Price Games: Strategies and Psychology of the Buyer

A lot has been said about pricing strategies. Even those who are not engaged in marketing professionally know that the consumer is actively manipulated, reducing the cost of the goods in his eyes with various methods. Today we invite you to read Jory MacKay’s translation of the latest post on this sore subject, in which he examines some of the features of our psychology and lists chips that help make the price of any product more attractive to the buyer.

“Despite the fact that in some circles it is still not accepted to talk about money, the fact remains that we live by charging for the work we do and the products we produce.

But “value” refers to those concepts that, even if they rush with ease, turn out to be very complex, if you think about it.
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Many fall into the trap of the labor theory of value, according to which the price of a service is determined by how much working time was spent on its production. That is why we are ready to spend $ 12 on a jar of jam, if the label says that it is “handmade” or “homemade”. It seems to us that the “artist” has invested more labor in the process than the “artisan”.

At the other extreme, those who believe that the value is determined by the buyer go to it: if people agree to pay as much as you ask, then this price is justified.

$ 500 for a webinar? So what? Company X takes so much. 9.99 $ per month? Fine. This is the price of two glasses of good coffee.

But such a superficial analysis does not take into account one circumstance: an overpriced or undervalued product price may destroy your business.

Good pricing should be thought out. It is created taking into account all the work you have done to understand your audience and build a business , and creates a proposal that consumers perceive as honest, acceptable and, most importantly, valuable.


But how to achieve this? Although much depends on your chosen business model and research results, there are some reliable studies that can help you understand what customers see when they look at the price tag.

1. What we see, we want
Due to the peculiarities of the human psyche, known as the “anchor effect”, we ultimately choose what we saw first.

The anchor effect is a cognitive mechanism, according to which, in the decision-making process, we attach too much importance to the first impression (that is, “anchor”). If discussing or considering the purchase, you first saw the price of $ 20, then the total amount is likely to be closer to $ 20 than to $ 30.

How to benefit from this?

Let us give such a paradoxical example: an analyst from McKinsey discovered that one semiconductor company, launching a new version of the product on the market, did not lower the price of the old proposal (as most of us would have done), but on the contrary, increased it. As a result, they not only gained additional profits by selling the old product, but also set a high price, “anchor”, which encouraged new customers to pay the amount requested for the latest version .

We always have doubts, raising the price, but remember: the higher it is at the start, the higher it will be in the end.

2. It is very important how the price sounds and looks.
There is a lot of research on how price representation influences customer perceptions. The most subtle nuances decide which verdict will be made: whether the product is worth the money that is asked for it or not.

Here are a few of my favorite techniques:

• Choose "not round" numbers. An ancient trick, but it still works. It is called “Charm Pricing”, and it is based on what we like when the very first digit in the number changes . It is for her that our brain encodes the entire value as a whole. Therefore, we do not attach much importance to the discount from $ 9.99 to $ 9.19, but if the price dropped from $ 9.01 to $ 8.99, then this is already perceived as a significant difference.
  
  
• Speak the price out loud. An article from the Journal of Consumer Psychology provides a study according to which prices consisting of long words seem to buyers much more. This is due to how quickly and easily we read the number. The harder it is to pronounce it, the more unpleasant it is to us. In this regard, the cost of $ 422.99 (four hundred and twenty-two dollars and ninety-nine cents) seems more expensive to people than $ 503 (five hundred and three dollars). With each syllable, the price grows in our perception.
  
  
• People like visually compact numbers. As studies show, if you place the price at the bottom of the page, and not at the top, it will appear lower to visitors . Moreover, the very size of the figures can affect perception, including emotional. With small print and the price looks less.
  
  
• Be as accurate as possible when making a discount. Researchers at Cornell University argue that buyers spend more money when prices are very specific (that is, $ 362,978 instead of $ 350,000). You may decide that it is easier to bargain this way, but research has shown that the reason lies elsewhere - in our perception of numbers. Think: in what cases do you specify the price to the dollar? Most likely when it comes to small amounts. It does not matter that you spend hundreds or even thousands of dollars - the psychological effect still works.

3. Spending money is painful. Relieve customers pain.

Have you ever experienced post-shopping remorse? A sudden feeling that you made a terrible mistake after paying for the purchase?

The acquisition of goods and services may ultimately be fun, but the moment of the transaction is always painful: after all, we make a decision that will affect our capabilities in the future (these $ 20 are spent, which means they can no longer be used for anything else).

MIT and Carnegie Mellon University study found that the strength of this painful sensation depends on two factors :

• Visibility of payment (that is, it is harder for us when we see how money passes from hand to hand).
• Payment time (that is, it is harder for us to pay after the product or service has been consumed).

How to organize the payment process so as to make it painless? Remember Uber.
In an ordinary taxi, the client watches the entire trip as the readings on the meter change, and then, on the spot, you have to give cash. Uber has neither a counter nor payment on arrival. Everything happens out of sight, as if nothing had happened.

If you want a customer to be happy and satisfied with your services, a prepayment is a good option.

4. Raise the price to the "invisible" value

We all dream to earn as much as possible. And what if there is a way to raise the price so that buyers do not notice anything?

According to Weber's law , the new stimulus must differ by an amount proportional to the original stimulus in order to be available for perception. What does it mean? In essence, any change, including a price change, is conceptualized relative to the initial state. The simplest example: to be heard in a noisy room, you have to scream, but in a quiet room there will be enough whisper.

It seems to be primitive, yes? But this means that approaching the initial state (for example, the initial price), we at some point reach the threshold beyond which the changes are already imperceptible.

Weber's theses are widely used in marketing, and, although this is not a magic number, most agree that the change in price must be at least 10% in order for people to notice it. This means that you theoretically can throw 2%, 5% or 8%, and no one will pay attention.

On the other hand, this means that the discount must exceed 10% if you want buyers to appreciate the benefits.

5. Do not seek to sell cheaper than all (without context)

If you succeed or not, you still lose. Of course, if you go head to head with competitors, it can help “beat off” their audience. However, researchers from Stanford found that price comparisons can have a negative effect if you don’t give people a reason to compare. Without context, it turns out that you ask buyers to directly compare your product to competitive ones and may lose their trust as a result.

According to Stanford researchers, an explanation is needed why you have the lowest price, otherwise the proposal to compare the cost will cause the buyer fear that they are trying to deceive him .

All these studies help us to understand why buyers perceive prices in one way or another, but they do not negate the fact that any product is tested in reality.

Quoting Basecamp's Jason Fried :

It makes no sense to ask people who have not yet paid how much they are willing to pay. It does not matter what they answer, because any answer - at least “yes”, at least “no”, even “$ 20”, even “$ 100” - is worth nothing to them.

The only answer that matters is the money they spend. When people pay for your product, they answer your question. And only this is worth listening to. ”