Reframe your Price

One of the key messages I’m trying to inform General Managers about is that when it comes to consumers, we have to be expert psychologists. Nothing is ever as simple as it seems. And when it comes to consumers price is as much a perception as in any other area of consumer engagement. This is part three in a series on dynamic psychological pricing and how it affects your business. IN part 4 of our series lets talk about how we can influence price perceptions

Pricing Psychology- Reframe Your Price

When people are shopping, pricing information comes from their memory. The price you show will be lower or higher than that memory, and that may not always be good.  Here are some ways to influence price perception.

You can influence people’s memory for your price in easy ways. When people compare your price to a reference price, you can influence them to bring a lower price (for your product) into that comparison.

Why would people pull a lower price into the comparison? Because people are lazy. This strategy takes advantage of our brain’s laziness for encoding numerical values. Adaval and Monroe (2002) explain that:

“…price information about a product is unlikely to be coded into memory in terms of exact numerical digits but, rather, is coded spontaneously in more general magnitude terms (e.g., “low,” “high”). Thus the numerical price is susceptible to the influence of its original context when people attempt to reconstruct it later.” 

With such a hazy memory, you can influence how people recall your price. How? You just need to reframe your price into a lower numerical value. Exposing people to that lower value will cause them to remember a lower price by encoding a smaller magnitude perception for your price.

PRICING TACTIC 4: Keep the Shipping and Handling Separate

If you sell products online, you should usually separate the shipping and handling fees. Or if you can break apart your price- much as airlines do, then do it.  That’s why successful discount airlines charge for checked bags, for food, for printing tickets, for designated seating- to keep their initial price perception LOW.

When you use “partitioned pricing” (i.e., breaking up your total cost into multiple components), you anchor people to remember your base price, rather than the true total cost (Morwitz, Greenleaf, & Johnson, 1998). When people compare your price to a reference price of a competitor product, they’ll be more likely to pull your lower base price into the comparison.

Hossain and Morgan (2006) tested that possibility with eBay auctions. They set up auctions for music CDs, and they analyzed different bidding structures.

  • Some auctions offered a low opening bid with a shipping cost (e.g., $0.01 with $3.99 shipping).
  • Some auctions offered a higher opening bid without a shipping cost (e.g., $4 with free shipping).

In the end, auctions with low opening bids (plus shipping charges) attracted more bidders and generated more revenue. Oh…and Clark and Ward (2002) found similar results with auctions for the “Charizard” Pokemon card.

So where ever you can in advertising your price, break it down so the base price can be as low as possible.


PRICING TACTIC 5: Offer Payments in Installments

Likewise, when you give people the option to pay for your product in smaller increments (rather than one lump sum), you anchor people on the smaller price.

Suppose that you’re selling an online course for $499. By offering payment installments (e.g., 5 payments of $99), you taint people’s comparison process. They’ll be more likely to compare your installment price ($99) to a competitor’s lump sum price (e.g., $500) — a huge difference that makes your offering much more appealing.

But you shouldn’t get the wrong idea. People aren’t stupid. They know that comparing $99 and $500 isn’t an accurate comparison.

Luckily, it doesn’t matter. Since people usually compare reference prices subconsciously (Muzumdar & Sinha, 2005), your installment price has a good chance of sneaking into their comparison.

Pricing Tactic 5

PRICING TACTIC 6: Mention the Daily Equivalence

Similarly, you can achieve the same effect by reframing your price into its daily equivalence (e.g., $0.87/day) where the product is used on a daily basis.

Often referred to as “pennies-a-day” pricing, that strategy influences people to perceive a lower overall price (Gourville, 1998).

You should still make your regular price the primary focus. Simply mention the daily equivalence. That low number will anchor people toward the lower end of the price spectrum.

Pricing Tactic 6

Don’t worry if you have trouble reframing your price into a specific daily cost. You can achieve the same effect by comparing your price to a petty cash expense, such as a cup of coffee (Gourville, 1999).

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