To effectively implement Psychology of pricing or change your product or service pricing, you must possess a clear understanding of how customers react to prices.
Believe it or not, psychology plays a big role in this process. What you set as your price and how customers perceive that price can have a significant impact on your label of sales.
If you are in the service business, set a price that’s consistent with your quality. Don’t accidentally cheapen the perceived quality of your service by setting your price too low.
Odd-even pricing – the odd-even pricing method is to lower the rounded-up price of an object by a cent or so, which people perceive as significantly lower than the rounded-up price. For example, if the top of your price range for a haircut is $10.00 you probably want to drop the price down to $9.99 because most customer think this price is much cheaper.
Assuming your customers are in any way price sensitive, they buy more of the lower-priced product, even though the price difference amounts to only one cent. Why? Because people perceive prices ending in 9 are cheaper, generally 3 to 6 percent cheaper in their memories than the rounded-up price. It’s just how their minds work, so take advantage of it. this is Psychology of pricing
The only catch to using odd-even pricing is that customer sometimes associate prices ending in 9 with cheap products that have low quality and are hyped with aggressive advertising. Be wary of this odd-even pricing method when your customers are quality sensitive and cautious. For example odd-even pricing may cheapen the image of an original work of art for sale in an art gallery.
If you really think you need to make a list price for an expensive and important product more appealing, then drop it by a significant amount. Don’t play around with pennies. A collectible painting worth 8,000 could be priced in a gallery at $ 7,900 but not at 7,899.99 because doing so may make people wonder whether it’s really a valuable antique or just an overpriced consumer product.
Price lining- the price lining method fits your product in to a range of alternatives, giving the product a logical spot in customers’ minds. Because adjusting your price to make it fit into your product line or into the range of products sold by your retailers or distributors, you make it clear what the competition is and how consumers should think about the product’s value.
When you shop a MacBook Pro laptop you find that the pricing is fairly easy to understand. A series of products provide increasing amounts of computing power, screen size, and other key features, and are priced accordingly. For example a Mack book pro with a 13 inch screen, may cost around 1,199; MacBook pros with 15 inch screens 1,699; mac book pros with 17 inch screens 2,499.
The bigger cost variable for Apple is the size of the screen; Apple uses this feature to define the price points in the product line. Take a tip from Apple and present your customers with simple, clear options at several price points based on budget.
Notice that apple uses the odd-even method as well to make their products look more affordable. They always use the phrase “starts at” to describe its list price. This makes you think in adding other features and upgrades (up-sales)
Competitive pricing- the competitive pricing method calls for you to set your price relative to that of an important competitor or set of competitors. Should you price above or below a tough competitor? That decision depends on the benefits of your product or service and whether it’s higher quality or lower quality.
If you’re facing a larger competitor with a famous brand name, recognize that you may need to price 5 to 10 percent less just because your brand isn’t well-know.
Here is an example of Psychology of pricing. If you want to appear significantly superior to the competition, make sure your prices are significantly higher. If Tiffany & Co. priced its jewelry too low, the jewelry would lose its prestigious image. In fact, this loss of image is just what happened when Avon bought Tiffany.
Avon tried to mass-market the Tiffany name by putting it on inexpensive jewelry. Millions of dollars of losses later, Avon sold out, and Tiffany went back to success by reverting to its exclusively high prices. These events happened nearly 22 years ago. Since then Tiffany & co. seems to have learned its lesson from the Avon experience.
Remember that trying to convince consumers that you have the same quality product at cheaper price, is difficult. Nobody will believe this claim, unless you present evidence. If you do, customers will love you. After all, everyone hopes to get more for less!. that’s the Psychology of pricing
For further help in this matter you can contact our experts for review of your pricing list.