1. Simple Numbers
Have you ever noticed that a lot of high end restaurant menus don't include the currency symbol or any additional punctuation or unnecessary numbers? For example, a steak will simply be shown as 39, not $39 or $39.00. Look out for it next time!
2. The Power of 9
So the motivation is simple - it makes the price seem lower and it is surprisingly effective.
William Poundstone looked at eight different studies which he talks about in his book, Priceless. He found that on average, “charm pricing” increased sales by 24% versus “rounded up pricing”. That’s phenomenal. Imagine if you could increase your revenue by 24% with something as simple as this!
There is a well known experiment that was conducted by MIT and the University of Chicago that illustrated the power of 9.
They tested a standard item of women’s clothing at 3 different prices: $34, $39 and $44. The item sold best at $39 despite the fact that it was more expensive than one of the other options. This study also showed that prices that ended in 9 outperformed lower prices by 24% on average.
When 9 is used in combination with a sales price, it also comes out a clear winner. For example, WAS $50, NOW $39 outperformed WAS $50, NOW $35.
This is another ridiculously simple thing to implement that can clearly have a significant impact on your sales.
3. Price Anchoring
We’ve all heard the saying “The best way to sell a $2,000 watch is to put it next to a $10,000 one. Placing a premium product next to standard ones makes them look like a bargain in comparison.
Initially they offered 2 coffee machines priced at $80 and $120. The majority of people went for the $80 coffee machine. They then introduced a third product priced at $380. The majority of purchases then shifted to the $120 machine.
So when you’re creating your price list, if you are using a collection or package structure, you should include 3 package options. Ensure you price the middle package at what you would like your average sale to be (desired average order value). You may also choose to include a fourth “Elite” package priced well above even your top package. Even if you don’t plan on selling a lot of these elite packages, it’s presence alone will help the anchoring effect take hold and increase conversions of the main packages which are the ones you are really trying to sell “en masse”.
If you are looking to move up the pricing ladder but want to manage your risk, one approach is to price your bottom package at your current average order value. This acts like a “safety blanket” in that you will never be worse off than your current average if you can maintain the same number of sales and the same cost of goods. With the majority of people going for the middle package, your average will automatically increase.
4. Price Bundling
Price bundling is one way to not only reduce this pain point but it can actually encourage the purchase decision. By showing more value it also helps to increase post-purchase satisfaction.
The car industry is an excellent example of successful price bundling in action as noted by Professor George Lowenstein. It’s much easier to justify a single upgrade than it is to consider individual upgrade items such as heated seats, sat nav, parking assist and so on.
5. Avoid Too Much Choice
People may think that they want lots of different options and that we should give them what they want but in reality, it just doesn’t work.
6. Cost of Goods Multiplier
Your cost of goods is a really important consideration when you’re working out your pricing. This is often the only thing people think about because it’s directly related to selling your craft. However, there are a lot more things to consider such as time, operating and overhead costs which we won't go into in this blog post but if you're interested in reading more about it, check out our free Art of Pricing ebook. But let’s just talk about the cost of goods for now.
Many people will work off a product cost multiplier. In essence, they will multiply the cost of the product by 3, 5, 7 or 10. Ultimately, we would like to get to a 10x multipler. So if a product costs $100 to buy, we would ideally sell it for $1000. This gives a 900% markup and a margin of 90% (refer to pages 14-15 in the Art of Pricing ebook to learn about markup and margin). This however, may not be possible for everyone starting off so you could start with a 3 or 5 times multiplier and work your way up.
7. The Power of Context
That doesn’t necessarily mean that you must have a swanky studio – creating a highly engaged environment to facilitate customer interaction and connecting with your client is the key to making the sale.
8. Loss Aversion
Take the gas station example. Gas station A was selling gas for $1.80 per gallon. If you paid with your credit card, they charged you an extra 20 cents per gallon. Gas station B was selling gas for $2.00 per gallon but gave you a 20 cents per gallon discount if you paid with cash. Regardless of whether you bought from gas station A or B, the price per gallon was exactly the same. However, customers were much happier to shop at gas station B where there were no penalties for paying with a card over those in gas station A even though the cost of the gas was exactly the same.
9. Free is free
A good example of this is Amazon in France. They couldn’t figure out why their sales were 20% less than other countries. Then they discovered that their free shipping option was actually charging a nominal 20 cent shipping charge. They corrected the glitch and hey presto, their sales recovered to match that of other markets.
If you would like to find out more about The Art of Pricing, click here to download our free e-book now.