Businesses are always trying to figure out exactly how to price their products or services. Many factors are taken into consideration…supply and demand, fixed costs, competition, quality, projected gross profit as well as a unique value proposition. In addition to these factors, businesses sell benefits and solutions to customer problems. It then places a value on what is being sold in comparison to similar products and services offered in the general marketplace to a targeted audience of potential buyers.
By combining all of these factors into the pricing mix, a business decides on the exact amount to price its products or services. However, there is more to pricing than simply coming up with a number and then adjusting it periodically based on sales and customer demand.
Psychology of Pricing
The astute business owner or manager realizes that a bit of psychology can also play an important role in pricing leading to an eventual increase in sales.
1. Choices
Everyone likes choices especially buyers. Rather than offering customers only one choice of pricing for a product or service, two or even three choices can be offered such as:
- Small or large
- Small, medium, or large
- One item or two items
- One, two, or three items
Customers can then rationalize which option is more appealing to them. Regardless of which option is chosen by the buyer… a small purchase or a large purchase…the business still makes a sale. Customers are able to comparison shop within the same business rather than comparison shop with a competing business that might ultimately make the sale.
2. Upselling with Multiples
A technique used by many businesses is to offer a single product at a particular price but also offer multiple related items all at one combined price rather than pricing each individual product or service separately. When multiple products or services are offered (bundled) at one combined price, it eliminates the customer from trying to determine separately if each product or service is needed and the value of each. A typical example is a new car priced with many different options included, value meals offered by restaurants (appetizer, salad, entree, and dessert), or software that performs many different but related functions.
3. The Special
Buyers, consciously or subconsciously, love a deal. They love to purchase something on sale…a special reduced price. All businesses use this technique from time to time and buyers certainly understand this selling technique but still love the end result. When a buyer sees one price and then a reduced offering price, the new, lower price becomes a special…a deal. Certainly, it is an old technique but still works. The original price seen by buyers stick in their mind and anything lower is a special that all buyers love.
4. Something Free
How many times are you offered something on the Internet for free? Maybe, it’s a free trial for 30 days, a free newsletter, free updates, or free templates. Whatever the giveaway, businesses are basically trying to get their foot in the door…your door. Again, we know why the business is doing what they are doing, but buyers still love something for free. Once the business has a buyer’s interest and contact information, they are then able to persuade the buyer to either make an initial purchase or upgrade the free trial to a paid purchase.
Pricing Psychology is Important
So, in addition to a business pricing products or services based mainly on objective criteria…cost, competition, etc., pricing psychology is also very important. It can add an important element in deciding on the price of products and services leading to higher sales and net profit. If a business is not using some psychology in determining how to price products and services, it is certainly worth testing to determine if one technique or another produces higher sales compared with past performance. No harm in trying!
