Determining the best prices for your products isn’t easy. Too low and you might find yourself struggling to generate a profit…or even break even. Too high and you might end up without many sales.
One strategy to use when pricing your products is psychological pricing, which relies on certain human tendencies to determine product pricing. In this blog post, I’ve come up with a few different psychological pricing techniques that you can use to get people to buy your products.
Read on to find out what they are.
1. Use the Number Nine
Ever notice how almost every store seems to include the number nine in the product prices? Turns out, there’s a reason for this: People are drawn to the number nine.
Why People Are Drawn to #9
Part of the reason for this is that people read from left to right. So an item that is priced at $4.99 will seem significantly cheaper than that same item priced at $5; because people have a “limited capacity for storing information,” they only think about the first digit when comparing prices.
Another possible reason is that, because the number nine is more exact (and not rounded up), people trust that it’s fair.
Finally, items that end in .99 are often associated with discounts, so people just assume that they are getting a good deal when they see prices that end in those two digits.
The Power of 9 in Action
In one experiment, conducted by MIT and the University of Chicago, shoppers were presented with three different prices for the same product: $34, $39 and $44.
Can you guess which one sold the best? That’s right…the one that ended in nine. When the product was priced at $39, it sold even better than when it was priced at a lower price of $34.
I rest my case on the power of number nine.
When to Use #9
With all of that being said, you need to be strategic about when you use number nine. Since people associate .99 with discounts and cheap products, you might want to round up your prices if you sell luxury goods.
Notice how Apple uses the number nine…but doesn’t end their product prices in .99 (which could lower the perceived quality).
In similar fashion, the apparel brand, Everlane, avoids decimals and always rounds up the prices of their products:
If, on the other hand, you sell cheaper products or are discounting your merchandise and want your customers to realize what a great deal they’re getting, then ending your prices in .99 is probably a good idea.
2. Price Your Products Higher
In the book, Predictably Irrational, author, Dan Ariely, talks about how our expectations shape reality. One way to shape expectations is through price. Ariely found that higher priced medicines worked better than lower priced medicines–even when those medicines were exactly the same.
Other studies have confirmed this. In one experiment, a group of diners at an Italian restaurant was charged $4 for an all-you-can eat buffet. Another group was charged $8 for the same buffet. And the diners who paid $8 actually enjoyed the buffet more than those who paid $4.
Now, this doesn’t mean that you should just price your goods higher for the sake of it. If your buyers are very price-conscious, then doing so could backfire. But if you sell prestige goods or unique, high-quality products and you want your audience to place a higher value on your products, then this can be an effective tactic.
“Veblen goods” are products that increase in demand when price increases (which goes against the law of demand). This has to do with the fact that people who purchase luxury products often do so as a way to prove their higher status. And the more expensive the product is, the higher the perceived status of the buyer. Take a look at this Cartier watch, for instance:
With a price tag of $131,000, Cartier fulfills their buyer’s need for esteem and status. And the very fact that shoppers can’t even purchase the watch online highlights the product’s exclusivity.
Depending on the type of product you sell and your target audience, you might find that increasing the price of your products will result in a higher demand. And it will almost certainly result in higher expectations…and a better product experience.
3. Price Similar Products Differently
People like to be able to compare products before making a purchase. Case in point: In one Yale experiment, a group of students was offered the choice between two packs of gum, both of which were priced at 63 cents. Only 46% of students made a purchase.
But when the prices of the gum were changed, so that one was 62 cents and the other was 64 cents, over 77% of people bought a pack.
Because when prices for similar products are exactly the same, people often face decision paralysis. They don’t know which product to choose…so they end up not buying anything at all.
Don’t let this happen to your customers. Make it easy for them to compare your products by assigning different prices to similar products, even if the price difference is minimal.
4. Provide Three Options
In the book Priceless, author, W. Poundstone, talks about how he ran an experiment, where one group of people was presented with two different kinds of beer:
- A premium beer for $2.50
- A cheaper beer for $1.80
When faced with these two options, around 80% bought the more expensive beer.
Then he added a third beer to the mix: a super cheap beer for $1.60. So there was now:
- A premium beer for $2.50
- A cheaper beer for $1.80
- An even cheaper beer for $1.60
This time around, 80% went with the $1.80 beer and the rest went with the $2.50 beer. Nobody chose the cheapest one.
Finally, he got rid of the $1.60 beer and replaced it with a very expensive beer that cost $3.40, so people were presented with:
- A super premium beer for $3.40
- A premium beer for $2.50
- A cheaper beer for $1.80
This time, most people chose the $2.50 beer, a small amount went with the cheapest beer and about 10% of people chose the most expensive one.
Bottom line? When presented with the choice, people will often choose the middle option (not the most expensive option and not the least expensive).
But people really don’t know what they want until they see it in context. So present your shoppers with three options, where your middle option is the product that you want people to buy. See how Crossrope does it:
5. Introduce a Price Decoy
In Predictably Irrational, Ariely talks about how he once ran an experiment where he offered his students three different options:
When presented with these options, most people chose the third option; and nobody chose the second option.
But then he presented another group of his students with just the first and last option (removing the middle option altogether). This time, the majority went with the first, cheaper option.
Why? Because they had nothing to compare the third option with, so it no longer seemed like such a steal The print subscription was just a decoy to make the print-and-web subscription look good.
Lesson learned here? Present your shoppers with a deal that will make it hard for them to say no to. Offer three different versions of your product, where one of them is the clear winner.
6. Prime Your Customers with a Higher Price
Get this: Even just hearing or seeing a number can affect the amount that we’re willing to pay for something.
In Predictably Irrational, Ariely ran an experiment where random items were held up and presented to a group of students. The students then had to write down the last two digits of their social security number, which became the pretend price of the products. So if the last two digits of someone’s social security number was 60, the item was priced at $60.
Then, they actually bid on the products. In the end, the students with high social security numbers paid up to 346% more than those with low numbers.
You see, because those students were primed with higher numbers (which just so happened to be their social security numbers), they were willing to spend more.
The social security numbers (and the pretend prices) became their price anchors, to which all future prices were compared. Price anchoring is the human tendency to rely heavily on the first price (or number) that we’re given when making our purchase decisions.
Price anchoring helps explain why you might be willing to pay $15 on a t-shirt, but not $115 (that is, unless you’re used to paying $115 for a t-shirt…). It also explains why we’re so swayed by discounts. We see that first price crossed out, and we think that the new, lower price is a bargain.
But you don’t have to use discounts to take advantage of price anchoring. Instead, you could prime your customers with higher-priced products on your site, so that the items you really want to sell seem cheap in comparison. Or you could just display a higher number somewhere around your price, like so:
7. Consider Context
When I go to Barnes and Noble to buy a book, I expect to pay at least $15-$20 for a paperback book. But if I’m buying the same book on Amazon, I expect to pay at least a few dollars less.
It might not seem rational, but the context of products impacts our expectations of the price.
One study found that shoppers were willing to shell out more for a Budweiser if they knew if it was coming from a high-end hotel as opposed to a decrepit grocery store.
Similarly, if your website is outdated and poorly designed, your customers might not be willing to pay as much for your products than if your website is high-end and beautifully designed. So create high expectations for your customers…and they will be willing to pay more for your products.
With all of that being said…there’s a limit to what you can charge, no matter the context.
Here’s an example: The other week, my friend ranted to me about how she was charged $17 for two lattes at a coffeeshop in New York City. Granted, the coffeeshop was high-end…and it’s New York City. But still. It’s pretty hard to justify paying that amount for two coffees, no matter how fancy the coffeeshop is or what city you’re in.
8. Bundle Your Products
If you’ve ever eaten at a fast food restaurant, then you’re probably aware of how product bundling works–and how effective it can be.
Think about it: You can choose a #5 value meal which includes a hamburger, a drink and fries for $5.99…Or you can spend $2.99 on the hamburger, $1.50 on the drink and $2.00 on the fries. If you don’t really want the drink, it would be more economical to just buy the hamburger and fries. But for simplicity purposes, you might go with the menu option anyway, since it eases the decision-making process and it’s a bargain.
Look at what the shaving products company, Harry’s, does:
They know that their customers would be unlikely to select every single product in the kit individually…but if everything is bundled together for them automatically, then most people will probably go with the bundled option.
Spending money is painful for most people. So make it less painful for your customers by bundling complementary products together. Just make sure that you always offer your customers the option to buy your products individually too, since not doing so can actually hurt your sales.
And one last thing: Don’t bundle expensive products with inexpensive products, as this will lower the perceived value of your expensive products.
9. Sell a Loss Leader
Have you ever wanted a job and thought to yourself: How can I get my foot in the door?
Because once you do manage to get your foot in the door, it’s much easier to make it to the next stage of the hiring process.
The foot-in-door technique is based on the idea that once people say “yes” to a small request (like an interview or meeting), they are much more likely to say “yes” to a larger request down the road (like hiring you).
Because people want to appear consistent in their actions.
In 1966, several researchers performed a study, where they contacted a number of people, asking them to put a small sticker on their cars promoting safe driving. Several weeks later, they asked the same group to put a large sign on their lawns promoting safe driving.
Then they contacted a different group of people (for the first time), asking them to do the same. They found that those who had agreed to the first request were much more willing to complete the second request.
So get your foot in the door by offering your customers a tripwire offer or a loss leader, which is a product sold at a loss in order to reel in customers. Offer them something that they will be likely to say “yes” to.
Then, after a bit of nurturing, introduce your more expensive product (your core offer). Chances are, this approach will be far more effective than trying to sell your expensive product right off the bat.
10. Reframe the Price
What sounds like a better deal to you: $80/month or $960/year?
Even though they are exactly the same in the end (assuming you use the product for the entire year), the first option seems much cheaper, doesn’t it?
Or how about this one: 50 cents/day or $15/month?
It seems a whole lot easier (and less painful) to pay 50 cents a day for something than it does to pay $15 a month, am I right?
So give some thought to the way that you frame your prices. If you sell a subscription-based product, then highlight the monthly (or even daily) price over the yearly price–and give your customers the option to pay by the month, instead of requiring that they pay for the entire year upfront.
11. Offer Something Free
In one experiment that he ran, Ariely offered students a Lindt truffle for 26 cents and a Hershey’s Kiss for one cent. 40% went with the truffle and 40% chose the Kiss. But then he dropped the price of both chocolates by one cent and suddenly, 90% of people went with the Kiss.
So what gives?
They were swayed by the power of free.
So don’t underestimate what free can do for your business. Offer your customers a small freebie or free shipping once they spend a certain amount. Or if you have a subscription-based program, you could offer your customers a freebie in exchange for joining, like the cosmetics company, Birchbox, does:
If you have a lower-priced product, you could create a free-plus-shipping sales funnel, where you give away one of your products for “free,” but add the cost of the product to the shipping cost. So instead of pricing your product at $10.99 + $3.99 for shipping, you would make the product free and charge $15 (or better, $14.99) for shipping.
Whatever you offer, make sure that it’s truly something of value. Otherwise, free might not have such a powerful impact after all.
12. Make Your Prices Simple
Funnily enough, even the way that you write your prices can make a difference in how they’re perceived. In the Journal of Consumer Psychology, several experiments proved how the longer in length a number or price is, the higher that number or price seemed to be. So when faced with these numbers…
….most people perceived the first price to be the highest, followed by the second price, with the third price seeming the lowest.
Crazy, right? Because they are all obviously exactly the same!
But here’s the thing: People perceive numbers to be larger when they use more syllables. This is the case even if you aren’t saying the number aloud, since your brain unconsciously absorbs the auditory version when seeing it visually.
This also helps explain why many higher-end restaurants exclude dollar signs from the prices on their menu. You might not be able to get away with excluding dollar signs on your eCommerce site, since you have to be a bit more explicit. But you can make your prices as simple as possible by getting rid of any unnecessary punctuation and those 00s.
13. Use Small Font
Even the font size of your price can make a difference in how it’s perceived. Research has shown that when the font size of a price is smaller, people assume the price to be lower.
This doesn’t mean that you have to make the font size of your price miniscule and hard to read…but consider at least making the surrounding font size larger, so that the font of the price–and the price itself–seem small in comparison.
14. Consider Your Word Choice
The words that you use to describe your price can also make a difference.
In one CMU study, the messaging for a DVD subscription was changed from “a $5 fee” to “a small $5 fee.” And as a result, trial rates went up 20%.
In another example, two researchers tested out different descriptions for inline skating. In some descriptions, they emphasized “low friction,” and in other descriptions, they talked about “high performance.” Even though people found both benefits to be of equal importance, they were more price-happy when the description used the word “low.”
So, when mentioning any of your product benefits around the price, consider using words that are of smaller magnitude, like “low” and “small.”
15. Think About Timing
Believe it or not, but even when you show your product price can impact what people think. One study, by Karmarkar, Shiv, and Knutson (2015), demonstrated this. They performed MRI scans of people while they were shopping online and found that when people were shown products first, shoppers made their purchase decision based on the qualities of the product. On the other hand, when the prices were shown first, shoppers made their decision based on price.
So if you want your shoppers to take notice of your low costs, then advertise the prices first. But if you offer high-quality, luxury goods, then you’d be better off focusing on the benefits of your products and not leading with the price.
16. Emphasize Time Spent Over Money Saved
If your product is inexpensive, then you should tell your customers how cheap it is, right?
Not so fast.
When trying to convince people to buy your product, it’s much more effective to emphasize the time that they will spend with the product as opposed to the money they will save.
In an experiment, two researchers had several children hold a lemonade stand. One at a time, they had the kids hold up three different signs that read:
- “Spend a little time and enjoy C & D’s lemonade”
- “Spend a little money and enjoy C & D’s lemonade”
- “Enjoy C & D’s lemonade”
And buyers were also told that they could pay however much they wanted to (between $1 and $3).
The first sign, emphasizing time, far outperformed the others: More people stopped and those who stopped paid more for the lemonade.
The researchers claimed that, “because time increases focus on product experience, activating time (vs. money) augments one’s personal connection with the product, thereby boosting attitudes and decisions.”
17. Be Wary of Comparative Pricing
Okay, so now you know that you probably shouldn’t emphasize the cost of your product (even if it is a really good deal)…but should you ever compare prices with your competitor?
No. Here’s why:
One experiment by Stanford showed that when consumers were explicitly asked to compare prices, they became hesitant to make a purchase. The researcher stated that, “the mere fact that we were asking them to make a comparison caused them to fear that they were being tricked in some way.”
Instead of comparing prices, it would be more powerful and convincing to express how your product is different and what unique benefits you have to offer that your competitors may not.
Notice how the mattress company, Leesa, doesn’t mention price when comparing their product with competitors (like Casper)…but they do explain how it’s different:
Final Words: Using Psychological Pricing to Maximize Your Sales
We all like to think that every one of our decisions is rational and that we’re in complete control of every decision we make. But the reality is that many of our decisions are irrational. And 95% of our purchasing decisions are subconscious.
Even things that are seemingly insignificant, like the font size of your price or a random number that your shoppers are primed with, can influence a purchasing decision.
So use the aforementioned psychological pricing techniques to get your customers to buy.
Experiment a little! Try out different ones to find the psychological pricing strategies that work best with your business.
Lastly, remember that pricing is only one piece of the puzzle; there are many other things to think about when it comes to generating sales, like your value proposition, the quality of your products, your website design, your website speed, and your website copy, to name a few.
Need an eCommerce web design agency or eCommerce marketing services to help you with all of that? Get in touch for a free quote. (See what I did there? Just tried to sway you with the power of free…😉Did it work?)