Pricing our products is one of the long and difficult tasks that never seems to get easier.
It’s easy to figure out how much it costs us to make something, but very hard to calculate how much customers would pay for that product.
Lucky for you, we have written another article that covers a concept called value-based pricing. This article is a must read for any shop owner who struggles with pricing or who is looking to increase their margins.
The article today is focused on secondary factors that affect how customers perceive your pricing. Believe it or not, sometimes changes as small as removing the dollar sign can lead to an increase (or decrease) in conversions. These changes can be hidden goldmines that we can use to increase our conversions rates almost overnight.
Before we dive into the topic, an important side note on price-related split tests: some companies have gotten in trouble for showing different prices to different customers. That is, showing customer A the price of $15 and showing customer B the price of $20. From a legal perspective, this is perfectly fine to do, but we will try to avoid these kind of A/B tests for now.
It turns out that we (humans) are really bad at explaining why we purchase certain things and why we may be willing to pay for some items but not for others (e.g. Starbucks vs homemade coffee).
This makes our pricing experiments harder because we can’t simply just ask someone what they would pay. It’s not until people start spending real money that we really see what works and what doesn’t. Take a look at what William Poundstone, the author of Priceless: The Myth of Fair Value, says about pricing:
“People tend to be clueless about prices. Contrary to economic theory, we don’t really decide between A and B by consulting our invisible price tags and purchasing the one that yields the higher utility, he says. We make do with guesstimates and a vague recollection of what things are “supposed to cost.”
Let’s take a look at a few factors that will affect how people perceive and actually purchase your products.
One of the first things you can try is to remove the dollar sign or the currency symbol for your currency. This usually has one of two effects. Either people might perceive your product as less expensive, or people might not realize that they are looking at the price.
You can also try to make the dollar sign bigger or smaller relative to the actual price. Once again, these changes may be positive or negative, but remember – the purpose of testing is to see how customers react to these changes. If something, however odd, increases conversions, then that’s a positive change for your store.
This experiment is an extension of the above experiment and it goes well with the idea of keeping things simple. The following prices were shown to subjects:
Do they look the same to you? Surprisingly, the first two prices were perceived to be higher (more expensive) to consumers than the third price. By simply removing the comma and the decimal point, you are able to get users to perceive your products as less expensive.
Researchers who ran this experiment believe that this happens because of the way we would express each number verbally (the first price is longer to read).
On the flip side, if you are running a high end exclusive boutique store, you may want to add commas and decimal points to communicate a higher value to your users.
If you’ve ever shopped for anything, you’ve seen prices ending in 9, such as $39.99 or $49.99. Many retailers price their products at $39 instead of $40 just to get this effect.
This isn’t just a myth – prices ending in 9 are even more effective than lower priced products of the same kind e.g. $39 vs $30.
Don’t ignore the effectiveness of the number 9!
You can also experiment with typeface – try writing your prices in bold typeface, or removing bold typeface from your prices. Bold is used to attract attention to a specific phrase or word in a normal paragraph and the same concept would apply to prices.
Usually we focus on improving the CTA button by changing the color or making it bigger, but sometimes simply making the text inside the button more prominent will do the trick.
This next experiment involves working with the flow of your checkout store and what is shown to consumers as they shop around. The technique used here is called anchoring, which suggests an initial price to a user that will affect how they perceive future prices.
For example, say a woman is shopping your site for a shirt, and you show her related items that are 40% – 50% more expensive than the current shirt she’s looking at. The anchoring of these related items makes her current choice seem a better deal by comparison (even if it isn’t).
The next experiment is a bit radical but it has shown some initial promise among the retailers who adopt it. It involves letting users decide to pay whatever they want (i.e. what they think the product is worth).
This may seem crazy to some of you – after all, some consumers would simply get everything for free if they had the option, right? As it turns out, a lot of users would actually pay more using this method because they believe your product is worth more than what you expect.
The Pay What You Want Experiment could also help you figure out pricing for a new product. Let consumers pay what they want and you will end up with an average that would satisfy most of your customers.
You can also set a minimum price or run a “pay what you want” promotion for a limited amount of time, in order to protect profits.
“Limited Quantity” stickers are a popular technique used to move products of shelves in physical retailers, but it’s something you could use in your online store as well. The idea of limited availability creates exclusivity in the minds of your consumers.
You may or may not have limited availability, but this experiment can also help you sell products at different price points, creating a sense of urgency in your customers.
The Economist once ran an experiment with their subscription prices that has now become incredibly famous. They offered the following options to their users:
You will notice that the second option seems pointless, since you could get the print and web option for the same price.
However, when they removed the second option, most users would default to choosing option 1 instead of choosing option 3.
In this scenario, the second option was forcing users to stop seeking a deal and instead focus on value, in which option 3 is the best value for your money.
You could think about offering upsell options that could replicate this effect in hopes of getting your users to find the value in your products, instead of just looking for a deal.
Try some of these experiments with your own business – just make sure to keep your variables limited, so you can test accurately.
These experiments will hopefully also give you some ideas of what else you could test that would lead to an increase in conversions.
Do you have any other pricing experiments that turned out to be successfully for you? Let me know in the comments!