You Can’t Compete Without Smart Pricing

Posted by Moira McCormick on October 3, 2016
Moira McCormick


It's "Smart" everything these days – so why not Smart Pricing?!

Pricing has had to move with the times – Smartphones and tablets have forced pricing professionals to move on from ancient pricing models. They have had to dig deeper into buyers' thought process to understand what will persuade them to make that purchase.

We all continue to enjoy acquiring new stuff but we've become much more canny about when and where we spend our hard-earned cash. Your potential customers need to believe they're getting a good deal by buying your product.

That "deal" might be buying at a discount or based on the prestige associated with the purchase – or a fear of missing out (FOMO) on the latest "must have". It might be a combination of all three.

It's all to do with the psychology of pricing and the importance of putting yourself in your customers' shoes. If you don't get your prices right it can mean the difference between a sale or a missed opportunity – and your bottom line will suffer as a consequence.

Pricing software is now widely used to test the impact of minute price variations on consumer demand and conversions. Analysing how users respond to various elements of a pricing strategy helps brands hone in on the best combination that works for them and their customers.


Some ideas for pricing smarter

1. See Red

Stores that have tried this strategy have seen a distinct difference in how men and women respond to colour.

Men responded positively to prices that were advertised in red, perceiving them to be 'on sale', according to a study conducted by Dr. Rajneesh Suri and his team from Drexel University's LeBow College of Business in 2013. The use of red made men feel positive and made them believe that they were being offered a bargain.

On the other hand, female shoppers seemed not be affected by a change in the colour of price tags. Women tended to process price data more deeply, recollect old prices, and compare them minutely, irrespective of the colour they were printed in.

An independent study published in the Journal of Retailing consisted of three experiments in which respondents looked at price tags and ads in different colours and scored them with respect to how much they would save on each item.

In all three experiments, male respondents thought they would save as much as 85% more with items that carried red price tags than those which had black tags.

The moral here is that if you're selling products aimed at a male target audience, use red for your price data!


2. Remember, size matters

Consumers are sensitive to the text size of discounted prices on price tags and product advertisements. Research has proved that they perceive price to be significantly lower when the reduced price is printed in a smaller font than that of the original price.

The logic is that the size of the text acts as a guideline to the reader's brain. The smaller font for the discounted price tells them that the new price is reduced and much lower than the original price.

The next time you have a sale, keep the discounted price text size smaller than the text size of the original price of the item.


3. Drop those pound signs

Have you been in a restaurant recently and noticed the absence of a pound sign before the prices on the menu. This is because researchers at Cornell University found that the absence of a pound sign takes the pressure of spending off the patrons' minds, leading them to spend higher amounts.

The very mention of pounds, whether expressed in symbols or in words, reminds users of the expense they stand to incur and makes them hold back their spending.

If your customer has to choose a purchase from a list of items, avoid using "£" in that list.


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4. Lock into your customers' Fear of Missing Out (FOMO)

FOMO is one of the latest catchwords among young millennials. It refers to impulsive decisions made out a fear of not being part of something fun, interesting, or valuable.

Apple builds up mass curiosity nearing hysteria around each new product launch and plays on users' fear of missing out to build up unbelievable sales figures. When Apple releases its latest i-phone, long queues of people camp outside their stores to avoid the disappointment of not getting their hands on the latest must-have.

On Black Friday, sales can go through the roof because of FOMO.

Use FOMO to your advantage by creating pricing signs that give a sense of urgency. Messaging such as "Last 10 items," "24 hours to go," and "Only for the first 50 customers" brings customers' fear psychology into play, resulting in highly profitable impulse purchases.


5. Try "One Price Fits All"

Think Poundland, Poundstretcher, Poundshop etc. How come they are so successful?

The trick lies in unit sizes. Instead of offering five pounds of Product A for £5, they offer a one pound package of Product A for £1, leaving the impression of huge savings. Similarly, if a big box retailer sells a two pound pack of Product B for £4, a pound store might offer a bundle containing four packs of the same Product B, with each pack weighing half a pound and costing £1 pound per pack.

These retailers are just focusing on the right competitive advantage instead of trying to offer the lowest prices in the market.

Consider offering a uniform price for all items as a one-off sale event. Maximize revenue and minimize price perceptions in consumers' minds by using creative packaging and pricing combinations.


6. How About Price Anchoring?

Not all decisions we make are rational. First impressions matter a great deal and become a buyer's reference point for making comparisons and arriving at a decision.

Price Anchoring is all about giving your customers a frame of reference for valuing your product. It enables you to guide those customers to choose the exact product you want them to choose at the exact price you want them to buy.

A price anchor can include "before" and "after" prices, or placing an overly expensive item next to the item you want to sell to make the latter seem attractive.


7. The Magic of Number 9

Retailers' often seem to be obsessed with the number 9, whether it's a shirt priced at £29.99, a cup of coffee at £2.99, or a suitcase for £99.99. Wouldn't it be simpler to round off these prices to a more convenient whole number?

Well, the majority of people tend to read from left to right, and so the first number they read on a product's price tag becomes the reference for forming an opinion on the perceived value of the product. So, in most people's heads, £29.99 seems closer to £29 than £30.

Eric Anderson from the Kellogg School of Management and Duncan Simester from the MIT Sloan School of Management carried out a series of pricing experiments described in their Harvard Business Review article "Mind Your Pricing Cues."

They found that prices ending in the number 9 denote a sale or discounted price in the customer's mind – so not to be used if you are selling luxury products.

The researchers conducted an experiment in which they actually raised the price of a dress in a women's wear catalogue from £34 to £39, and sales went up 33% despite the higher price!

This experiment does seem to demonstrate clearly that the number 9 has some magic hold on shoppers, which is why it is used so widely in discount shops. Use prices ending in 9 or .99 when you want to convey the perception of low prices.



Pricing is a lot more than cost plus margin or matching competitors' prices by lowering yours just a little. By thinking like a buyer instead of a seller, you can hone in on interesting and profitable smart pricing strategies tailor-made for your business that have the added benefit of setting you apart from the competition.


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The Strategy and Tactics of Pricing, Tom Nagle and John Hogan 2016

Smart Pricing Strategies for Generating Higher Conversions by Rohan Ayyar June 9, 2015

Pricing Strategy:how to price a product, Bill McFarlane 2012

Smart Pricing:how Google, Price Line and leading businesses use pricing innovation for profitability, Jagmohan Raju and Z. John Zhang 2010

Topics: Smart Pricing, Pricing Ideas

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