Show me the money.
That's why we are here 😊
So, let’s talk about some of the psychology behind common pricing tactics, and how you can use it to influence your customers’ behaviour.
Understanding how people perceive and respond to different pricing strategies, how they evaluate prices, and make purchasing decisions, can make a big difference to your bottom line.
I am not going to bore you with 3 pages of academic detail, so here are some of the common themes:
1. Anchoring effect: People tend to rely heavily on the first piece of information they receive when making a decision. This means that you can influence customers' perception of prices by using a high initial price (anchor), making subsequent prices seem more reasonable.
2. Price framing, the power of a discount: Presenting your price as a discount, or on sale, impacts how your customers perceive its value. It can seem more attractive than presenting it as a regular price, and thus trigger the buy reflex. Be aware of the long-term effect of this approach on your value proposition.
3. The power of free, aka the zero-price effect: The magic word "free" – people are willing to take actions they might not have otherwise, just to get something for free. Don’t forget to measure the impact of this on your cash flow – it eats up gross margin.
4. Decoy effect: This is almost too cute. Present your customers with a third option that is less desirable but helps to make the other options seem more attractive. For example, you have a high-priced option, a low-priced option, and a mid-priced option that is similar to the high-priced option but with slightly fewer features - customers are more likely to choose the high-priced option.
5. Loss aversion, aka FOMO: People tend to feel the pain of loss more acutely than the pleasure of gain. “Save now”, “limited stock”, and alerts showing how many others are looking at the same item are all ways of creating this call to action.
Before you ignite the afterburners and change what you are doing – talk to me. There are ways to do this and ways to do this that will burn your brand to the ground.
You can reach me at kelby@adaptique.com.au
Picture by micheile henderson on unsplash
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