There are a number of factors that influence how consumers come to their purchasing decisions and pricing is a particularly dominant factor. Research by e-commerce platform, BigCommerce found that pricing accounts for 80% of a person's decision making when choosing to buy. What if there was a way you could subtly influence those subconscious buying behaviours, by altering your pricing by a matter of pence/cents?
As a busy business owner it is often a struggle to find the “sweet spot” in product pricing. Many retailers ask themselves “Could I make more profit on my best selling items? Or will I scare off customers?“ A better understanding of the human psyche and how this should inform your product pricing can improve your margins and see your end of year profits grow.
The power of 9
“Charm pricing” is probably the oldest trick in the book. This is effectively lowering the price so the left digit changes. For example, reducing the price from £3.00 to £2.99. Reducing the price by one pence, changing the left digit from three to two and thus making the item more attractive price wise. Although this is pretty common knowledge to most business owners, research by Morwitz and Manoj (2005), stresses that“ charm pricing” is most effective when the left digit is lowered. Therefore, changing the price from £4.80 to £4.79 is ineffective.
Infact, research by Duncan and Anderson (2003) has actually shown on a study with women's clothing priced at $35 vs $39 that the latter outperformed the former by a whopping 24%. That’s an average of 24% performance difference in the prices by simply changing the right digit to 9!
Have a quick scan through your EPOS system and see what prices you could change to lower the left digit? Or even raise to achieve the magic number 9? Epos Now’s intelligent back office reporting will allow you to accurately track how much of a difference this makes to your incoming revenue.
Price anchoring is a strategy seen more within the online market place. However, it can still operate well in traditional bricks and mortar stores. Price anchoring is surrounding the item you want customers to buy with an alternative option to make the former more attractive.
Research by Suk, Lee and Lichtenstein (2012) put this theory to test in a bar over an 8 week period, alternating the sequences of the prices. The results were fascinating. When products were sorted in descending order (high to low) the customer saw each product below that as a loss in quality. Therefore, retained a higher quality and more expensive product and thus an increase in the amount of profit.
How do you advertise your prices to customers? What sequences are your prices in? Could you make a few changes to maximise profit? Playing around with how you display your products could have a tangible effect of consumer psychology and turn browsers into buyers.
Will these strategies actually increase my profits?
Testing different pricing and product display strategies is essential to trialing different methodologies in an effort to improving your businesses profitability. Research by consumer psychologists over the years suggests that these slight tweaks will have a definitive effect on the amount and value of produce bought.
Ask yourself the following questions;
- What products can I make appear “cheaper” by changing the left digit?
- Do I have any prices ending in .49 or .79 which I can increase to .99? For example, increasing the price from £2.49 to £2.99.
- How do I display my prices to customers? For restaurants and coffee shops is your menu in ascending or descending order? Or a mixture of both?
- How many sales have I made over the last 12 months with the price at X amount?
The next step is to tweak the prices and implement the above strategies. However, it is essential you measure the changes in sales which can be done through the back office of your Epos System. As simply changing the prices in the hope of seeing an increase is simply stabbing in the dark. You will need to create systems of failure of these methods if you are to see any traction.