Psychology is Your Pricing Strategy’s Best Friend

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*The following is a guest post from MageCloud.  

There’s a lot of work that goes into pricing your product. That’s especially true if you’re pioneering a new market with no competition and you don’t have any products’ prices to refer to. But eventually there comes a time when you will have to reconsider the pricing of your goods or services. There are various reasons for this: a shift in the demand, the exchange rates (this is especially true, if you’re selling to an international audience), etc.

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Thousands of companies take this approach when dealing with the price tags on their products. Every day, millions of people make online purchases. Most of them like to think that they have made a conscious choice after thorough research, but a lot of the purchasing behavior actually comes down to the psychological triggers that drive our decision-making process. In the end, psychology is the ultimate reason why people click the “Buy Now” button. Here are a few ways that psychological pricing comes into play in online retail and how retailers can price most effectively.

Anchor Pricing

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Anchor pricing occurs when you price similar products at different price points. You might have practically identical items that you’ll price differently for various reasons. For example, you sell 2 vacuum cleaners, one has 600 Watts of power and the other one has 800 Watts. You give the one with less power the anchor price of $100 and the more powerful one will get a price tag of $120. The customer thinks that they’re getting a 30% power increase for just a 20% price increase.

But what if we introduce an ad to the page offering another $10 off the 800 Watt vacuum cleaner, if they order within the next 2 hours? This changes the decision making process of the customer even more, and encourages the customer  to buy the product now.

There’s a Time and Place for Whole Prices

Recent consumer research explains the difference between round and non-round prices and how they affect the behavior of potential consumers. You don’t usually say, “I’ll need 14.23 minutes to get there”. You don’t ask your roommate to buy you “4.35 pounds of rice,” you ask them to buy you “a couple of pounds.” And so on. In real life situations people tend to use round numbers all the time.

Whole pricing tends to work better for emotional purchases (like vacation-related purchases) and odd pricing is more effective for functional items (like household necessities).

Let Them Choose

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When you show that your competitor has higher prices than you do, you might actually be damaging your sales. In a study conducted by Stanford Graduate School of Business, researchers found out that pointing people to price benefits might actually make them less likely to purchase. In other words, when you say to your customers explicitly that your prices are lower, they might start thinking that there’s a catch. What this means for you is that you should make the price comparison as implicit as possible.

It’s important to remember that pricing is more of an art than a science. It has a specific set of basic rules, but apart from that, a lot of things depend on your audience and their behavior, habits, and subconscious triggers. It would be worthwhile to experiment with any of the mentioned pricing tactics and perfect them to suit your own needs.

Have you ever had a major pricing overhaul at your website? Which pricing tactic turned out to be the most lucrative for you? Share your thoughts and ideas below.

Author:

This article was written by Alex Plotnikov. Alex is managing marketing at MageCloud.net – a one-stop shop for eCommerce store owners and Magento developers, which helps them launch new stores in less than 10 minutes by installing themes, extensions and deploying everything into the cloud hosting infrastructure.

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About Wiser

Wiser provides a complete suite of solutions to give retailers, brands, and manufacturers the edge to stay both competitive and most importantly, profitable.

Wiser’s core product is WisePricer, full-featured dynamic pricing and merchandising engine that monitors, analyzes and reprices retail products in real-time. WisePricer enables retailers to boost profit margins and revenue, price with confidence, and improve merchandising through powering the development of a sound pricing strategy.

Ready to try it out for yourself? Schedule a Demo or Sign up for a 14-day Trial online – No obligation. Learn how to win the pricing battle.

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Brian Smyth

Brian Smyth is a content writer at Wiser, a dynamic pricing and merchandising engine for online retailers. He holds a BS in business with a concentration in marketing from San Francisco State University.