When it comes to buying products and services, prices are one of the most important factors. An overpriced product may deter buyers, but this is not necessarily always the case. Buyer behaviour is complex and may seem as if it is based on counterintuitive concepts. The human brain is not safe from fallacies and understanding human psychology can lead us to better predict and influence behaviour. Indeed, individuals will vary from one another, but there are common trends that our psychology leads us to follow even unknowingly.
Pricing affects the perception of a product or service and plays a role in determining whether a product or service is worth as much as it is priced. And while the brain is good at rationally appraising things, for efficiency’s sake, it utilises shorthand methods to quickly come to conclusions. Using that shorthand thinking to your advantage is how you can influence buyer behaviour with your pricing.
Oftentimes, the benefit of a product or service is weighed against its price to determine if it is worth said price. However, human thinking is not always rational. The price of a product or service can influence its perceived value. Luxury brands are a good example of this. Buying premium or luxury products can be a show of social status. In such a case, the aim is to buy expensive products. People are willing to buy such items even if they are explicitly overpriced.
Furthermore, higher quality items are associated with higher prices. Similarly, lower quality is associated with cheaper prices. For this reason, it is usually appropriate to match prices with buyer expectations. Quality should correlate with price otherwise you risk items being seen as overpriced or of low quality. People can often feel pride in buying things for cheap, but others can also feel pride in buying expensive products and services. If you are selling cheaper items, emphasise its lower cost. When selling more expensive items, emphasise its quality. This generally ensures that you advertise the right parts of a product or service to the right kinds of people.
Social status plays a bigger role in determining the worth of an item. Think of how expensive popular brands are and how many may buy from those brands regardless of their prices. Well-known brands can afford to increase their prices without a substantial loss in sales.
A well-known branded item with known quality is generally more likely to be bought than a lesser-known branded item. Take, for instance, two drugs at the pharmacy. One is a well-known aspirin brand while the other is a lesser-known aspirin brand which is cheaper than the first brand. People are generally more likely to go with the more well-known brand even if it is more expensive. Think of it as trust being built into a product coupled with cheaper products being associated with lower quality.
Products and services are not appraised in a vacuum. There are often other alternatives. Therefore, products and services are compared. This is where differences in price matter. Of items of the same type, the more expensive versions are seen as the ones with higher quality or quantity. Additionally, how you choose to display your products and services affects how your prices are perceived. The first item or service that is seen generally tends to serve as a reference price. What you let buyers see first will influence what they deem as expensive or cheap contextually.
In businesses with a wide range of products like supermarkets, reference products (products whose prices are used to positively or negatively compare other products) should be thought of in terms of key value items. These are items which are commonly bought whose prices are commonly stored in memory.
If two items are of the same quality, buyers may pick either the more expensive choice or the less expensive one. Think back to how prices affect the perceived quality of a product or service. If quality is the aim of the purchase, the more expensive option is usually chosen. This works well with fashion brands that would rather get you to buy the more expensive option if both cost the same to produce. If economy is the aim of the purchase, the less expensive option is usually chosen.
Another trick that is often employed is the use of decoy products or services. These are products or services that are not expected to be bought but are rather there to make the more expensive option look better. Think of a hypothetical journal that has three options to subscribe to: web only, print only, web + print. In this example, the print version is extravagantly priced and may be closer in price to the most expensive subscription – web + print. If only the web version and the web + print version were available, the web only version would win the sales contest by a large margin.
The existence of the decoy option changes people’s mindset from getting a bargain to getting the most value. Since the web + print option isn’t that much more expensive than the decoy print only version, a buyer may see this as getting the most for their money even if it is overpriced. In another example, the existence of the medium size in fast food restaurants increases the chances of buyers choosing the larger size over the smaller size.
Discounts and Bargains
Discounts alert buyers that your business is lowering its prices for certain products and services. Sometimes, comparisons to non-discounted products are overridden by comparisons of the prices of discounted products before and after the discount. What this means is that regardless of how expensive a product or service is in comparison to other products and services, discounts make buyers more likely to buy that product even if it is still expensive.
Price-sensitive buyers often go for discounts regardless of the level of the discount. Thus, high-level discounts are not that much more likely to garner customer loyalty in comparison to other discounts. Innumeracy is the phenomenon whereby buyers are unable to apply math principles to real life and this applies strongly to discounts. A 1/3 discount can be mistaken for being more than a 1/2 discount.
Additionally, time constraints make discounts even more valuable to buyers as they may never get that deal again. On the contrary, it is quite likely for the same products to periodically be discounted, but the brain generally thinks in the short-term. Use time limits at the right time to take advantage of people’s fear of missing out.
Buying things in bulk or as part of a bundle is another way that pricing may influence buyer behaviour. Overpricing individual items may make buyers more likely to buy a bundle deal containing all said items. Why buy a car and then all other accessories later on at a higher total price when you can buy them altogether for cheaper? This allows a business to make a larger sale quickly instead of smaller sales over time, but it also prevents buyers from buying the separate items from other businesses.
Another tactic is the bait and switch. This entails offering a more expensive product or service when buyers enquire about a similar but cheaper alternative. The aim of this is to make the extra spending seem worth it for the extra benefit. This is almost like the foot-in-the-door technique whereby someone is more likely to give more if they have already agreed to give a lesser amount. In this instance, if the buyer has already agreed to themselves to buy an item, a slightly more expensive item won’t make that much of an economic difference. In fact, if the extra benefits are outlined well enough it may seem like a bargain! It is harder to get this to work on buyers who are set on a strict budget though.
What is more enticing than discounts and bargains? Free things! Buyers tend to think irrationally about free products and services. For instance, even if the price is built into a product advertising a free add-on, the word “free” triggers that thinking shorthand.
Appearances and Details
Bigger fonts attract more attention and steal attention away from smaller fonts. This is the key to “fine print”. When it comes to variable discounts, “up to” can be written in a small font and the maximum discount can be written in a bigger font. This tricks many into thinking the same discount applies to all products.
As they say, the devil is in the details. It has been shown that price increases are seen as less violating when they are framed as being insignificant. “A 5% increase” is seen as more unfavourable than “a small 5% increase” even if the result is the same.
In fact, the overall message or the overall price can remain the same. Just changing how it looks can make a difference. Longer prices seem more expensive to our brains when it is actually not. $2 is subconsciously seen as smaller than $2.00 even in reality it is the same thing. In fact, get rid of the “$”. The more syllables a buyer has to go through to mentally say the price of a product or service, the longer the number feels as well.
A very commonly used tactic is charm pricing. Charm pricing is when one or a few cents are taken off of a price to make it look cheaper. Compare $12.00 to $11.99. It is a 1 cent difference, but the brain sees 11 first and assumes it has to be cheaper than 12. The prevalence of charm pricing has created an opposite effect for prices ending in “0”. Instead of denoting value like the “9” does, round numbers denote high quality and prestige. Yes, it seems irrational, but this is what happens when our brains’ shorthand is taken advantage of.
To add a final bit of irrationality, our perception of a price can even be influenced by the size of the font it is written in. Bigger fonts denote a higher price (or bigger discounts) while smaller fonts denote a smaller price.