New research suggests that strategic price-setting can save you money
Let’s be honest: When it comes to setting prices for our products, most of us don’t have a clue as to what we’re doing. We tend to make them up as we go along, or charge what we think people might pay. A haphazard pricing strategy, however, might be losing us thousands of dollars every year. We tend to overestimate the amount of knowledge customers have about price when they make their purchasing decisions, and we often underestimate what a customer is willing to pay for our product or services. Here are a few price strategy mistakes common to business owners. Do any of them sound familiar?
1. Comparing your prices with the competition’s prices
According to new research from Stanford University, asking customers to closely compare your prices against a competitor’s (without a solid case as to why) can decrease their trust in you.
2. Selling price over experience
Another Stanford study has shown that asking customers to recall a previous happy experience when using a product is a lot more effective in encouraging them to buy than emphasizing the money they will save.
3. Not price pointing
Research from Quantitative Marketing and Economics shows that putting a “9” on the end of your prices really does appeal to customers, even if the un–price-pointed amount is lower. Researchers discovered that a $39 item outsold the same product priced at $34 by almost 24 percent! Go figure!
4. Not pricing your goods to suit your market
Using beer as an example, researchers discovered that customers were more willing to pay a higher price for a beer in an upscale hotel than they were in a rundown bottle shop, even though it was exactly the same beverage. Using a cost-plus mentality isn’t the answer if your customers come to you because they see you as a premium service. It may actually unsettle them if they think you are too cheap.
5. Not having enough price selection
If you’ve read Priceless: The Myth of Fair Value (and How to Take Advantage of It) by William Poundstone, you know that research shows when sellers offer two price options, customers often choose the higher price. When a third option—lower and price-pointed—was introduced, it tended to drag the average sale down as customers chose the middle option (the previous lower price). If a third higher-priced option was introduced, however, customers tended to focus on the original offer and chose the higher-priced item, thus lifting the overall average sale.
6. Not keeping prices simple
According to recent research, prices that contain more syllables when spoken come across drastically higher to customers. For example: $1,599.00 vs. $1,599 vs. $1599. Yes, all of these refer to the same value. But in tests, consumers thought the first two prices seemed much higher than the third price when they read them. So while it may seem trivial, cutting out the extra cents and commas makes a lot of sense.