Let’s talk about increasing your profits using the principles of psychology when displaying your product pricing.
Pricing tables are all over the internet. We’ve all seen them everywhere when someone is trying to sell something online.
Have you ever given much thought as to how much to price your product? Or have you just seen everybody use $27 and decided to stick with that?
Let’s explore how human psychology can react to prices and how best to price your product for maximum return. We’ll do this through a number of well identified cognitive biases that exist in all your customers … yes everybody has them, including you and I.
The anchoring bias
This bias has long been used by skilled negotiators. It goes like this – when you’re presented with a new product, offer or even an idea, your mind immediately wants to compare it to something else to make a decision. In other words, we rarely make a decision in a vacuum. The offer on the table now is not discrete – it’s good or bad relative to an anchoring position we have.
So, the negotiator first gives you a point of reference – the anchor – before coming out with their offer. Sneaky. The same is done for pricing.
Retailers have done this for years. You’ll see this in the form of markdowns. This item was $1300 (spot the anchor!) and is now $700. Wow, you tell yourself. $700 is so much cheaper than $1300. This must be a good deal. Despite the fact that maybe you’re still paying $600 too much!
Pricing tables can use this to great effect too. We’ve seen it on the standard “buy” buttons. In fact, the morning of starting this blog article I just received this spam…uh…I mean offer in my email. The person is using Warrior Plus and this is how their Buy button looks like:
Spot the Anchor? Yes, the $27.99. Notice it’s also on the left since native English speakers read left to right. So your mind first sees the anchor price, and then the current price. This must be a good deal, right?
You can use this on a pricing table too:
The framing bias
Another trick employed by skilled negotiators, the framing bias is one where you set the frame of your message before delivering the message. In most cases, you would use positive framing as that puts the receiver of your message in the right frame of mind.
Notice how I started this article? I opened with “Let’s talk about increasing your profits”. That was a positive framing bias. Most of us will subconsciously respond positively to that idea which has now, in your mind, framed the rest of the communication to come. Those “cheesy” long form sales letters do this well, and is most often used for communication. Now, how does this apply to pricing?
Look again at the above $9.99 price sticker. As you’re reading about the product you’re wondering “how much is this going to cost me”? You scan down the page and see the price. You first see the $9. You’ve been framed. The rest becomes inconsequential. Framing can also work on a pricing table by framing which price is the best offer. Notice how we frame your mind with the middle pricing table:
The bandwagon effect
We’re all cattle at heart. There I said it! Moo. Ok, jokes aside … we humans tend to have a crowd mentality. We don’t want to be left out. You’ve seen that experiment where a group of people on the street stand and stare up at the rooftop of a building. The next person coming along sees all those people staring and starts staring too. This holds same for products. The more popular a product becomes, the more people want it, so the more popular it becomes and…you get the idea.
Pricing tables like to do this by explicitly telling us which one is the “Most Popular”. This is a great example of using the bandwagon effect:
The Loss Aversion Bias
None of us like losing…or losing out on something. Sales people will use “loss language” in their pitch, trying to drive home the point. Infomercials used the infamous “Limited Quantity” to drive that aversion and fear of loss. Or how about a travel site when you’re looking at a hotel room and you see “8 other people are looking at this property now” or on Delta’s website “Only 2 seats left at this price”.
Pricing uses loss aversion by placing bounds to create urgency. If it’s a physical product, you can say “$49.99 but only while stocks last. Only 7 remain.”
For electronic goods it will look way to cheesy to claim limited inventory – though I’ve seen people do this (don’t … it looks silly).
Still, it can be used with webinar registrations – “Only 10 seats left” – though personally I still think that’s a little high on the cheese content.
From a pricing perspective however, you can create urgency through one of two ways: The first is the “this price goes up tomorrow” method, or the mechanism whereby the price goes up automatically after each purchase…known as a dimesale:
Nick Kolenda is a master pricer. He offer his own take on price format.
According to him, some prices take more cognitive processing on behalf of the consumer’s brain. So if you’re looking to hook them quickly – maybe after you’ve written a long form sales letter, you’ve amped the emotion and you want them to click the buy button – well, then you want an emotional purchase – you need to remove logic and thought from that “zero moment of truth” – that moment they click the buy button.
What does an emotional price look like? It’s rounded – no decimal points. $9 vs $9.99. It simply takes less mental processing your brain to process the first price versus the second price.
Compare the pricing table above with the exact same version but with the decimals removed:
Spot the difference in the pricing?
Now, as Nick points out, there are the cases where you need a rational (not emotional) purchase. It may be a high ticket item and you know people are going to spend time thinking about it. Here it is beneficial to have people think about the purchases and let them reach the conclusion that they’ve reached the right decision.
It may seem counter-intuitive but $997.95 is better in this scenario. Look at this pricing table … here the decimals force more cognitive processing but that’s what you want for this high ticket item:
Size does matter. There, I said it.
Psychologists tell us that the visual impact of the price is important. The idea is to put the price next to a larger element, so that the price looks smaller.
Many pricing tables actually mess this part up and use large pricing to distinguish the packages, as seen below:
A better approach would be to use large fonts to call out the different package names, and then a small font price below:
I hope this was helpful to you as you price your next product. I’d love to hear your experiences with product pricing. What worked for you? Have you tried split testing different pricing options? Share the results below.
Large prices pricing table: