It might be the easiest way to make an instant impact on your bottom line. Tinkering with your prices.
Pricing your products is an insanely important part of maximizing your sales, yet many times entrepreneurs are comfortable going with their “gut” on pricing.
That’s unfortunate, because there are numerous techniques that entrepreneurs can utilize that guarantee increased returns and higher profits, all from simple pricing adjustments.
If you are looking for smarter pricing tactics, look no further than these three research studies.
1 – Price anchoring
As it turns out, chest-thumping about low prices may not be the smartest move to make in your pricing efforts.
New research from Stanford University reveals some interesting effects that the process of “price anchoring” has on our minds.
In a test that involved selling CDs on the auction site, eBay. The researchers put up for auctiona a $1.99 CD of Pink Floyd’s “The Wall.”
The researchers then “flanked” this $1.99 album with two other albums. The first variation placed two Pink Floyd “The Wall” albums above and below the $1.99 albums starting at a bid price of 99 cents. In the second variation the Pink Floyd albums above and below the $1.99 album started their bidding at $6.99.
In other words, the middle CD was always $1.99 while the CD’s surrounding it were considerably lower or higher cost.
Guess what happened!
When the initial $1.99 album was placed next to the more expensive options, people were consistently bidding more for it. When placed next to the $0.99 albums, they consistently bid less.
In addition, a paper from the Journal of Marketing Research shows that context plays a huge role in acceptable prices for consumers: one of the best ways to sell a $2,000 watch is to place it next to a $12,000 watch!
Could your offering benefit from a higher price point?
Could you create a “premium” offering that makes your standard package seems more accessible?
One thing is for sure: people tend to gauge the average “middle” price based on what the highest package available is priced at, so don’t be afraid to offer a premium option.
2 – Talk about the experience, not the money
Not only does referencing (or showing) money make customers more selfish, but there are also occasions when selling “time” is far more effective than promoting your low prices.
If you’ve ever wondered why companies like Miller have slogans like “It’s Miller Time“, now you know. Research from Jennifer Aaker and colleagues shows that reminding customers of time well spent is often vastly more effective than referencing prices.
Another beer company, Corona, does an excellent job with their “Find Your Beach” ad campaign to remind you that it is the experience with the product that provides the value, not the price.
The research from Aaker and colleagues was conducted by setting up a legitimate looking lemonade stand with different signs, and the researchers measured their effectiveness.
The 3 separate signs to advertise the lemonade were as follows:
- The first said, “Spend a little time and enjoy C&D’s lemonade”
- The second said, “Spend a little money and enjoy C&D’s lemonade”
- The third said, “Enjoy C&D’s lemonade” (neutral sign)
Even with this simple example the results were apparent.
The sign stressing time attracted twice as many people, who were willing to pay twice as much.
Disney knows that it isn’t low prices that make the sale, it is the experience.
Often, an exception to this rule is with luxury goods. People buy expensive watches because they are expensive, the craftsmanship and the prestige are very important in this regard.
In your marketing efforts, is too much emphasis put on your prices? Could you perhaps remind customers about how much time they might save or invoke the image of a past memory or desired future experience?
It might be time to consider it!
3.) The power of 9
If you’ve ever wondered why people use the number “9” to end prices, here’s some solid research on the matter.
In an experiment conducted at MIT, a standard women’s clothing item was tested at the prices of $34, $39, and $44.
The product sold best at $39, even though the $34 price was cheaper!
One thing that seemed to beat the number 9 was slashing previous prices. In his book Priceless, William Poundstone shows how creating price points like, “$40, was $50!” were more effective than pricing a product at $39.
But don’t count out the number 9 yet!
When the researchers replaced the campaign with, “$39, was $50!”, they saw the best results of all. It seems that pricing your products with a 9 does indeed work, even when reducing from higher prices.
If you aren’t testing out your prices by dropping down a dollar in order to utilize the number 9, you should, you may see a significant difference as there certainly seems to be a clear usefulness in using the number.
It’s also important to remember that this tactic works best in a price conscious market, it seems again that luxury goods remain largely unaffected by the number 9 (a $100,000 car and a $99,999 car won’t be viewed as differently as the above examples).
How can you incorporate the power of 9 into your prices?
Now I want to hear from you: what did you think of these pricing studies? Were there any that surprised you?
I’ll see you down in the comments!