You’ve got a killer idea for a new business. After evaluating competitors, tirelessly developing the product, you finally decide to launch. It moves forward at full speed until this question comes up:
– How much are we going to charge for this thing?
For any business owner or leader, it’s too easy to fall into the trap of thinking pricing will come up naturally. It doesn’t work like that. This is where the greatest skill of all comes into play: Psychology Of Pricing, a blend of Psychology and Behavioral Economics.
Although consumer engagement has become unpredictable, price is still the most delicate aspect of the marketing mix. To make it harder, people perceive it subjectively. Before you know it, defining a price may feel as challenging as the entire conception of your product. In this post, we’ll show you the main aspects to be aware of when pricing products & services based on the field.
A Critical Question: How Do Your Target Audience Value Price?
Psychology of Pricing says that people can be value-sensitive or price-sensitive.
Value-sensitive people seek quality over price. Your price won’t be as important as the potential your solution has to address their needs. They focus on getting the best deal for a product that they are convinced will solve their problem.
Price-sensitive people, in contrast, are highly affected by the price. They might seek bargains, good deals, always at the lowest cost possible. The overall quality or longevity of a product is not a great selling point to be used with them.
You need to make sure your price is “just right”: not as huge as clients won’t consider you as an option, and yet not so low that people assume they are low-quality products.
Therefore, you need to understand the value of your commodity in your specific context:
- For instance, when you go to a nice hotel or an expensive restaurant, you might be willing to pay a higher price. Since you have the expectation of enjoying a unique experience.
- In contrast, trying to pitch great customer experience when this is intrinsically assumed that it is something that is standard on similar products & services, is not such a great idea.
Perceived benefits: What Buyers Expect To Obtain With Your Product
A product’s benefits, both conscious and subconscious, definite its value to the consumer. There are different levels of drivers that cause us to access a product. To get the full picture of what matters to you buyers, start by asking:
What features does your target audience need and are willing to pay for?
Talk with customers at the beginning of your product development. Acknowledge if a customer will be actually willing to pay for your product. Find out which features to prioritize when developing your product.
By doing so, you’ll be able to make one of the smartest strategies for product development:
Using your customer’s willingness to pay as the core aspect of your product design.
Besides investing time to research customers’ preferences, it is worth mentioning these three powerful techniques to boost your conversion through pricing:
Set Customer Expectations With The Anchor Effect
Imagine that you just moved further into the next step to be hired for your dream job.
Then Jane, from HR, comes up then with that question:
– What is your salary expectation?
– A million dollars, sure. Just kidding! 😜
Even if said with humor, the fact that you set a high salary in the first place might actually lead you to obtain a better deal when negotiating your wages. That happens because of the anchor effect.
Anchoring prices set an initial expectation. People tend to take the first piece of information they see as an anchor.
Steve Jobs did it when launching the first iPad. Firstly, he told the audience the new gadget would have a final price of USD 999. Immediately after, he mentioned Apple’s intention of making it affordable, to the 999 value is literally crashed and replaced by USD 499. By doing so, Steve jobs set people’s expectations. He got people to think that was the best deal ever.
Candy Club, a monthly candy subscription, built their Pricing Page based on Anchoring. Notice the attention given to the middle option, the 6-month plan. It has a simple reason: anchoring the price in the middle makes it easier for a customer to choose a side option.
As for Psychology of Pricing purposes, what matters is that you:
- Offer your customers a choice (so clients feel it was their decision)
- Anchor higher price options, moving consumer’s attention towards the others
Use The Power Of Framing To Change Action
Framing affects pricing perception. We can change action depending on the actions presented. Take advantage of the Psychology of Pricing’s elements by framing your offer with social proof components.
Frame Social Proof For Increasing Conversions
Social proof elements can sway buyers—and get implemented quickly. Find below a few amazing examples of Social Proof used for marketing purposes.
a) Case Studies
Cases studies are tools used in Digital Psychology to generate trust and drive revenue. These are real customer stories from Pipedrive:
b) Reviews from clients
Simple but powerful testimonials make your product sound efficient and real, increasing the rapport and providing additional reasons to customers choose you.
Establish what people will obtain with your product. Always be explicit about benefits, gains, and advantages.
d) Sense of Urgency
Create the feeling that people should act now or live forever regretting.
Take Advantage Of Loss Aversion In Your Pricing Psychology Strategy
Clients may not be willing to pay the market price to try your product, but they may pay the market price to avoid losing it. (Daniel Kahneman)
The fear of losing something terrifies people at a CRAZY level. Behavioral Economics named this automated response loss aversion.
Note: You can optimize your website conversion rate only applying this concept.
As to pricing, free trials trump any other tactic. Customers love the feeling of owning a product or service without spending money on that.
Once users are signed up for your free trial, they feel like they own your product. Ultimately, this helps them attribute value to it. That’s why SaaS businesses love using loss aversion as one of its main strategies.
Thanks to loss aversion, customers might start itching to subscribe to the full paid version of your product to avoid losing out those resources they’ve been using for the past days.
As you can see, people tend to see pricing with different lenses.
At the end of the day, it’s all about to whom you are marketing to. And what you want to brand it as. Using Psychology of Pricing principles is certainly great to improve your conversion rate.
See you in the next post 👋🏻