchoring
This involves setting a high initial ‘anchor’ that the customer views first, to make subsequent offers seem more reasonable. Other options suddenly seem more accessible when there is the chance to pay an amount considerably less than the ‘premium’ or most expensive option. For companies with tiered pricing structures, this is particularly effective as you can direct users to select your preferred tier.
Charm Pricing
This is the simple trick of ending prices with a 9. Consumers are more likely to view £19.99 as closer to £19 than £20, for example, which encourages purchasing on the allure of a good deal. It’s a widely used strategy, so arguably has less impact than it did initially, but charm pricing remains a low-risk, go-to strategy. Also, the ability to majorly impact user perception with a single penny is a huge advantage.
Who’s using it?
Over 70% of Amazon Fresh’s product pricing ends in the number 9, with treats or special buys being the products most likely to be priced this way. Retail, hospitality and companies with non-luxury products that want to convey a special price. As it gives the impression of a deal, this method works best for businesses promoting affordability for their customers.
Decoy Pricing
This tactic involves adding a less attractive option: ‘the decoy’ to make other prices more desirable. Consumers automatically compare options and prices against each other; the decoy pushes them towards the one appearing to be the best value for money.
Who’s using it?
Hospitality, electronics and any business offering subscription services are well suited to use this method.
Example: Drink Pricing at a Cinema
Let’s say there are 3 sizes for fizzy drinks at a cinema, the small is £2, the medium is £4.50 and the large is £5. Even if a customer only wants to drink a ‘medium’ amount, they are far more likely to choose the large as it the best value, and only 50p more.
Case Study: The Economist
The Economist magazine altered their subscription structure to fit this model with the following options:
$59 per year for web only
$125 per year for print only
$125 per year for web and print
This made the ‘print only’ option the decoy, steering their subscribers towards the ‘web and print option’. Before decoy pricing, 68% of their customers were on ‘web only’ subscriptions, and 32% on ‘print only’. After this change, 16% chose ‘web only’, 84% chose ‘web and print’ and no one opted for ‘print only’. This shows how despite no change in the actual price, the Economist were able to effectively direct their customer base to their most expensive pricing plan.
Bundle Pricing
Bundle Pricing is where multiple products are offered together as a discount. This boosts value perception which attracts price sensitive customers despite an increase in transactional value.
Who’s using it?
Businesses in software, telecommunications and entertainment.
Flat Rate Bids
This means quoting one price for a service, no matter the work involved. This is a simple way to promote transparency and reassurance for customers who appreciate knowing costs up front. There is a lot of stress surrounding unforeseen costs or overtime, so providing a flat rate appeals to most customers.
Who’s using it?
Freelancers, consultants and contractors.
Price Appearance
It is not always important to convey a deal with your pricing, especially if your customer base is more affluent, valuing quality rather than affordability. Premium and luxury services with unique selling points justify setting higher prices. Charm pricing will be ineffective in this case, rounding prices to the nearest 10 or 50 makes a product or service seem more exclusive and luxurious.
Centre Stage Effect
As a more general strategy, when presenting a range of products, consumers are naturally drawn to the option situated in the middle, an ideal placement for preferred options. This technique can be used alongside other methods, like charm or decoy pricing, to double your impact.
Advanced Psychological Pricing Techniques
Price Framing: Emphasise value propositions and highlight savings compared to competitors. Alternatively, you can break down prices into daily or weekly rates to seem more digestible.
Scarcity and Urgency: Create a sense of FOMO (fear of missing out) for your customer base through limited-time offers, low stock alerts and flash sales.
Social Proof: Utilise your positive reviews, ratings and testimonials to reassure potential customers, validating and encouraging their decision to buy. With so many scams putting people off purchasing, genuine endorsements go a long way in persuading consumers to purchase.
Personalisation: Tailor your pricing and promotions to individual consumer behaviours and preferences, increasing the likelihood of conversion. It’s never a bad idea to be well-informed on the diversity of your customer base.
Understanding and implementing these psychological pricing strategies can significantly influence consumer perceptions, drive sales and ultimately reach your revenue goals. Even simple and easy changes can go a long way, so why not try it?