It’s no secret that successful marketers employ psychology in getting a sale. Sure, we humans love to think of ourselves as highly rational beings who weigh our options logically before making a decision; but several studies have confirmed the powerful role emotions play in purchasing. As Gerald Zaltman wrote in his book, How Consumers Think, 95 percent of purchasing decisions occur in the subconscious.
What this means is that without understanding the buyer’s emotions and driving beliefs, you’ll have a difficult time getting them to do anything, including, and especially, handing you their money. Psychological pricing, however, appeals to the buyer’s emotion, and its techniques can be used to strategically increase sales.
So, if you are looking to improve product pricing, here are four “classic” psychological techniques which can have a striking effect on consumer purchasing behavior.
1. The decoy effect: Introduce a “useless” price.
The “decoy effect” is a familiar term in marketing. Here, via an article on LinkedIn by conversion expert Jeremy Smith, is an example that starts with your arrival at the cinema for a movie, and your consideration of two price options for popcorn:
Small popcorn — $3.00
Large popcorn — $7.00
If you’re like most people, you’ll go for the $3.00. The reason is simple. You’ll rationalize that you don’t really need the large popcorn. Small will do. But the equation changes when a third option is introduced, like this:
Small popcorn — $3.00
Medium popcorn — $6.50
Large popcorn — $7.00
Which one looks more appealing now? That’s what the team at the National Geographic Channel investigated. They found that in the second scenario, most people went for the most expensive popcorn. When these people were asked the reason for their choices, they said that the difference between the medium and the large was only 50 cents. Who wouldn’t want such a bargain?
Gregory Ciotti, in his article on the Kissmetrics blog, on the same topic, explained what is going on here. He wrote: “The price in the middle, while seemingly ‘useless’ in there, didn’t provide any value but was useful in getting customers to turn from ‘bargain hunters’ to ‘value seekers.'”
In psychology, the action at play is called cognitive bias. That is the tendency of the human mind to make inaccurate judgments or believe distortions or other fallacies. The decoy effect was popularized by Dan Ariel during a TED talk describing an observation he’d made on the The Economist pricing page, which prompted him to initiate a study.
To apply this effect to your own product pricing, you need to identify the product whose sales you want to increase. Then create two more price points applying the decoy effect.
2. Bundling: Reduce the “pain of buying.”
Buying comes with pain. A 2007 study conducted at Carnegie Mellon and Stanford universities found that prices that were set at unfairly high levels activated — in study participants…
