The way pricing is structured and presented has a large influence on a consumers decisions. This potent effect that pricing has on a consumer operates both on a conscious and subconscious level.
There are countless psychological pricing techniques out there, a short online search delivers dozens. So, what we are going to do in this article is analyze and explain the top five techniques that have been most documented and most tested.
These are the ones that are more likely to have a strong positive impact on your eCommerce site's sales in the shortest period of time. Of course there is no harm in trying the other techniques, but we recommend you do so only after you have tried the ones below.
*Note:* It’s important to note that all of the advice below is our only based on research we have conducted. We recommend you seek out further research and/or advice from other sources before you make a pricing change to your site, however small, if you are unsure about what you are doing.
So without further ado here are our five top persuasive pricing techniques, in no particular order.
1. The Rule Of Nine
This is probably the most well-known of all persuasive pricing techniques. Remarkably, a large number of eCommerce stores still don’t use it, and it could be costing them sales.
Research was conducted by The University Of Chicago and MIT. In the study, they had a large US national mail order company mail distinctly different versions of their catalogue to randomly assigned customers.
In one version of the order catalogue, the prices all ended in “9.” In the other two order catalogues, the prices were raised or lowered by five dollars. For example, an item of clothing would be $39.00 in one catalogue, $44.00 in the second catalogue, and $34.00 in the third catalogue.
The catalogue with the prices ending in “9” i.e., the catalogue where the price was “$39.00” resulted in 40% higher sales than both of the other catalogues. That’s right, the catalogue with the $39.00 price resulted in sales than the one that had the cheaper $34.00 price.
This really shows the strength to which the rule of nine persuasive pricing technique is embedded in our minds.
This assertion is further supported by William Poundstone in his book Priceless. In the book, he pulls apart eight different studies on the use of things like ending the price in the number 9, something he refers to as “charm pricing.” He finds that on average, they typically increase sales by an impressive 24% compared to a normally rounded price.
2. Price Anchoring
Price anchoring is the technique of presenting or placing other similar products of varying prices around a specific product to inform the consumer of the value of the specific product.
For example, if you present a premium option of a product next to the standard version of the product, it gives the impression that the standard product is good value for money compared to the premium product.
The standard product now looks a lot cheaper, almost a bargain when compared to the similar premium product. This impacts the shopper, making them more compelled to buy it.
This is a technique that is deployed by many companies. A notable example is Apple. They employ price anchoring across almost their entire product range, especially their smart watch collection.
A study conducted by The University Of Missouri analyzed the effect of price anchoring by asking their subjects to try and estimate the value of a sample home. Brochures were provided to the participants. These included information about the surrounding homes, some of which had standard prices whereas others had artificially inflated prices.
Can you guess what happened?
The subjects (a group of undergrad students and a group of real estate professionals) were both swayed by the brochures with the higher prices in them. The anchoring caused them to estimate the value of the standard priced home as higher than those without the anchor. The power of price anchoring is so great it even worked on industry professionals.
3. Price Differentiation
A fascinating study by the University Of Yale found that if two similar items have the same price, the shopper is less likely to buy either product compared to when the price is slightly differentiated.
One notable experiment they conducted that illustrates this point is where they gave their test subjects two choices: either buy one of the products or pass and keep hold of their money when presented with two packs of chewing gum.
The result? Interestingly, only 46% of the test subjects made a purchase when both packs of gum were priced the same (at 63 cents). However, when the two packs of chewing gum had slightly different prices (one at 62 cents, the other at 64 cents) then just over 77% of consumers decided to buy a pack of chewing gum. So there is a significant difference there.
The lesson? When you are selling products that are broadly similar but have different features (e.g., a round-neck T-shirt and a V-neck T-shirt), then you should attempt to differentiate their prices and test to see the results. Refrain from pricing them the same, even if that is the easier option.
Bundling is a psychological pricing technique that can be very effective for online retailers.
Bundling is essentially what it sounds like. It’s the technique of bundling similar or complimentary products together. More technically, it’s when you bundle two or more products together and offer a discount on the unit price in return.
The technique is so pervasive and so frequently used that many do not even notice it. From McDonalds (meal deals) to Microsoft (software bundles). It’s broadly used simply because it works. It reduces purchase anxiety, choice overload, and emphasizes the value proposition.
This effect is even stronger when the bundle is directly compared to the cost of buying the bundled products separately.
George Lowenstein, a prominent Neuro-economics expert, has posited the LX version of automobile packages as a good example of great bundling.
Put simply, it’s often significantly easier to justify one single upgrade that is a bundling of several smaller upgrades than it is to consider purchasing the several smaller upgrades individually. For example, one upgrade with various features compared to upgrading to heated leather seats, extra speaker system, and roadside assistance individually.
However, there is a caveat. Research by Carnegie Mellon University titled “Kumar and Derdenger for The Dynamic Effects of Bundling as a Product Strategy” intimately studied the handheld video game market between the years 2001 and 2005.
They focused on ￼Nintendo’s Game Boy Advance and Game Boy Advance SP portable ￼gaming consoles.￼ They looked at three ways of selling. Offering only a bundle option￼(bundle only), offering only the option to buy the console and games￼ separately (separate only - no bundling), offering the option to buy the ￼console and games separately and as a bundle (separate and bundle - mixed bundling).
The result? Total hardware sales were higher by approximately 100,000￼ units when bundles were offered, and sales of games jumped to over a ￼million units.￼
However, of all the scenarios: bundle only, separate only - no ￼bundling, separate and bundle - mixed bundling, the scenario that had ￼bundles only fared the worst in terms of sales.￼
There are many reasons for the fact that offering only the bundled option￼ without the option to buy the products in the bundle separately would￼ have a negative impact on sales. Some of the reasons, as noted in the￼ original research, were specific to the gaming industry.
But we suspect other reasons that may apply more broadly. Principally￼ the reason that if you offer the products only as a bundle, although it ￼may reduce decision fatigue, it also offers less choice.
When the￼ products are not sold separately alongside the bundle, the￼ shopper has no way of successfully discerning that the bundle is of ￼greater value than buying the products separately, beyond just the saved￼ decision fatigue.
5. Reframing The Value
Reframing the value can be a powerful psychological pricing technique if used correctly. How you frame the price of a product/service can have a huge impact on whether a consumer will purchase or not.
For example, if you are selling high end software. Assume you are offering it for $1,500 per year on an annual subscription. Of course, you will justify that price by presenting the product's features and benefits and how it help the consumer, but often that may still not be enough.
Reframing the value can be a powerful persuasive pricing strategy to generate more sales in this scenario.
So instead of offering it as “$1,500 per year” you can reframe it as “$125 per month” or, even better, “$31 a week.”
A smaller price is not only more persuasive and significantly easier for the consumer to rationalize, it’s also easier for their brain to process.
A neuro-imaging study published by Elsevier found that higher prices actually activated neural circuits that are involved with anticipating loss.
This shows that even before consumers begin to logically evaluate whether $31 a week is a good deal for the software, they are significantly more likely to accept it than the higher price of $1,500 per year. Even though they are essentially the same price, just framed differently.
So there you have it, folks. This article covered what we believe to be the top five most effective psychological pricing techniques based on research. We suspect that there will be at least one from the above techniques you are not deploying in your business that could very well make a significant positive effect on your sales.
Remember, however, running controlled small scale tests to see what works and what doesn’t is usually most cost effective and risk friendly way of going about things.
There is no one size fits all answer here and different psychological pricing techniques perform slightly differently depending on the country, market, or business you are in. So test out different persuasive pricing techniques to see what works best for you.