The Psychology Of Pricing: Part 1 - RD264

Use these psychological tactics to change how people see prices.

I recently read a very in-depth article by Nick Kolenda on the psychology of pricing. I was so fascinated by what he revealed that I immediately changed some of the ways I display prices for myself and the things I design for my clients.

I thought I would save you time by summarizing the 42 research-proven psychological tactics in Nick's article in a podcast series. I'm sure you'll find it very useful in your design business. All studies I reference are linked to in Nick's article, in case you're interested.

As Nick puts it, At the end of the day, price is merely a perception. Nothing more. Nothing less. In fact, you can change that perception of how people interpret a price simply by changing the visual traits of the numeral.

It's a given. The number 5 is greater than 4. And 6 is greater than 5. But using these psychological pricing techniques, you can actually make prices seem lower - without reducing the actual price.

According to a 2002 study, most people don't remember exact prices. Rather, they remember general prices.

Have you ever looked at a price, and later when asked about it, only have a general idea of how much it was?

When I get home from the grocery store and my wife asked me how much it cost. I don't always remember the exact price. Was it $131 and change, or was it $138 and change? So I might tell her it cost "$130 something dollars."

Because humans have such a hazy memory regarding prices, we can use certain psychological tactics to influence people into seeing smaller prices than they realize. Let me get right down to the actual tactics.

Tactic 1: Reduce the Left Digit By One

You're probably already familiar with this tactic. Reducing the left digit by one creates a perception of a lower price. $199 is viewed as a much better deal than paying $200.

Gumroad's conversion rates study shows that pricing things at $0.99 instead of $1 or $2.99 instead of $3, or $5.99 instead of $6 conversion rates increase by 2-3%.

According to a 2005 study. Our brains encode numbers so quickly that we register the size of the number before we finish reading the entire number. When reading $1.99, our brain registers it as a dollar something which is lower than $2 something making it more desirable.

Nick offered a bonus tip to this tactic. Superscripting or minimizing the digits after the decimal places more emphasis on the number before the decimal. So $1 with a small 99 next to it appears smaller than $1.99 all the same size.

Tactic 2: Use Prices With Fewer Syllables

I'm a bit skeptical about this tactic. But according to a 2012 study, the more syllables there are, the more mental resources we need to process the information.

The same principle applies to numbers. If we spend more mental energy reading a number or price, we falsely perceive that price as larger. The fewer syllables involved, and we perceive that price as smaller. It doesn't matter that you are not saying the number out loud. Your brain does it for you.

This same study found that a slightly higher price with fewer syllables was more favourable to people than a lower price with more syllables.

For example. $27.82 has 7 syllables. $28.16 has only 5 syllables. There's only $0.34 between the two prices. But people were more inclined to spend the higher amount.

As I said, I'm skeptical about this one, but the studies do show it to be true.

Tactic 3: Display Prices In A Small Font Size.

This one applies to what we do as designers.

According to a 2005 study. Human brains conceptualize size with value. If you display the price in a smaller font size, people will perceive the price to be smaller.

Another trick is to position larger elements around the price to create a visual hierarchy. The larger elements will make the price visually smaller, which in turn makes the perceived price smaller.

The revers works for discounts. Display discounts larger to emphasize their large value.

Tactic 4: Remove The Comma.

I really like this tactic.

According to a 2012 study, removing the comma from a price makes it seem lower.

This one ties into tactic 2 of having fewer syllables. A price displayed as $1,499 reads as one-thousand four hundred and ninety-nine–10 syllables. Whereas a price displayed as $1499, without the comma, reads as fourteen ninety-nine–5 syllables.

I may be skeptical about the syllables thing. But I cannot argue that $1499 sounds like a better deal than $1,499.

Tactic 5: Use Words That Indicate a Reduced Magnitude.

According to a 2005 study, the words associated with a price influence people's perceptions of that price.

For example. Two identical pairs of inline skates are selling for the same price. Both packages list the same features and benefits. However, one pair emphasized "High Performance" while the other pair emphasized "Low Friction." The pair that emphasized "Low Friction" outsold the other pair.

The wording associated with the price caused the perception of the price to change.

How can you incorporate this into your design business?

Maybe you can promote low-maintenance websites as opposed to high converting websites? I don't know. But it might be worth doing some A/B testing.

Tactic 6: Separate the Shipping and Handling.

According to a 1998 study, people are more likely to use the base price when making comparisons.

By partitioning your price, meaning separate the price into multiple components instead of offering a total price, you lower the base price, which creates a perception of the offer being more affordable.

A 2006 test run on eBay showed auctions with an opening bid of $0.01 and a shipping cost of $3.99. Outperformed auctions for the same item with an opening bid of $4 with free shipping.

The total prices were identical. And yet, the first one received a lot more traction.

Tactic 7: Offer Payments in Installments

By offering people an option to pay in smaller increments rather than one lump sum, you anchor their perception on the smaller price.

Let's say you are pitching a new website design to a client. Instead of quoting them $6000, quote them three installments of $2000 each.

Don't get me wrong. Client's are not stupid. They know that three installments of $2000 are $6000. But by offering installments, you taint their comparison process.

Even though the client knows your total price is $6000, if they compare it to another web designer who quotes a total of $6000, you're lower installments will feel much more appealing to them and have a good chance of influencing their decision towards you.

Tactic 8: Mention the Daily Equivalence.

You see this tactic often used by charities and non-profits. Instead of mentioning the monthly or yearly cost, they share the low daily price.

A 1998 study proved that using a daily price creates a perception of an overall lower price.

This doesn't mean you shouldn't mention the regular price. In fact, it should still be the primary focus. However, mentioning the daily equivalence anchors people towards the lower end of the price spectrum.

For example. Being a member of the Resourceful Designer Community is $14.95/month. That works out to $0.49 per day. Is having a group of fellow design peers who are able and eager to help you grow your business not worth $0.49 per day to you? If so, join today.

A bonus tip: if you can't reframe your price into a daily cost, a 1999 study shows that the same thing can be done using petty cash expenses, such as the cost of a cup of coffee.

Tactic 9: Be Precise With Large Prices

This is one of my favourites out of all of these tactics. It's also the first one I started implementing.

When dealing with large prices, people are willing to pay more money when a price is precise instead of rounded.

For example, A website project costing $6834 as opposed to a website project costing $6000.

Why is that?

A rounded price is more suspicious. A client may question how you came up with a nice round price of $6000. Did you pick it out of thin air? Did you calculate the actual cost at $5700 and decided to round it up to $6000?

However, a precise number, such as $6834, leaves little room for suspicion. If you are quoting a precise number, clients will readily believe it's the actual price of the project. This thought pattern makes people much more agreeable to the price.

A 2007 study analyzing 27,000 real estate transactions showed that home buyers were willing to pay more, often thousands and even tens of thousands of dollars more, for a home listed at a specific price compared to a home listed at a rounded price.

These same people were also less likely to negotiate, or if they did, they would negotiate in much smaller increments than those bidding on a home with a rounded asking price.

By providing a specific price, such as $6834 for a website instead of $6000, the client is much more likely to trust what you are selling them and be agreeable to the price.

As I said, after reading this one, I immediately stopped quoting rounded prices to my clients. It's still too early to tell how it's going, but so far, so good.

Want more tactics?

Tune in to next week's episode

Resource of the week Chrome Application Shortcuts

A convenient way to turn a website into a desktop application is by using Chrome Applications Shortcuts. This is especially useful for browser-based tools such as invoicing/bookkeeping and Customer and Project Management Software. Instead of searching through dozens of open browser tabs for the right one, create an application shortcut and treat the webpage as a desktop application.

To create a Chrome Application Shortcut, open the website, you would like to turn into an application in a browser tab. On the far right of the address bar, click the three vertical dots. Select "More Tools" > "Create Shortcut"

Name the application in the pop-up window and be sure to check "Open as Window." then press Create.

A new Application icon will appear in the Chrome Apps folder within your Applications folder. You can now use it just like you would any other application. You can add it to your Dock. You can create Aliases from it. And you can easily switch between it and your other applications via the Control Centre.

Give it a try and let me know what you think.