5 Psychological Pricing Tactics That Attract Customers, With ...

Psychological pricing, a subset of pricing strategies, comprises tactics commonly used to impact customer behavior. Research has shown that ... CFO 5PsychologicalPricingTacticsThatAttractCustomers,WithExamples ByMeganO'Brien,BrainyardFinance&BusinessEditor April01,2021 Inshort: Psychologicalpricing,asubsetofpricingstrategies,iscommonlyusedtoimpactcustomerbehavior. Researchhasshownthatcertainwaysofformattingpricescansparkasubconsciousresponsefromacustomerandencourageapurchase. Inexpensiveandeasytoimplement,thesetacticscanbeusedinadditiontopricingstrategiestoboosttheireffectiveness. You’rereadingpartIVofaseries. PartI:SubscriptionPricingModels PartII:PricingStrategies PartIII:SubscriptionModelQ&A Inthemostrecentarticleinoursubscriptionpricingseries,wedelvedintovariouspricingstrategiesyoucanusetoattractandretaincustomers.However,thestrategysessiondoesn’tendthere.Thereisanotherpricingframeworkyoucaneasilyusetoboostgrowth:psychologicalpricing. Psychologicalpricing,asubsetofpricingstrategies,comprisestacticscommonlyusedtoimpactcustomerbehavior.Researchhasshownthatcertainwaysofformattingpricescansparkasubconsciousresponsefromacustomerandencourageapurchase.Becausetheyareinexpensiveandeasytoimplement,manybusinessesacrossindustriesuseatleastonepsychologicalpricingtacticwhencreatingoradjustingtheirpricing.Asanaddedbonus,youcaneasilylayerpsychologicalpricingtacticsoverpricingstrategiestoboostthestrategies’effectiveness—andusethemwithbothsubscriptionandnon-subscriptionofferings. Getanoverviewof5psychologicalpricingtacticsyoucanusetoimpactcustomerbehavior: Psychologicalpricingtacticsinclude: PriceAnchoring Definition:Priceanchoringrecognizesthatconsumerstendtodependtooheavilyonaninitialpieceofinformation(theanchor)whendecision-making.Forinstance,ajewelermightfirstpresentanengagementringworth$18,000asthepriceanchor.Itthenpresentsaringworth$15,000,whichtothecustomerseemsmuchmorereasonableanda“gooddeal”incomparisontotheanchor.Thus,thecustomerismorelikelytopurchasethesecondringthaniftheyhadn’tseentheanchor. Bestfor:companieswithatieredpricingmodelthatoffersvariousversionsandassociatedfeaturesofthecoreproduct,atdifferentprices. Example:AcompanysellsitsA/Btestingtoolinthreepricetiers.Below,youcanseethepriceanchoringstrategyonfulldisplay:Thefirstoptionlisted,Deluxe,servesasthecustomer’sinitialpieceofinformation,sincemosttendtolookattheleft-handsideofagraphicfirst.It’smorethantwicethepriceofthenextoptionbutonlyalittlebitdifferentinfeatures,settingthestageforthenexttier,Standard,toseemlikeagreatdeal. Thisimaginarycompany’spricingchartisanexampleofpriceanchoring. Advantages:Thepriceanchoringtacticcandirectuserstoyourpreferredpricetierandhelpthemmakethedecisiontobuyyouroffering. Requirements:Tousepriceanchoring,you’llneedanofferingwithmultiplepricingoptionswhichcustomerscaneasilycompare. CharmPricing Definition:Charmpricingreferstotheuseofpricesendinginthenumberninebecauseofthe“left-digitbias,”aphenomenoninwhichconsumers’perceptionsandevaluationsaredisproportionatelyinfluencedbytheleft-mostdigitoftheproductprice. Researchshowsendingpricesin“99”(e.g.,$599)canresultinmoresalesthanroundinguptothenearestroundpricepoint(e.g.,$600).Thehumanmindsubconsciouslyroundsthat$599to$500,asopposedto$600—eventhoughit’sunreasonable.Inastudynotedinthebook“Priceless,”charmpricesoutsoldroundedpricesby24%. Bestfor:companieswithnon-luxuryproductsthatwanttoconveya“deal.” Example:Atranscriptionsoftwarecosts$9.99amonth.Duetothatleft-digitbias,manyconsumersthink,“Thisproductissignificantlylessthan$10.It’sagreatdeal.” Advantage:Withcharmpricing,youcanusethedifferenceofonecenttomajorlyimpacttheusers’perceptionofyouroffering’sprice. Requirements:Tousecharmpricing,yourcompanymustwanttogivetheimpressionofa“deal”foritsproducts.Thetacticdoesn’tworkwellwithluxuryorrecreationalgoods,whichactuallybenefitfromroundedprices. Odd-EvenPricing Definition:Odd-evenpricingissimilartocharmpricingbutappliedonabroaderscale.Thistacticleveragesthebeliefthat,psychologically,buyersaremoresensitivetocertainendingdigits. “Oddpricing”referstoapriceendingin1,3,5,7,9(e.g.,$9.93).“Evenpricing”referstoapriceendinginawholenumberortenths(e.g.,$20.00or$20.50).Oddpricingtendstobemorepopularbecauseitindicatesadealinacustomer’smind,makingthemmorelikelytobuy.Thatdoesn’tmeanevenpricingdoesn’thaveaplace,though.Luxurybrandstendtouseevenpricingtocreateperceptionofpremium.Checkoutpricingonmen’sactivewearatOldNavyversusNike:OldNavyusesamixtureofoddandcharmpricing,whereasNikeusesevenpricing. Companiesaren’tlimitedtoeitheroddorevenpricing,though.Forinstance,Nikeusesevenpricingonallofitsfull-priceproducts.However,itssalesectionusesoddpricingtoindicatethedeal. Bestfor:Evenpricingworksbestforluxuryitems,whileoddpricingtendstoworkbestformostotherproducts. Example:Awinesubscriptioncompanyofferstwotypesofmonthlyboxes:For$29.43amonth,thestandardboxdeliversfourbottlesofwinecuratedtoyourtaste.For$60amonth,thesamecompanywillsendfourcuratedbottlesthatareconsidered“premium.”While$29.43indicatesagooddealandwilllikelyattractcustomerswhosubconsciouslyroundthepricedown,the$60optionembracestheexpensetofurthertheimpressionofluxuryandexclusivity. Advantage:Oddandevenpricingcanhelpcreatetheperceptionofadealandofluxury,respectively. Requirements:Therearenostrictrequirements,butcompaniesshouldensuretheirodd-evenpricinguseresonateswithcustomersandcreatesthedesiredvalueperceptionoftheirproduct. DecoyPricing Definition:Thedecoypricingtacticisbasedonthe“decoyeffect,”bywhichindividualstendtohaveaspecificchangeinpreferencebetweentwooptionswhenalsopresentedwithathirdoptionthatisinferiorineverywayexceptone.Thepresenceofthe“inferior”thirdoptionmakesthefirsttwoseemmoreattractive. Bestfor:Companiesthathaveapreferredoption(s)towhichtheywanttodirectcustomers.Forinstance,decoypricinghasbecomemorepopularinthenewsmediaindustryascompaniestrytomovecustomersfromprinttodigital.Inhisbook“PredictablyIrrational,”authorDanArielynotesthat,atonetime,theEconomisthadthreemagazineofferings: Webonlyfor$59ayear Printonlyfor$125ayear Webandprintfor$125ayear Itdoesn’texactlytakeasavvybusinesspersontorecognizethat“printonly”isaterribleoption,tothepointitseemssillytoincludeit.However,theEconomistincludedthisoptionbecauseitcausedconsumerstoviewthewebandprintoptionsmuchmorefavorablyincomparison. Hereweretheresults: ThischartshowstheeffectofdecoypricingontheEconomist’smagazinesales. (Imagecredit:InvoiceBerryviaTheGrasshopperBlog) Example:Awebsitedesignplatformhasthreepricingtiers: Thisimaginarycompany’spricingchartisanexampleofdecoypricing. Canyouspotthedecoy?IfyouguessedStandard,thenyouguessedright!Sinceit’sonly$2lessthanDeluxe—butwithfarlessfunctionality—customerslookingforcapabilitiesorfeatureswouldlikelyoptforDeluxe.AndthoselookingforlessfunctionalitywouldtendtogravitatetowardstheBasicoptionsinceithassimilarfunctionalitytoStandardatalowerpricepoint. Advantage:Youcanusedecoypricingtodirectcustomerstoyourpreferredpricingplans. Requirements:Todeploydecoypricing,you’llneedanofferingwithmultiplepricingoptions,includingaless-appealing,“inferior”option. CenterStage Definition:Thistacticisbasedonthecenterstageeffect,whichdictatesthat,outofarangeofproductspresentedside-by-side,wetendtobedrawntotheonesituatedinthemiddle. Bestfor:anycompany,aslongasithasmultiplepricingoptionstochoosefromandapreferenceonwhichone(s)getchosen. Example:WecanbringtheA/Btestingcompanyfromourpriceanchoringexamplebacktoillustratethecenterstage-basedtactic.ThiscompanywantsconsumerstogravitatetowardtheStandardplanbecausethey’veseenDeluxedrivefolksawaywithitshighpricepoint,andBasicdoesn’thavethesameearningpotential.So,theteamplacestheStandardplaninthemiddleofthepricingsheet,whereconsumersgravitate. Thisimaginarycompany’spricingchartmakesuseofthecenterstageeffect. Advantages:Takingadvantageofthecenterstageeffectcanattractcustomerstoyourpreferredormostpopularplanwithnoalterationstootherpricesorofferings. Requirements:Again,companiesmusthavemultiplepricingoptionstochoosefrom. ImplementingPsychologicalPricingTactics Psychologicalpricingtacticsaremosteffectivewhenusedattheappropriatetimeandplace.Whenchoosingwhichtacticstoimplement,consideryourproductorservice,businessmodelandgoals—aswellasthesubscriptionpricingmodelandpricingstrategypreviouslychosen. TheBestPsychologicalPricingTacticsforEachSubscriptionPricingModel SubscriptionPricingModel ComplementaryPsychologicalPricingTactic Flat-Rate Odd-Even,Charm Tiered CenterStage,Decoy,PriceAnchoring,Odd-Even,Charm Usage-Based CenterStage,Decoy,PriceAnchoring,Odd-Even,Charm Per-Added-Module Odd-Even,Charm Per-User Odd-Even,Charm Psychologicalpricingisaboutfindingthat“sweetspot”incustomers’minds,whichinitselfcantakeacoupleoftriestogetright.That“sweetspot”canalsochangebasedonmarketconditions—forexample,restaurantssignificantlytweakedmenupricesin2009toappealtocustomerscaughtintherealitiesofarecession.Thelessonhereisthatpricesarehardtogetrightandhardtokeepright.So,beopentoregularlytweakingandrevisingyouruseofpsychologicalpricingtactics—andpricingasawhole. TheBottomLine Inthebook“HowCustomersThink,”HarvardprofessorGeraldZaltmanestimatesthat95%ofpurchasingdecisionsarebasedinthesubconsciousmind.Tappingintothosesubconsciousbehaviors,patternsandbiasescanbeanunexpectedlyeffectivewayforcompaniestoattractandretaincustomers. Staytunedforourfinalpieceinthesubscriptionpricingseries,onpricingmethods.We’llbringitalltogetherbydelvingintotheprocessofcalculatingtheactualpriceofyouroffering. FormorehelpfulinformationfromtheBrainyardandourfriendsatGrowWireandtheNetSuiteBlog,visittheBusinessNowResourceGuide.    Related SoftwareKPIs TechnologyServicesKPIs Subscription&ManagedServicesontheRiseintheServicesIndustry Software CarrieAugustine,CPA,highlightsthreeroadblockscompaniesmayfaceonthepathtocompliance. Watchthevideo FromOur SisterSites AComprehensiveGuidetoSupplyChainMetrics&KPIs SpeakwithanIndustryExpert