How irrational pricing can work for you
It's peak shopping time and, for some businesses, peak sales time. But there are some interesting findings coming out of recent behavioural studies experiments (mainly US based just because they have so many more consumers!) that it is worth knowing about when you set your prices.
We tend to believe we make rational decisions most of the time. That we are pretty good at weighing up the evidence and making a smart choice. But are we really? Here are just a few of the interesting responses to being presented with different priced choices that you might find of use in your business:
- There are, apparently, 3 different attitude-groups that describe customer spending behaviour: 24% will be tightwads, 61% unconflicted (average) and 15% spendthrifts. A small change to the language you use in your pricing can make the tightwads more likely to spend. A trial of the cost of overnight shipping on a DVD compared payment of "a $5 fee" with "a small $5 fee". The second option sold 20% more - just by planting the idea that the cost was low sales were increased.
- Which of these prices is cheaper: £1,499.00, £1,499 or £1499? They are all the same, obviously. But in studies the simplest presentation of the price (the third option - with no zeros or commas) was perceived to be cheaper. So make sure you present your prices as simply as possible.
- The same item of clothing was tested at $35 and $39 and, guess what, the higher price sold more! 9, it seems, is a much more appealing number. So much so that when used in a sales situation the higher price, "Normally costs $70 now on sale for $39", out-sells "Normally costs $70 now on sale for $35". You too can cash in on the power of 9.
- In situations where the price differential is exactly the same, but is presented differently, the first digit effect comes into play. Pen A was on sale for $1.99 and Pen B for $3.00. The market share of Pen B was just 18%. However when the prices were altered to be $2.00 and $2.99 the market share of B rose to 44%. This is the first digit effect, i.e. the same first digit makes the differential appear smaller so consumers felt they could justify the purchase of the better product more easily. You should compare your prices against those of competitors to see if you are taking advantage of the first digit effect!
- We all know that FREE sounds good, but how good? Some chocolates were put on sale for 1 cent and 15 cents (for the more luxury brand). When this was altered to FREE and 14 cents respectively (the same differential) the share of the free chocolates increased from 22% to 69%. Offering something for free (free guarantee, free trial, etc.) can significantly increase the engagement of customers with your products.
There are many more examples (we are saving for later blogs) but you may have wondered why the heart-shaped price tag above? Apparently words and symbols associated with love increases generosity and triggers loving behaviour towards you/your products/your business! We'd love to hear from you about your experiences using irrationality in pricing. Leave comments below!