Improve sales by exploring the psychology of how different pricing strategies affect buyers—so you don’t have to price them on sale!
If your current pricing strategy isn’t helping you sell more, profitably, these ten pricing strategies might help.
In a perfect world, pricing strategies (a) help increase sales (b) without compromising profitability and (c) without leaving money on the table. By actually viewing pricing as a tool in your marketing strategy arsenal, you can better align your pricing strategies with your overall marketing plan. First, let’s look at some of the most basic components of pricing and the three main pricing tactics business owners turn to in order to increase profit.
Setting a retail price often starts with a basic formula:
- Cost of all inputs (sometimes also known as the wholesale cost)
- + Plus markup percentage or dollar amount
- = Equals the retail selling point
While the markup amount may represent gross profit, net profit after the following calculation may actually result in a small margin of profit, no profit, or even a loss:
- Retail price (or retail selling point)
- – Less any / all operating and sales costs associated with the product (or percentage of operating costs)
- = Equals net profit
Right away, you can see the importance of knowing or estimating the operating and sales costs that may be associated with a product or service and either incorporating those costs into the input and affecting the wholesale value of a product or service or increasing the amount of markup applied.
Business owners often turn to three main strategies in order to increase profits:
- Cutting costs (operational costs, ingredient or input costs, commission, salary or selling costs, etc.)
- Selling more (volume or number of items sold)
- Increasing profitability by employing pricing strategies
Obviously, you can price products at a higher profit margin; but in so doing, you also risk pricing yourself out of the market and opening the door for lower-priced competitors with equivalent products or services to take away market share. It’s also possible to price your goods or services too low and price yourself right out of business by depleting revenues. Being a low price leader can also result in consumers attaching less value to your brand, perceptively, as they equate a low cost with lesser quality.
Employing a pricing strategy aligned with your overall business and marketing plan is essential – but it may not be simple, and it is probable that you will need to revisit your pricing strategy and adjust it fairly often.
You can’t just “set it and forget it!” Some of the factors that may require you to revisit and adjust your marketing plan’s pricing strategy downward or upward could include:
- Emergence of new technology that causes your products or services to trend toward obsolescence or lower value for the money
- Emergence of lower-priced equivalents (or even superior) goods or services
- Emergence of new competitors
- Higher costs of inputs, operational expenses or selling costs
- Scarcity in the marketplace
- Exit of significant number of competitors
- Decline in quality or value of competitor equivalents
10 Pricing Strategies that Can Positively Impact Sales
An article listing ten pricing strategies that can increase sales on helpscout.net describes not only effective pricing strategies you might employ as part of your business marketing plan, but also speaks to the subconscious and psychological reasons that these pricing strategies impact consumers the way they do. Be sure to read the full article to better understand the mindset and behavior of shoppers, and test some of these strategies in your own business to see whether your results confirm their assertions.
1. Price items differently.
Research from Yale is cited that showed that if two similar items priced the same, shoppers are less likely to buy either; however, if the price differed even just a little, 67% consumers were more likely to buy.
2. Use price anchoring.
You are likely already familiar with this sales technique, which merely places items of disparate price next to one another, such as placing a $20 bottle of wine next to a $60 bottle of wine, and therefore making it look like a bargain. In this example, you are also appealing to consumers motivated by prestige who may actually elect for the higher priced item rather than the “bargain.”
3. Mind the gap – the gap between the prices, that is.
Weber’s Law (sometimes called the Weber-Fechner law) speaks to effecting behavior setting the right jump in price from item to item. In the helpscout.net article, a 10% increase / decrease from item to item is suggested.
4. Reducing shopper pain may mean they’ll spend more.
Really! Neuroeconomic experts say the human brain is wired to “spend ‘til it hurts,” so by reducing buying process pain and increasing post-purchase satisfaction, you may actually motivate shoppers to spend more.
5. Understand the visual impacts of your prices.
Do you end prices in a 0, 5 or 9? And does it matter? I mean, consumers have figured out that $9.99 is really ten dollars, haven’t they? Maybe, but the pricing strategy is still effective. The article states that “prices ending in 9 were so effective they were able to outsell even lower prices for the exact same product.”
6. Talk about the spend, not the save.
Stanford University research is cited as showing that consumers tend to recall more positive product perceptions when asked to remember time spent with the product vs. money saved. What this pricing strategy does is place the consumer focus on the experience with the business or product / service; our conclusion? Customer experience plays a large part in perceived product, service and brand value – and you may be able to make your business more profitable by focusing on simply improving the customer experience.
7. Only make strategic comparisons.
In other words, you do not necessarily want to point out that you have a lower price than competitors because it may cause shoppers to doubt the claims in your marketing messages or question the quality of your products. Instead, focus on the reasons why you can / do offer lower prices.
8. Understand the power of setting, or context.
A Vanderbilt University study featured in the New York Times Magazine showed that consumers were willing to pay more for the exact same product (in this case, Budweiser beer) from an upscale hotel than they were from a run-down grocery store. It could well be that consumers actually understand – and appreciate – that a better customer experience and more luxurious shopping setting necessitates higher prices, and that they’re willing to pony up with the extra money in order to enjoy the better shopping environment.
9. Add tiered pricing levels.
Again, a concept you are likely familiar with; this pricing strategy calls for creation and pricing of products at two or three choice levels (good, better, best). Interestingly enough, in the examples cited, with two options it was the higher priced option chosen most frequently and with three options the mid-range item was chosen most often. This is important because it may be desirable to place an item with the highest profit margins into this sweet spot!
10. Back to visual display again: Keep pricing simple.
Eliminating unneeded commas, dots, zeros and even dollar signs can result in increased sales.
Increasing sales for your business might not cost your business more. Case in point, here are a couple of takeaways from these pricing strategies:
- It was interesting to find that many of these pricing strategies point back to increased profits that might be available to a business simply by providing a better customer experience – something which may not even cost the business more to provide!
- Likewise, remembering to clean up, simplify and strategically price items for visual impact will not cost your business anything, but can increase your sales and profits dramatically.