The price of a product or service weighs heavily on our decision as consumers to buy. Which makes it crucial to offer your goods at the right price. If you set prices too high or too low for your target market, it can cost you sales.
Small businesses need to be smart about pricing. And smart pricing is deliberate – it’s not an accident that an item priced at $19.99 will vastly outsell the same thing priced at $20, even though the price difference is one cent.
Smart pricing riffs on behavioural psychology and decades of microeconomic research to help you maximize profit. Here are some effective pricing tactics to try:
Price anchoring
When making a decision, people tend to rely on the first piece of information offered. This so-called “anchor” is then used to make subsequent judgments. In price anchoring, the initial price offered for an item sets the standard against which a purchasing decision is made. Prices lower than the initial “anchor” price seem more reasonable – even if they’re still higher than what the item is really worth. So if you put premium products and services beside standard options, it may help customers see the cheaper options as better value in comparison.
Lucky number 9
It may be the oldest trick in the book, but ending prices in nine actually works. Research shows that prices that end in nine often outsell even lower prices for the same product. One study found that women’s clothing priced at $39 outsold the same item priced at $35 by an average of 24 percent.
Premium pricing
Within a product category, higher price points are associated with premium quality whereas lower prices are seen as bargain quality. Premium pricing can help improve brand identity in a particular market; it’s a “price-quality signaling” strategy that can give your product an upscale image. A good example of this is Apple, which has cornered the market in computers priced above $1000 with its premium pricing strategy.
Reframe the value
It appears that spending $59 per month on a subscription is a better deal than spending $700 per year – even though the two prices add up to about the same cost for the same thing.
Product bundling
When you package items together that usually sell in tandem, it’s easier for consumers to justify an upgrade because they feel like they’re getting more value for the price. A good example of successful bundling is the LX version of car packages, where you get heated leather seats, navigation, and roadside assistance in a single upgrade – easier to say “yes” to than negotiating to purchase these options individually.