Finding that pricing sweet spot isn’t just about doing the math. Yes, you have to run the numbers when it comes to your costs and profit, but these aren’t the only factors that come into play when setting your prices. In an article originally published on the Vend Retail Blog, Vend retail expert Francesca Nicasio looks at how psychological strategies can impact how consumers perceive prices and products.
Plenty of studies suggest that implementing psychological strategies can also impact how consumers perceive prices and products. That’s why more and more retailers are taking the steps to understand how the minds of their customers work, and are using those insights when pricing their goods.
Below are three research-backed insights that shed light on how certain price tweaks can alter consumer behavior. Have a look and see if you can apply any of them in your pricing strategy.
1. Charm prices vs. whole numbers
The answer to whether or not you should implement charm prices (i.e. ending prices with the number “9” or other digits) depends on your target customers.
Research has shown that “there is a perceived relationship between prices ending in 0 and overall quality, and prices ending in 9 and overall value.” In other words, it appears that people associate charm prices with deals and bargains, and they associate whole number prices with higher quality.
That’s why retailers who are looking to reach bargain hunters should consider implementing charm prices, while those who are targeting high-end shoppers (or at least, customers who are willing to pay full price) should stick to whole numbers.
The screenshot below illustrates this quite well. Notice how the regular priced items on the page are in whole numbers, but the ones that are on sale end in .99? This is charm pricing in action.
2. Removing currency symbols could increase spending
It appears that removing the currency symbols from price tags can actually increase spending.
When researchers from Cornell University ran a test on menu pricing format and typography, they found that “the largest total checks came from menus that used numerals only and did not mention dollars, either with a word or symbol.” It appeared that diners spent more when they had menus that only listed the number (i.e. 10) versus when they had menus that listed the currency ($10.00 or ten dollars).
While this insight is certainly interesting, do note that the results from the experiment were not statistically significant enough to form a solid conclusion. As the researchers put it, “As much as we might like to believe that we can earn a quick buck by changing the type and presentation of our menus, it is clear that larger operational factors have a much larger impact on purchase behavior than price typography does.”
You could however, use this insight to test how you display your own prices. You can, for instance, implement a different pricing format in a particular branch or store section first, and see if it has any impact on sales.
3. Tiered pricing can influence spending
When you give customers two or even three price options (ex: basic, plus, premium), the most and least expensive price points act as anchors and create the perception that they’ll get a better deal if they go for the low or middle option.
A classic example of this comes from Williams Sonoma. In the 1990s, retailer unveiled a bread maker and priced it at $275. Sales were slow following its release, and to address this, the company introduced a more expensive, better-functioning bread maker at almost double the price of the first model. The result? Sales for the original bread maker started to increase.
The reason for the uptake in sales was that when Williams-Sonoma released the more expensive bread maker, it gave consumers a point of comparison that made the $275 option look more attractive.
See if you can put the same principle to work in your retail stores. If it makes sense for your business, consider introducing tiered pricing and see if it affects customer perception and spending.
This article was written by Vend retail expert Francesca Nicasio, and was originally published on the Vend Retail Blog. Click here to view the full post.