The Psychology of Pricing

[vangogh]

How much do you know about the psychology of pricing? It's always fascinated me how someone might be more likely to buy your product, because the price ends in a 9 instead of 2 or how more people might accept your offer of $1 than if it were free.

I came across this article on pricing strategies (http://www.smallbiztrends.com/2008/08/8-pricing-strategies-you-can-implement-right-now.html/) that has 8 ideas you can implement in your pricing to increase the perceived value of your offer.

For example:


The Nine and Zero Effect. People associate the number nine with value and zero with quality. Look at the difference between fast food and a gourmet restaurant. A burger meal can sell for about $4.99 while a gourmet entree at the best place in town may go for $30. So the psychology of pricing isn’t so much about gaining additional sales because the price appears to be lower, it’s about what the price communicates about your offering. So which do you want to communicate? Value or Quality? Now you can price accordingly.

There's more ideas in the article and it's an interesting read. The strategies are definitely worth experimenting with, especially when such a small and easy to make change can dramatically affect your business.

Have you ever experimented with your pricing? What did you learn about what works and doesn't work?

[KristineS]

I've heard the theory that people are more likely to purchase something for $4.99 rather than $5.00. For some reason $4.99 seems cheaper, even though it is just a penny difference. I think that's why so many stores have their sale prices end in .99 or .95. People think they're getting a cheaper buy than they really are.

[vangogh]

I think it's because you hear the dollar amount 4 and drop the 99 cents. $4 is cheaper than $5 even though $4.99 and $5.00 are really the same thing.

7 is supposed to be a lucky number so a lot of people try to create prices with 7s in them.

The article has a lot more though than just the numbers on the price. For example Quantity Suggestive Pricing. It uses Arby's 5 for $5 campaign. By suggesting your customer buy more than one item you often get them to buy more than one item. That obviously won't work for all products, of course.

[KristineS]

I see the "Four Easy Payments" one a lot. That one always kills me, because usually, when you add it up, you're paying more than you would if you just paid one payment. I guess having it broken up into multiple payments fools people into thinking the amount is smaller.

[vangogh]

it's funny how if you took a few seconds to think about anyone of these you'd realize they aren't offering any kind of good deal. Yet I know all are time tested and work in different situations.

The breaking it up thing probably works because people can't multiply.

[Aaron Hats]

That bit about the 9's and 0's is interesting. I don't know how true it is but since all our items are priced at even dollar amounts I'll agree that we try to sell quality versus bargains. We seldom have sales and for the most part our customers appreciate that when they buy a hat they won't find it marked down a week later. It took me a while to get our pricing formula worked out but now that I do it seems to work well for us. In the beginning I almost put us out of business by pricing things too low.

[KristineS]

I think a lot of people associate higher price with better quality. I've seen marketing studies where they took the same product and presented it to two different groups of people. One was told the item cost something like $4.95. The other group was told the item was $30. People consistently rated the $30 item as the better product, even though the products were exactly the same.

Isn't it odd how the mind works sometimes?

[Leatherneck]

Hypothetically speaking. If Two contractors had ten customers, and they all wanted both quality and price. They where doing estimates for them (over the phone) and they both bid apples for apples on the same playing field. One gave a price of $10,000.00 the other gave a price of $9,979.00 what do you think the difference would be in people choosing the higher price with all the zeros. If they prefered Qualitiy over a bit lower price. I Wonder???

[vangogh]

Aaron the 9 and 0 thing was a new one to me. Supposedly these are all tested, though I suspect results vary from one business to the next. Certainly interesting and worth trying.

It's definitely true that people associate higher price with higher quality. The best price point isn't necessarily the lowest one. I've seen others test products at different price points and while you'd think they sold the most at the lowest price that usually isn't the case. And again the results will obviously vary.

It's all one reason why businesses doing well shouldn't automatically cut prices. There's a good chance it's the exact opposite strategy you want. If you're being perceived as low quality, which is the reason for a lack of sales, lowering your price will only increase that perception lowering your sales even further.

[vangogh]

Mak with those prices it might not make much difference. I think these studies all have to be taken in a certain context. People may see $5 as being a lot more money than $4.99 even if they know better, but the same people won't necessarily see the difference between $10,000.00 and $9,999.99.

Then again they might.

I think some of these studies conclude that people remember the first or first few numbers and not the end few numbers. So they might still think the difference is greater than it is at any price.

[KristineS]

Car dealers seem to do what you're suggesting Mak. They'll sell a car for 19,999 rather than 20,000.

I wonder if at some point the correlation between higher price and better quality goes away. Or if some items are just considered to be valuable or high quality and people are more inclined to be looking for a good deal, so 19,999 seems like a deal while 20,000 does not.

[orion_joel]

Interesting, i have been quite aware of many of these tactics for some time. Well many people round down to the nearest dollar even if they are dropping 99cents, i always round up if i see $8.95, i am thinking of it as $9.

Vangogh, you are also right about the number 7, some, not all retailers make good use of this. especially on higher priced items. One store i used to work at they would try and price things like laptops, or other high priced electrical items at prices like $997, or $1777, or something like that. However the same store would make more use of the 9's on furniture items. So i dont know maybe there is something about different numbers with different products, which takes some of these concepts even deeper.

I also agree with the quantity suggestive method. Whenever we had 2 for $X or other similar deals it was often the quantity that was suggested is what was purchased. I think that the thinking behind this could come down to people see the price, and the quantity and assume that is how you buy it. They don't think to say how much for 1, although that is besides the fact it usually is more expensive for one.

[vangogh]

Joel I've noticed the 7 think more online that offline so maybe it works for more technical products.

That's exactly how the quantity things work. You say X for $Y and people buy X instead of one. So the 5 for $5 Arby's deal gets people to buy 5 instead of the 2 or 3 they might have been thinking. Instead of your 2 for $X what if you tried 3 for $Y?

[Leatherneck]

Car dealers seem to do what you're suggesting Mak. They'll sell a car for 19,999 rather than 20,000.

Your right Kristine. I do that with my fence quotes, but not just a penny, I do it like around 50.00 less if it is 5,000.00 I will estimate 4, 950. or something similar. It sounds a lot less then 5000.00 Plus I know my competitors do roughly the same thing.