Dynamic pricing strategy is incredibly important when it comes to pricing your products. It allows real time pricing, whilst factoring in a wide range of different elements that could impact the price of your product.
However, while pricing software becomes increasingly sophisticated and advanced, there are still certain pricing tricks that speak to our inherent value-minded brains.
Dynamic pricing strategies can be helped, and made even more effective, with some key psychology tips that play into people’s mind sets when they are making a decision about a purchase.
Here are some small ways in which small psychological techniques can help push your pricing and profits.
Charm Pricing
An old trick, but one that has proven over time to be very beneficial.
Placing a product at £5.99, instead of £6, has been proven to quite dramatically improve your number of sales. If a product is priced at 99p, rather than £1, it has a conversion rate of 3.06%. The conversion rate of the product at £1 is significantly lower at 1.88%.
This is called the “left-digit effect”; people tend to make their decision based on the first numbers they see, rather than the last numbers. People are, therefore, focusing on the 5, rather than the .99, making it seem a lot less than £6.
Reference Pricing and Contrast Effect
Two people are buying the exact same product, be it a drill, or a lawnmower, or a skirt.
The first person buys it for £50, which appears to be the regular price. The second person goes to another shop, and buys it for £60, but is told the product has 20% off.
It is natural to believe that Person 1 got the best deal as ultimately they paid less for the exact same product. However, Person 2 is more likely to believe they got the better deal because they have the original price as a reference point.
People feel contented that they got a good deal when they receive a discount, rather than just paying the fixed price.
Another key fact is that customers are often relatively happy to spend more on an item as a higher price sometimes equals higher quality.
Different Levels of Pricing
When you go to the cinema, and look at the prices of the popcorn or drinks, you have a deicison to make.
With just a small popcorn and a large popcorn, people will likely give the smaller, and cheaper, option more attention. Add in a middle option so the prices are say £3 for the small, £5.50 for the medium, and £6.20 for a large.
This creates a sense of value around the large sized popcorn. For just 70p more than the medium, you are getting what you imagine a lot more popcorn and also more value for your money.
In fact, the medium size is likely to not be chosen very often, but acts as an incentive to encourage people to choose the more expensive item.
This is not just a strategy used for physical products, but has also been picked up by other companies, including companies running on a SaaS system, for example Netflix. Netflix offers 3 different price plans, giving both options for their customers, but also perhaps more motivation for them to choose the higher priced option.
Take away £ sign
This has not been as proven as the other psychology strategies, but is a technique that is becoming increasingly popular with restaurants and their menus, and retailers, especially online (an example being Nordstrom).
But, it has been suggested by a Cornell University study, that the largest bills came from tables who ordered off a menu where the currency sign had been removed. This is a strategy that works for certain businesses, most likely high-end restaurants or shops, where the focus is being placed on the product being sold, rather than the price.
These methods can help boost your profits and pricing in an efficient and cost-effective way. Coupled with a dynamic pricing software strategy, it allows you to use data and science, while also using the knowledge of people and how their minds work, to create a very successful and productive pricing strategy.