Is it time you start rethinking your price strategy?
One common mistake many small businesses make is setting prices only by considering how much profit they need to pay their mortgage and be “fair” to customers.
After setting the prices or figuring out their magic formula they never revisit their decision again. Well that’s a quick way to get pricing out of the way and deal with the dozens of other tasks at hand, but let’s not forget pricing is one of the most significant decisions that you will make for your business.
After all, once the customer finds your site and considers your offering, the one thing keeping them from handing over their money is your price.
The problem with pricing with only profit margins in mind is that you miss out on a number of psychological effects that pricing creates for consumers. If you consider just a few pricing tactics below, you can make a few easy changes and get a lot in return for it.
The tactic we are covering is anchor pricing or price anchoring.
First an Explanation of Anchor Pricing
Humans tend to rely heavily on one piece of information when making decisions. When deciding how much to pay for something, we often use the most conveniently available prices to drive our decision about what to buy and how much to pay. Simply put, we use price as information.
Most importantly, Price is Relative. Price of a good or service in reality is never high nor low if it’s the only option available. It’s only considered cheap or expensive if there is at least a second option to create relativity.
If you ever shop at Target and purchase laundry detergent, you will notice Target’s own brand is about 30% cheaper than the major label brands such as Tide. So if you want to save some cash, you grab a bottle of the target brand and walk away knowing you just save $4.
Now play back that same scenario and imagine there was no bottle of Tide to compare to. There is no way for you to know the Target brand is a good deal because the price lacks comparison.
Now that we get the idea behind price anchoring, let’s go over how to take advantage of it.
Few tactics to use to take advantage of Price Anchoring
1. Retail Prices. Always show the product retail price on the product page. You can simply cross it out and show your price besides it. If your product doesn’t have a specific retail price such as a hand made sculpture, then provide a range for the retail price. For example show
$150 to $250 and make sure to cross it to get the message across and avoid confusion for the buyer.
2. Average Service Price. If your providing a service then you can use the same method as above on your pricing page but instead list the typical cost for the service.
3. Competitive Price Comparison. You can also show your competitors price for relativity but be sure that 1) your price is lower and 2) highlight the benefits of your product or service so the buyer is not focused on just the price. If you go this route, be aware that your competitor will eventually see the price comparison and may decide to attack back with their own comparison. A counter attack should not be too alarming unless the competitor is much larger and has a substantial marketing budget.
4. The Package Comparison. Create a strategic price comparison for your own products or service. For example, come up with the ideal price for your service and create a package that includes its features and benefits.Then on your pricing page, set this ideal package in the middle. To the left of it create a slightly cheaper package that lacks the most valuable features. Final to the right of it create a much more expensive package with only couple extra features. If everything is done right, most of your customers will flock for the middle package because the price appears cheap and it provides the most value. You are basically guiding your customers to the ideal service at the price you are want to sell.
See if you can use one of these anchor pricing tactics with your offerings. And please share in the comments any pricing tactics you have tried recently and whether or not they worked for you.