Sales and pricing: What is a product really worth?
1. Sales and pricing lessons from behavioural psychology: Anchoring and creating Premium/Superior Options
Research by cognitive psychologists Khaneman and Tversky shows that when we are unsure about the price of a product, we tend to look for relative information from similar offers. We are willing to pay a higher price when the price is compared, or “anchored”, by an even higher price.
Examine a data deal offers:
|500 Meg x 24 months for R45 per month||1GB x 12 months for R999|
|1GB x 24 months for R 99 per month||2GB x 12 months for R1299|
Having the prepaid data price next to the contract data makes the contract seem really reasonable. The prepaid helps encourage people to purchase a contract. The 1 GB contract price is R99 per GB whereas the 1GB prepaid is R83 per GB.
Restaurants often use price anchoring to make high profit menu items appear a better value. Putting a R350 seafood platter close to a R220 platter on the menu makes the lower priced food seem more reasonable. This subconsciously encourages restaurant patrons to buy the more expensive items.
Beer test 1 : Two beers are offered: a regular beer for R12 and a premium beer for R16. Most (about 80%) bought the premium beer at this price.
Beer test 2: a discount beer offered at R9is added. With 3 beers offered most people (80%) chose the middle option, and the remaining (20%) people bought the premium beer (nobody bought the cheap option).
Beer test 3: a super-premium beer is offered for R22 and the discount beer removed. With these 3 beer offerings most people chose the premium beer for R16 again, and though a few people chose the cheapest option, 10% chose the most expensive option. There will always be people who want a premium option.
Beer pricing example from W. Poundstone’s book Priceless.
2. Perspective wording
Changing one word can change the perception of the offer to budget buyers. A Carnegie Mellon study looked at the impact of a single word in copy used to describe a joining fee for an otherwise free DVD trial offer.
The two versions were:
1. “a $5 fee”
2. “a small $5 fee”
Using the perspective word small, improved response rates by 20%! Sometimes a small change will help convince those on the edge to making a purchase.
3. Re-frame the Value
Convert R1,200 per year, to R100 per month
With larger purchases most of us find it harder to compare or evaluate value. This strategy re-framing strategy eases the buying pain for everybody, including budget customers. R100 per month seems more palatable than R1,200 per year.
Research shows that prices that are broken down into smaller, more manageable increments, are easier to process (even when they are the same overall price). When you have a product that is a large purchase, but is used over an extended period of time, remember to remind customers of the daily/monthly value of the product. This makes it much easier to rationalise their purchase.
4. Bundle offers
Neuro-economic expert, George Loewenstein, discovered that shows customers prefer bundling if it reduces the pain of having to make multiple purchases. In fact, many people are willing to pay more for bundled items, if it helps them to reduce the amount of individual purchases.
Consider the purchase of a new vehicle. We find it harder to justify the purchase of individual add ons compared to the purchase of an upgrade package. Individual upgrade items such as leather seats, GPS navigation, and 18″ Mag Wheels are harder to justify on their own. Bundling products with often purchased accessories enables the buying decision to be made easier, reducing the need for multiple purchases.
5. Sell Time rather than Money
The lowest price doesn’t always mean more sales. Research from Stanford University shows people are more willing to spend money on experiences. This is why the Miller Brewing Company has the slogan “It’s Miller Time!” rather than telling us about their the low prices of their bargain beers.
Research by Aaker using a lemonade stand showed the difference in purchases between money and time slogans. They used 3 different slogans in the study:
1. “Spend a little time and enjoy C&D’s lemonade” (focus on time)
2. “Spend a little money and enjoy C&D’s lemonade” (focus on money)
3. “Enjoy C&D’s lemonade” (neutral sign)
The subtle changes made huge a difference. The time sign attracted twice as many customers, and additionally the time customers were willing to pay twice as much for the lemonade. According to Aaker placing the emphasis on the time you’ll enjoy with a product, or the time it will save you, is likely to be more effective than focussing on the fact that your product is cheaper.
However with Premium purchases the price of the product is often linked to status and prestige, in this circumstance consumers may get more satisfaction from owning the product rather than the time elements associated with it. When selling Premium goods emphasis should be on their quality. When selling bargain goods get your customers to imagine the great times they will have with your products, rather than focusing on the price.
Use these Sales and pricing lessons from behavioural psychology next time you have to determine what something is worth.
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