Have you ever noticed that some stores mark the price of their goods with a “$” sign, while others don’t? They do this on purpose. The decision to include that little symbol or not makes a big difference. This can be explained as the psychology behind pricing. How?
Let’s take a look at an example.
Researchers at Cornell University tested this idea at a restaurant, part of the Culinary Institute of America in Hyde Park, New York. In this research, they offered three types of menus. The first menu had the price listed with a dollar sign in front of the numerals. The second menu had the price without a dollar sign. And the third menu had the price with the word “dollar” spelled out.
They found that when the prices were listed with the dollar sign, customers spent less. On the other hand, when the dollar sign was absent, they tended to spend more! In other words, they were quicker to spend their cash if the item was listed as “5.00” instead of “$5.00.”
This is an interesting topic in the pricing arena. The example above clearly shows that human psychology is sensitive about how stores mark prices.
This is what we will cover in this article! The psychology behind pricing and how you can do pricing analysis.
Psychology of Pricing
Pricing has a different impact on different customers. To make your prices more attractive, the first step should be to define your target audience. This is because at the end of the day if you don’t know who you are selling to, how can you find the price that is optimal, right?
Therefore, in a very competitive area such as Ecommerce you should know how the human psychology behind pricing works.
To make it usable we have defined some psychological tactics for pricing that you can use right away!
- Actively Encourage Consumption
For pricing your products you can do more than react to demand. Use pricing policies to actively attract your customers to consume.
You can offer time-based deals to eager customers. This can be a great chance to increase website traffic and your customers can become more aware of your brand.
But you should be careful of how frequently you do it. Avoid leaving a negative impression of your brand. If you offer discounts and promotions most of the time your customers can get bored.
To do it comprehensively, you can track competitors’ prices. You can observe the change in their prices and their pricing moves can give you insight into the market. At the moment, when competitors change prices, you can offer better deals and win customers!
- Psychologically Link Prices to Benefits
You can highlight the benefits of your products and services while selling. You can do it in a few steps.
Your product page might include a section explaining how the product can help your customers. Showing that it solves a specific problem can attract your customers. This can help your customers to better understand your product’s main job. This can create a positive effect on your brand image.
In this strategy, you don’t necessarily need to change prices. What you need to do is to enrich your product page with information. This might sound like not a necessary task but you can test it. For example, if you offer high prices adding additional information and benefits can show the value of your product. This can help you increase the number of sales and maximize your profits!
Now, we will explain what pricing analysis is and how you can do it most efficiently!
Pricing Analysis: Why is it a must for Ecommerce?
For a definition, pricing analysis is a research process determining the ideal price for your products or services. This is very important part of your job if you are selling in Ecommerce this is because the competition is intense! Therefore you need to find the best prices to gain new customers.
Start with finding a sweet spot which is a point where your customers think the price is reasonable and you don’t make a loss after you make sales.
Identifying your ideal price is a tricky task. There are several factors you should be aware of such as cost of production, competitor’s prices, target customers and their willingness to pay. These factors are just basics you should be considering.
You need to spend some of your time and effort to find the optimal price. But remember that every business has a different pricing strategy. Therefore making various pricing tests while doing pricing analysis can help you.
Let’s identify the ways of doing pricing analysis.
3 Ways to Do Pricing Analysis
- Identify and Analyze Your Target Audience
The first step is to identify your target audience and analyze their actions. This is because you need to ensure that you are analyzing your pricing based on your target audience.
Let’s say that you offer a deal for your existing customers. Now, it’s time to observe their behaviors. How they react to certain price changes and what attracts them the most can give you a better insight into product pricing.
You can realize that some of your products take more attention from your customers. Finding these high-performing products can guide you. By having that information you can offer better deals and have a higher number of sales.
But remember that your pricing strategy should be in line with your business strategy. Therefore, price your products while considering your target customer’s perception of brand image and business goals.
- Track Your Competitor’s Prices
It’s important to look at your products in the scheme of the market as a whole. Let’s say that you sell shoes. Gather a list of top shoe sellers in Ecommerce. They are your competitors. Then start tracking their online prices.
You can create a list of their names and prices for each product. But if you do this task manually you will lose lots of time and effort. Consider working with automated price tracking software. They will list all their prices and price moves that happened daily. And you don’t need to spend much time as you do it manually!
After observing the prices, compare your product with each of them. You can identify the pros and cons of your products’ pricing. You can have better insight not only into pricing but also into your product’s performance as well.
- Take Feedback From Your Customers
The last step is to conduct a pricing analysis survey. This will help you find out what your customers expect to pay and what they are willing to pay and many more based on your questions.
You can ask open-ended questions so that customers can give full, authentic ideas and opinions. This survey can help you create a long term relationship with your customers. Because you will show that you value their opinions by asking their feedback.
Therefore open feedback channels will not only help you offer better prices but also create long term customer relationships and possibly gain loyal customers.
You can ask the following questions:
Ask how much they would typically spend on a product like you are selling.
Explain a product in detail, its features and attributes then ask what they would expect to pay for it.
Ask how they would rate the value of your product compared to your competitors.
Present a price and ask whether it changes their perception of the product.
Ask which of the following they prioritize while making a purchase; quality, price, reliability, ease of use, brand and so on.
Business owners can spend lots of time on how to increase the number of sales and website traffic. In this article, we explained how product prices affect your customers’ perception of your brand based on human psychology and how you can do an analysis to offer the best prices.
The first step should be identifying your target audience, then track their actions and observe the change in demand when you offer different prices. This process will guide you to understand your target audience’s behaviors and you can attract them at the right moment! Next, you can highlight the benefits of your products that they will get after the purchase. Show the main job that your product or service is doing for your customers.
To reach your business goals the first step is pricing. After offering the best deal for customers, then you can start building long-term relationships.pricing strategies