As marketers and business owners, you will most likely come to deal with the process of pricing your products or services.
Many businesses struggle with this process because although they understand their customer’s needs, they aren’t experienced with what to charge people for their work.
Gregory Ciotti analyzed some recent research studies that dive into pricing of products and services in the hope that you might better understand how to price your own goods.
1. Comparative Pricing: Not Always Optimal
One of the first techniques that many marketers attempt in forming a new pricing strategy is to directly compare their price with that of a competitor.
New research from a Stanford marketing study has shown that asking consumers to directly compare prices may have unintended effects.
Itamar Simonson found comparative pricing isn’t always favorable because “it can change the behavior of consumers in very fundamental ways.”
Consumers may decide not to buy at all or to minimize what they perceive as a heightened risk instead of following the advice that the marketer had in mind.
This study analyzes the effect of implicit and explicit comparisons to arrive to this conclusion.
Implicit comparisons occur when a customer takes the initiative to compare two or more products.
Conversely, explicit comparisons are those that are specifically stated or brought up by the marketer or advertiser.
“Marketers need to be aware that comparative selling, although it can be very powerful, is not without its risks.”
Think about that the next time you directly compare your offering to your competitors.
Instead, you might better benefit from highlighting unique strengths and placing an emphasis on time saved over money saved…
2. Selling Time Over Money
New research which advocates the benefits of “selling time” over money, may be a perfect choice. “Because a person’s experience with a product tends to foster feelings of personal connection with it, referring to time typically leads to more favorable attitudes—and to more purchases.”
Marketers need to start being aware of the meaning that their products bring to the lives of their customers before they start focusing their marketing efforts.
This Study also notes that the one exception seems to be any products consumers might buy for prestige value.
“With such ‘prestige’ purchases, consumers feel that possessing the products reflect important aspects of themselves, and get more satisfaction from merely owning the product rather than spending time with it,” says Cassie Mogilner.
Factor these considerations of the important of time next time you go about pricing your product, and you’ll see that catering to consumer’s most precious resource, their time, can be more persuasive than even the most drastic of price reductions.
3. Effect of “Useless” Price Points
The differences between your pricing points are going to greatly affect your customer’s perceived value of your product (and how they convince themselves of what to buy).
With appropriate pricing in place, you can offer customers options that fit their budget, while at the same time influencing “on the fence” customers that your more premium offerings give enough benefit that their extra price is justified.
4. The Power of Number 9
We’ve all heard of the reasons why it’s used (to make the price look lower), but does it really work? Are people really going to be effected by a $99 price point versus paying $100?
As it turns out, this tactic does indeed work, and has been dubbed the use of “charm prices.”
given even a less expensive option, it seems that the power of 9 still takes hold; remember that when setting pricing of your own.
5. The Price Perception: Context Matters
A case study from Robert Cialdini’s ‘Influence’, he discusses how a local jeweler managed to sell out of turquoise jewelry because it was accidentally priced at double its initial price, instead of half (which is the price she had intended). “Essentially, they became ‘value seekers’ instead of ‘bargain hunters’” which are the kind of customers you really want.”
Even if you don’t intend to make a large sales volume from premium items, their presence alone can help the anchoring effect take hold and increase conversions on the product you are really aiming to sell en masse.