The Psychology Of Pricing: Part 2 - RD265

Last week I shared the first nine psychology of pricing tactics from Nick Kolenda's article. This week I continue the series with more great pricing tactics.

Tactic 10: Position Low Prices Toward the Left

According to a 2002 study, when designing a layout, you should position prices on the left if you want them to appear smaller. Here's the reasoning.

Research shows that people associate directional cues with certain concepts. Up is usually associated with good, whereas down is usually associated with bad. You give a thumbs up to things you like and a thumbs down to things you don't. In the Christian faith, good people go up to heaven, and bad people go down to hell.

This notion of up being good and down being bad triggers a spatial association. A 2004 study found that people recognized positive words faster when those words are positioned at the top of a layout. They recognize negative words faster when positioned near the bottom of a layout.

This same principle applies to numbers, including prices.

When people conceptualize numbers, they imagine a horizontal like with numbers going up from left to right. The smaller numbers on the left, the larger numbers on the right.

Since people associate smaller numbers as belonging on the left, positioning prices on the left side of a layout can trigger someone to associate it with a smaller value. The opposite works with larger numbers. If you want a number to appear large, position it on the right of a layout.

For example: for a message saying, "Receive a $20 credit for every person you refer." you'll want to place the $20 towards the right of the layout so that those seeing it will associate it with a large number making the offer more appealing.

The whole point of this tactic is to change the perception of a fixed price. If you want $20 to seem like a great low price, position it accordingly. Whereas if you want $20 to seem like a nice high reward, position it accordingly.

Because of these directional cues associated with spatial concepts, the optimal position for your prices is the bottom left of a layout if you want it to appear as a low price. And the upper right of a layout if you want the price to appear higher.

Tactic 11: Expose Customers to Two Multiples of Your Price

My first time reading this tactic, I thought, "c'mon, this can't be true." but the more I think about it, the more it makes sense.

A 2011 study showed that customers exposed to two multiples of a price reacted more favourably to the price. Let me explain this.

Nick's article shows four ads from Pizza Hut, a popular pizza chain you may be familiar with.

All four ads offered a deal costing $24.

• The first ad is for 3 Medium pizzas with unlimited toppings.
• The second ad is for 4 small pizzas with unlimited toppings.
• The third ad is for 3 medium pizzas with up to 8 toppings each.
• And the fourth ad is for 4 small pizzas with up to 6 toppings each.

The study conducted showed that customers were more favourable to ads 3 and 4. The two ads that limited the toppings. Then they were to the first two ads that offered unlimited toppings even though the first two ads were an economically better deal.

Why is that? It's because ads 3 and 4 incorporated multiples of the price.

• 4 small pizzas with up to 6 toppings each for $24. 4 x 6 = 24
• 3 medium pizzas with up to 8 toppings each for $24. 3 x 8 = 24

I know it sounds crazy, but psychology can explain it.

As children, we were drilled with simple math problems where an association develops between operands. For example, if I say 2 x 6, you immediately think 12. You don't actually have to do any math. It's been ingrained into your brain. You just instinctively know that 2 x 6 is 12.

Because of associations like these, your brain processes them more fluently than if we actually had to figure out the sum or product.

Back to the Pizza Hut ads,

Because ads 3 and 4 contained multiples of the $24 (4 x 6 and 3 x 8, respectively), customers could process the $24 more easily. The price feels right to them.

This tactic can be used with small and large prices.

• A product could be on sale for $15. Next to the price, you could indicate a 3-Day Sale for $5 off (3 x 5 = 15).
• Someone could offer 4 weekly 30-minute coaching calls for $120 (4 x 30 = 120).
• A webinar might sell a training course for $500, and as a reward for signing up before the end of the webinar, you'll get 5 bonus eBooks (a value of $100) (5 x 100 = $500)

Tactic 12: Use the Right Amount of "Roundedness

Instead of using a non-rounded price, such as $97.76, use the rounded price of $98.

A study done in 2015 found that round prices are processed fluently, whereas non-rounded prices are processed disfluently.

This tactic seems to contradict tactic 9 that I shared with you last week. Tactic 9 said to use precise numbers instead of rounded numbers because people assume rounded prices are artificially higher as if you plucked them from thin air. However, there is a time when round numbers are preferred. And that's when emotion plays a part.

It turns out that rounded prices because they are fluently processed, work better for emotional purchases. The opposite is true for non-rounded prices, causing people to use more mental resources to process the numbers. These are good for rational purchases.

So if you're trying to appeal to someone's emotions, such as donating to a charity or supporting a fundraiser, remove the cents and round to the nearest dollar. However, if you want someone to make a rational decision, such as buying life insurance, include the cents in the price.

Tactic 13: Tailor Prices Toward Names and Birthdays.

This tactic is a bit weird, but there is a lot of scientific research to support it. However, I'm not quite sure how you would put it to use.

A 2014 study found that customers prefer prices that contain the same letters in their name or birthday. For example, someone named Frank is more agreeable to a product priced at fifty-five dollars because fifty and five both start with F, the same first letter as his name.

This principle is called implicit egotism. It causes us to subconsciously gravitate towards things that resemble ourselves, including our names and the numbers on our birthdays.

I can't argue with the birthday thing. My birthday is on the 26th, and I know that I notice the number 26 whenever I see it.

So maybe the next time you submit a quote to a client, adjust the price to suit their name? $55 for someone named Frank, $66 for someone named Sam.

Tactic 14: Show Prices at the Optimal Time

Unlike the previous tactic, this one makes a lot of sense. It asks what you should display first, your product or your price?

A 2015 study found that the order in which a product and price are displayed influences the buyer's criteria when making their decision.

When a product is displayed first and the price next, buyers base their purchase decision on the quality of the product.

When the price is displayed before the product, buyers base their purchase decision on the product's value.

Put the Product before the price, and people ask themselves, "Do I like this product?"

But put the price before the product, and these same people ask themselves, "Is this product worth it?"

So how do you put this into practice? The same study determined that if you consider what you sell as a luxury product or service, you want people to base their decision on the product or service quality. Therefore you show the product before the price. A good example of this is a jewellery store. A jewellery store wants customers to focus on the product before they see the price. Hopefully swaying their purchase decision.

The opposite is true for utilitarian or economic products, such as flash drives or batteries. You want to display the price first so that customers see the economic value of the purchase.

Tactic 15: Display Red Prices to Men

This is another tactic I'm not 100% sure of. Probably because it makes men, of which I'm one, seem simple-minded. (Ladies, stop nodding your heads)

A 2013 study found that men are more likely to buy something when the price is displayed in red. This study noticed that men process ads less in-depth and use price colour as a visual heuristic to judge the perceived savings offered.

Meaning, men are less likely to compare the product's other attributes when presented with a red price. They diminish the importance of the photos and listed features and focus on the red price.

Studies have proven that the colour red increases arousal, so maybe that explains it.

Tactic 16: Start Negotiating With a High Precise Number.

In my opinion, this tactic applies more to products than it does to services, but I suppose you could get it to work. The trick is to use a higher anchor price to drive up the selling price.

You'll see this tactic often used with higher-priced items such as cars and furniture. It's often referred to as the MSRP or Manufacturers Suggested Retail Price.

When you buy a new car, the sticker on the vehicle will often display two prices: the price the manufacturer suggests and the price the dealer is selling the car for. I can guarantee you that the dealer price is always lower than the MSRP. That MSRP creates an anchor or established value, making the dealer price seem like a great deal.

I suppose you can use this if you offer packages to your clients. For example, you may offer a package of services for $800, but next to it, mention that it's a ($1000) value if they were to buy each service individually.

A 2004 study of eBay sales showed that auctions with a higher reserve price – the price that needs to be met for the item to sell. Higher reserve prices create an anchor towards the higher end of the price spectrum, resulting in more people bidding and the seller making more money.

Another study done in 2008 found that using a precise value as the anchor price also produced better results.

When people were asked to estimate the actual price of a plasma TV based on the suggested retail prices of $4,998, $5,000, or $5,012, the researchers found that the average estimated price was much higher for the two prices that were not rounded.

Tactic 17: Expose People to Higher "Incidental" Prices.

I just talked about anchor prices and how setting a high anchor price can make the actual price seem like a good deal. That tactic works great with higher-priced items. But what if you're using lower prices?

A 2004 study showed that items could sell at a higher price when placed next to higher-priced items.

For example, a clothing store sells belts for $15 each. When the belt rack is placed near a rack of $25 pants, the store sells very few belts. However, when they move the belt rack next to a rack of $80, pants belt sales increase.

If you're offering a service, it might be a good idea to mention some other higher-priced services you have to make the current selection seem like a great deal.

Tactic 18: Expose People to Any High Number

Continuing on the topic of anchor prices. This same tactic can be used with not only prices but with any number.

A 2003 study did a test with rare wines. They asked participants whether they would purchase a bottle of wine for the dollar amount equal to the last two digits in their social security number.

After receiving a YES or No answer, the researchers asked the participants to state the exact dollar amount they would be willing to pay. Remarkably, they found a direct correlation between the purchaser's social security number and the price they would pay for the wine.

• Those with Social security numbers ending in 00-19 were willing to pay $16 for the wine.
• Those with Social security numbers ending in 20-39 were willing to pay $26 for the wine.
• Those with Social security numbers ending in 40-59 were willing to pay $29 for the wine.
• Those with Social security numbers ending in 60-79 were willing to pay $35 for the wine.
• Those with Social security numbers ending in 80-99 were willing to pay $56 for the wine.

Obviously, you're not going to ask your customers for their social security numbers to come up with a price. But you can expose them to a high anchor number just the same.

For example, on my podcast branding website where I sell podcast artwork for $295. I could list below the price that I've designed artwork for over 400 podcasts. Even though 400 isn't a price. It still acts as an anchor, which psychologically affects their perception of the $295, making it seem lower.

Check back next week for even more ways to use psychology when displaying prices.

Tip of the week How not to miss anything when updating a project.

Whenever I have to update or make changes to a previous client project, the first thing I do is colour every element of the project MAGENTA. I colour the text, the lines, and for photos, images and graphics I colour or add a magenta frame to them.

Then, as I make the necessary changes or determine that a section doesn't require any changes, I recolour it back to what it should be.

Once I'm done, I can quickly look over the project to see if there are any magenta sections I've missed.