PSSST! What’s YOUR Pricing Strategy?
Did you ever consider that question?
Fact is, the psychology of pricing is a field in and of itself, and there’s a wealth of research on the subject.
Let’s dive in and explore some key findings on price-point psychology and how it can be used to boost your sales.
FACT: People perceive value differently depending on the price point.
Studies have shown that as the price of a product increases, so does the perceived value (Northcraft and Neale, 1989; Carmon and Ariely, 2000). This is known as the “price-quality inference,” which means that people will infer that a more expensive product is of higher quality than a cheaper one.
Research has also shown that odd pricing, or prices that end in .99, can be used to anchor the perceived value of a product (Hoch and Ha, 1986). For example, if a product is regularly priced at $10, but is on sale for $9.99, the consumer may perceive the sale price as a better deal.
MORE RESEARCH: Consumers are more likely to make impulse purchases when the price is low (Yee and Bigne, 2005). This is because consumers perceive a low price as less of a commitment and therefore feel less risk in making the purchase.
But it’s important to remember that too low of a price can also be a red flag for consumers. Studies have found that when the price is too low, it can imply a lower quality product or service (Chandon, Wansink and Laurent, 2000)
Example? Okay… Let’s say you’re selling a high-end, luxury leather wallet. If you price it at $49, people may perceive it as low quality crap cranked out by giant greasy machines the size of their house… and pass it over.
But price it at $499 and, “Hey… now THIS is a freakin’ high-quality wallet!”
Or let’s say you’re selling a 1-pound chunk of chocolate. Price it at 99 cents, and people think, “UGH… a POUND of chocolate for less than a buck? What is it… brown WAX?!”
But price it at $39, and people may see it as a premium snack and may consider it as a fair price… especially if it’s a chunk of Vosges luxury chocolate.
And yes, price points in real life (not just in fun examples of wallets and big chunks of chocolate) really made a difference between sales success and failure. Three examples to consider…
- The Segway Personal Transporter. The Segway PT was first introduced in 2001 with a retail price of $5,000. Despite being a revolutionary transportation device, sales were slow due to the high price tag. In an effort to boost sales, the company lowered the price to $4,000 and also began offering financing options. This led to an increase in sales as more people could afford to purchase the Segway PT.
- The Amazon Fire Phone. The Fire Phone was released in 2014 with a retail price of $199 with a two-year contract, but it was met with mixed reviews and slow sales. Amazon responded by lowering the price to $0.99 and offering a one-year Prime membership with the purchase of a Fire Phone. This price drop led to a surge in sales, as more consumers were willing to give the phone a try at a more affordable price point.
- Google Glass. Google Glass, an augmented reality head-mounted display, was released in 2013 with a price tag of $1,500. Despite the high-tech features and innovative design, sales were crummy due to the high price point. Google dropped the price to $999 and also opened up the Glass Explorer program to allow more developers and testers access to the device. This led to an increase in sales as more people were willing to purchase the device at a more affordable price point.
“But Drew! Of course more people bought when they LOWERED the price. Everyone wants to pay less… er, right?”
It depends on how you present your offer. Let’s now look at three products that sold MORE when their prices were RAISED…
- The first example is the Apple iPhone. When the iPhone was first released in 2007, it had a retail price of $499 for the 4GB model and $599 for the 8GB model. However, sales were slow due to the high price point. Apple responded by RAISING the price to $699 and $799 for the 16GB and 32GB models respectively. This led to an INCREASE in sales as the higher price point was perceived as a sign of the phone’s high-quality and exclusivity. In Neuro-Linguistic Programming (NLP) this is called a Complex Equivalence… where something MEANS something else. In this case, a higher price “MEANT” (in their minds) a better quality phone.
- Another example is the Tesla Model S–When the (very fast) Model S was first released in 2012, it had a starting price of $57,400. However, sales were slow, as the price point was too high for most consumers. Tesla responded by cleverly RAISING the price of the Model S and offering a higher-end version with additional features. This led to an increase in sales as the higher price point was perceived as a sign of the car’s luxury status.
- The last example is the Nest electronic home thermostat. When it was first released in 2011, it had a retail price of $249. However, sales were slow due to the high price point. “$249 for a freakin’ thermostat?!” Nest responded by UPPING the price of the thermostat and adding additional features such as remote control and energy reports. Result? An increase in sales. Just like with the iPhone and Tesla, the HIGHER price point was perceived as a sign of the thermostat’s high-quality and added value. Again, that crazy Complex Equivalence.
Yes, indeed my friends… pricing strategy is a delicate balance between perceived value and perceived risk. The price-quality inference and anchoring can be used to boost sales, but it’s important to be aware of the potential drawbacks of pricing too low or too high.
Fortunately, we are not rocks, stuck and immobile with the inability to respond. We can make adjustments. And test. It’s what direct-response advertising is all about.
Now… don’t just click away. Let me know what YOU think!
Thanks for reading. <HANDSHAKE>
Drew
According to Whitman, not one-in-100 business people knows what it takes to create ads that motivate people to buy. “For example,” he explained, “few know that up to 83% of people read only headlines and no more… that captions under photos get 200% greater readership than non-headline copy… ads with sale prices draw 20% more attention… four-color ads are up to 45% more effective than black-and-white ads, and scores of other little-known facts and principles.”
A Temple graduate, Whitman began writing ads at age 11 selling jokes and gags to his fifth grade classmates. After more than 30 years of study and creating advertising for everything from small retail shops to Fortune 500 companies, he now shares his experiences by authoring books and conducting training sessions with a tough-talking Philly edge that’s garnered him international recognition as one of today’s leading authorities on advertising effectiveness.
FACT: Making your ads simple, clear and more readable goes a long way toward boosting your response.
pictures with thick rubber cement with its big gloppy, dripping brush!), never did I know that one day I’d be touring the world giving seminars on the topic of advertising and sales.
GOAL people are typically high achievers who set targets and work tenaciously to reach them. Because of this, they often become wonderfully successful.
RIVER people, by contrast, are those who — typically early on in life — discover an innate love of a topic or activity that naturally propels them to continually want to be their best and, because of this, they often become very successful in doing so. To these people, the activity can be more important than the success they achieve.
And well-selected GRAPHICS can help you drive even more eyeballs to that copy.
