Pricing Strategies Can Make or Break Your Sales
When you are deciding what price to ask for your products online, it pays to use some proven pricing strategies. In the excerpt below we see two very important pricing strategies explained. Similarity and Price Anchoring are strategies that work across all markets and when you are building an online business it will pay you to learn how they work.
Pricing Strategies To Boost Sales
When Similarity Costs Sales
Limiting choices helps combat “analysis paralysis,” as too many options can be demotivating.
You might expect, then, that having identical price points for multiple products would be ideal, right? Not always, according to research from Yale: if two similar items are priced the same, consumers are often less likely to buy one than if their prices are even slightly different.
In one experiment, researchers gave users a choice of buying a pack of gum or keeping the money. When given a choice between two packs of gum, only 46% made a purchase when both were priced at 63 cents. Conversely, when the packs of gum were differently priced—at 62 cents and 64 cents—more than 77% of consumers chose to buy a pack. That’s quite an increase over the first group.
The implication isn’t to set your identical vintage T-shirts at variable prices. Rather, recognize the why behind the inertia: when similar items have the same price, consumers are inclined to defer their decision instead of taking action.
As the saying goes, the best way to sell a $2,000 watch is to put it right next to a $10,000 watch. But why?
The culprit is a common cognitive bias called anchoring. Anchoring refers to the tendency to heavily rely on the first piece of information offered when making decisions. In a study evaluating the effects of price anchors, researchers asked subjects to estimate the worth of a sample home. They provided pamphlets that included information about the surrounding houses; some had normal prices and others had artificially inflated prices. Both a group of undergraduate students and a selection of real-estate experts were swayed by the pamphlets with the higher prices.
Anchoring even influenced the professionals! Placing premium products and services near standard options may help create a clearer sense of value for potential customers, who will view the less expensive options as a bargain in comparison.
– via Help Scout Blog
Pricing Can Be Used to Build Your List and Your Sales
When you offer a product at a very low price, one where your profits are low, you have a better than average chance that you will be able to draw many more customers to your website and all the way through the sales process of that item.
Will you make a high profit from that one sale. No, but the real advantage is not even the higher number of sales adding up to more money. In truth, there are two advantages that make this strategy work. First, while they have their credit card out buying the first low-cost product, if you automatically offer them another product with higher margins for you, they are more likely to buy it.
The second advantage has to do with the low cost drawing in more people to your offer. More people putting eyes on your low-cost offer, now you offer them the higher margin offer and more people see it as well, so that is a win. There is a second way this larger group helps you. Each one who buys the lower priced product is added to your mailing list. Now you can contact them with other offers any time you want in the future. That is a real win!
Offer a Cheap Low Margin Product to Draw People In
(Raise your hand if you go to CostCo just for the hot dogs and end up buying a bunch of stuff:))
While you’ll always encounter customers who will buy your cheap sale item and leave, you’ll find that the majority of people will buy additional items along the way. The trick here is to entice the customer into your store with an attractively priced product and then convince them to spend the extra money that they saved on something else in your store. This tactic works very well.
In our shop, we have at least 1 item in every product category that is priced to move. For example, in our linen napkin category we offer our cocktail napkins at a really low price. And over the years, this low price has attracted many event and wedding planners to shop at our online store just for those cocktail napkins. But since it’s much easier for an event planner to get all of their napkins from the same vendor, they often order our higher priced linen dinner napkins too.
Retail shops like Walmart and Target use this tactic all the time to simply get you in the door. How many times have you walked into Target intending to purchase just 1 item but then leave with a whole cart full? This happens to us all the time!
– via mywifequitherjob.com
What pricing strategies have you used successfully?