Pricing is one of the most important aspects of your eCommerce store.
[Tweet “Price a product too low, and you are missing out on profits. Price a product too high and people will look elsewhere.”]
Why isn’t a product selling? What is the most ideal price? Pricing can help you unlock growth in your eCommerce business. We’ve put together 6 tips on how to use pricing to your advantage.
1. Small Price Differences Can Have Big Results
When you price your products too similar you are putting your store in danger. Recent studies have shown that pricing products too similar to one another can cause the consumer to not make a purchase at all. One study conducted at Yale University shows that if two similar products are priced the same, consumers are much less likely to buy either one, than if their prices are slightly different.
In another study, participants were given the choice of buying two different packs of gum, priced the same at 63 cents, or pass and keep their money. Only 44% of participants chose to buy a pack of gum. The same experiment was tested on a different group, but this time the packs of gum were priced at 62 cents and 64 cents. This time an astounding 77% chose to buy a pack of gum!
Takeaway: Start off by running some small tests! For example, if you have two sweaters that are similar such as one with a v-neck and one with a crew-neck, differentiate the price between them very slightly and test what happens.
2. Psychological Pricing and the Number 9
Walk into a store such as Walmart and you will see 9’s everywhere. It’s not just a cheesy marketing gimmick.
The number 9 is actually a powerful tool when pricing. You may not think that pricing an item at $30 instead of $29 would make much a difference, but time and time again tests have proven that it makes a HUGE impact. In fact, according to research by Quantitive Marketing and Economics, if you take two of the exact same products, but price one higher and ending in 9, the higher priced item will outsell the same product that was priced lower!
A study conducted at the University of Chicago and MIT tested 3 prices for the exact same article of clothing. The different price points were $34, $39 and $44. Can you guess which price point had the best sales? The $39 price point worked so well that the sales volume using this price alone outdid sales for both 34 and 44 combined!
Another study, by the University of Chicago experimented on the price of margarine at a local grocery store. The price started at 89 cents, but when the grocery store reduced the price to 71 cents, sales improved 65%. When they further reduced it by two more pennies to 69 cents, sales went up an astounding 222%!
Another psychological effect is that we read from left to right. Therefore if we see an item priced at $7.99, we are more likely to say that the price is 7 instead of 8. This is often referred to as the “Left Digit Effect”.
Takeaway: Experiment with increasing the price of a product to the nearest 9. In other cases you can try reducing it slightly to have it end in a 9.
3. Price Anchoring
People love to compare prices when shopping for products and having an anchor price allows them to do that. For example, if you are looking at two similar shirts, with one priced at $75 and the other at $150, the $75 shirt looks really cheap compared to the $150 shirt.
In reality, the $75 shirt is still quite pricey. Stores know this so to sell it they put it near an even more expensive shirt.
One common tactic you will see with price anchoring is commonly found on pricing pages for online services. Usually, when a company is selling 3 different options they will point you towards the middle option. Of course some people will always want the best and some bargain hunters will always want the cheapest option but having a middle option allows the customer to feel like they are getting the best value for their money. The higher and lower options function as anchor prices, pushing you towards the middle option.
Takeaway: If you’re having trouble selling a certain product, try out price anchoring and see if it makes a difference. Place it beside similar products that are significantly higher, and lower in price and measure the result.
4. Price Perceptions
In his book, Don’t Just Roll The Dice, Neil Davidson writes about price perceptions and says this:
“People base their perceived values on reference points. If you’re selling a to-do list application, then people will look around and find another to-do list application. If they search the internet and discover that your competitors sell to-do list applications at $100 then this will set their perception of the right price for all to-do list applications.”
You need to provide potential customers with a reason that justifies your higher prices, because perception plays a major role in influencing consumer behaviour.
There was an interesting pricing experiment conducted by Richard Thaler involving two friends, a beach and beer. Two different scenarios were tested: In the first one, the friend was going to get beer from the only place nearby, a local run-down grocery store. In the second scenario, he was going to get beer from the bar of a fancy resort hotel. The beer was to be consumed on the beach, so the hotel’s fancy atmosphere was irrelevant.
Thaler found that invariably subjects would pay more if they are told that the beer is being purchased from an exclusive hotel rather than from a rundown grocery.
[Tweet “Why are people willing to pay more for the same thing? It’s all about perception.”]
Takeaway: Find ways to make buying from you store feel exclusive (and follow-through). Offer a superior shopping experience through strong branding, good design, usability and customer service.
One specific way to enhance perception is to offer a seamless cross-device shopping experience. LemonStand stores offer a seamless shopping experience across different devices by default.
5. Minimalist Pricing
In the Journal of Consumer Psychology, researchers found that prices containing more syllables seemed drastically higher to consumers.
The more simple a price sounds, the less expensive it feels. A study was conducted with these three exact same prices: $1,499.00, $1,499 and $1499. Although all three prices are exactly the same, the extra syllables and commas make the first two prices sound and feel more expensive. Not only does this happen when spoken out loud but also when read to ones self.
Another factor is the currency sign. Researchers at Cornell University tested 3 different formats at St. Andrew’s Café. The first had the price listed with a dollar sign before the number; the second had the price without a dollar sign; and the third had the price with the word “dollar” spelled out.
They determined that when the menu prices were listed with the dollar sign, customers spent less. But when the dollar sign was absent, they were more likely to spend more. The theory is that when you take away the dollar sign, the emphasis is no longer on the price but rather the product.
Takeaway: Experiment with removing currency signs, commas, and omitting decimals and cents where possible from product prices.
6. Sales and Discounts
When you run a sale do your customers know about it? Even small sales can be enough to entice someone to buy a product that they may have had their eye on for a while. Sending out emails and spreading the word through social media outlets are great ways to let your customers know of upcoming sales.
When you run a sale do you show the before price? It is very frustrating to consumers when they don’t get to see what kind of a bargain they are getting, even if it’s a small one.
Takeaway: When discounting products, always show the before price and emphasize the sale price. Your eCommerce platform should allow you to simply cross out the old price and display the sale price. You should also be able to show the customer the dollar amount they are saving or the percent.