As any shopper knows, the best deals available are found online. This means determining the right price point is one of the most vital aspects of your eCommerce business strategy. One of the biggest mistakes sellers make is using only the comparative method of determining their price point based on their competition. However, research suggests that this is not always the most effective way. Here are some other things to consider when pricing your goods.
1. Selling Time Over Money
“It’s Miller Time.”
For a company selling beer, this type of slogan might come off as somewhat of an odd choice, but according to new research, which advocates the benefits of “selling time” over money, it may be a perfect choice. “Because a person’s experience with a product tends to foster feelings of personal connection with it, referring to time typically leads to more favorable attitudes and to more purchases.”
2. Effect of “Useless” Price Points
You will find that the differences between your pricing points are going to greatly affect your customer’s perceived value of your product (and how they convince themselves of what to buy). Dan Ariely describes the pricing situation encountered over on The Economist. Dan realized that there were 3 very peculiar price points:
- A web-only subscription for $59
- A print-only subscription for $125
- A web + print subscription for $125
Daniel notes that this doesn’t make sense, as option 2 seems “useless” in that you’d be better off getting the print + web for the same price. He follows up with an interesting study that examines what would happen if he took out the middle price. His findings? The price in the middle, while seemingly “useless” in that it didn’t provide any value (since the print + web was the same price) was actually useful in that it helped get costumers to turn from “bargain hunters” to “value seekers”.
4. The Power of Number 9
Head over to practically any store around (online or brick and mortar) and you’ll see prices that end in “9″ everywhere. We’ve all heard of the reasons why it’s used (to make the price look lower), but does it really work? Are people really going to be effected by a $99 price point versus paying $1.00? As it turns out, this tactic does indeed work, and has been dubbed the use of “charm prices.” In his book “Priceless,” William Poundstone dissects 8 different studies on the use of charm prices and found that on average they increased sales by 24% versus their nearby, ’rounded’ price points. In fact, in an experiment tested by MIT and the University of Chicago, a standard women’s clothing item was tested at the prices of $34, $39, and $44. To the researchers surprise, the item sold best at $39, even more than the cheaper $34 price. One has to wonder: Is there anything that can outsell number 9?
5. The Price Perception: Context Matters
In a pricing experiment conducted by Richard Thaler, two scenarios were tested for a relatively mundane exercise: buying a friend a beer on the beach. In the first scenario, a friend asked the participant if he wanted a beer, and it was specified that the beer was going to be bought by the local rundown grocery store. In the second scenario, the beer was going to be purchased by the nearby posh hotel. Keep in mind the interior of the hotel had nothing to do with the results; the beer was to be imbibed on the beach.
Thaler concluded that it simply strikes people as being unfair that they should pay the same for both places, even though the beer itself is exactly the same. One might also recall the case study from Robert Cialdini’s “Influence,” where it discusses how a local jeweler managed to sell out of turquoise jewelry because it was accidentally priced at double its initial price, instead of half (which is the price she had intended).
The inflated price now made the jewelry irresistible to buyers, who had before ignored the color over all others (which was the initial reason for the intended price cut).
Now that the price had been raised, the context of turquoise jewelry had a “high value” in the buyer’s minds, even without an explanation!
Over To You!
Which of these research studies was the most surprising to you? How do you think you will be able to implement some of their findings into your own business?
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