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. In part 8 of our series lets look at pricing to motivate purchase.
Motivating to purchase
Even if you reduce the perceived magnitude of your price, customers might be stagnant. You should give them a nudge.
This section will teach you some pricing tactics that can motivate people to buy. You’ll learn (1) how to reduce the “pain” that we associate with paying and (2) how to properly use discounts to drive purchases.
Reduce the “Pain of Paying”
Each time we purchase something, we feel a sense of pain — often referred to as the “pain of paying” (Prelec & Loewenstein, 1998).
More specifically, the pain emerges from two factors:
- The saliency of the payment (e.g., we feel more pain if we see money leaving our hands)
- The timing of the payment (e.g., we feel more pain if we pay after we consume)
Considering those two factors, you can see why Uber — a ride-sharing service — revolutionized the taxi industry.
In traditional taxi rides, the saliency of payment is very high. You see a meter constantly rising. Each minute evokes an increasingly painful sensation. Plus, at the end of the ride, the taxi driver makes you pay by cash or credit card. So. Much. Pain.
Uber is different. No visual meter. No physical payments. Everything is automatically charged to your card. Much less pain.
Credit card processing is one tactic to reduce the pain of paying, but you can reduce that pain in other ways too. This section will give you a few ideas.
TACTIC 18: Remove the Dollar Sign
The pain of paying can be triggered pretty easily. In fact, the dollar sign in your price can remind people of that pain, and it can cause people to spend less (Yang, Kimes, & Sessarego, 2009).
But don’t get too trigger-happy. Before you start removing dollar signs, you should consider the overall clarity of your price.
Oftentimes, you need a dollar sign to indicate that your number is, indeed, a price. In those cases, don’t risk losing clarity by removing the dollar sign. Only use this tactic in formats where customers will expect a price to appear (e.g., restaurant menus).
TACTIC 19: Charge Customers Before They Consume
When possible, your customers should pay before they use your product or service. Prepayments benefit all parties involved.
For one, you won’t be delivering your product or service without being compensated. You’ll be more likely to get paid. Pretty helpful.
Second, people will be happier with your product. When people prepay, they tend to focus on the benefits they’ll be receiving, which numbs the pain of paying. If they’ve already experienced the benefits of your product, their payment becomes significantly more painful (Prelec & Lowenstein, 1998).
That insight can be helpful with monthly subscriptions. If you charge customers monthly payments, you should charge them at the beginning of the month (and frame your message in a forward-looking manner).
Avoid sending receipts at the end of a month (or summarizing the previous month’s payment). You’ll just be rubbing salt in the wound.
TACTIC 20: Attribute Bundled Discounts to Hedonic Products
To reduce the pain of paying, you might consider bundling your product. When you offer a packaged product, people can’t attribute a specific dollar value to the items within your bundle.
If you decide to bundle your offering, you should follow two important rules. Whichever product you add, it should be (1) hedonic, and (2) similarly priced.
Let’s look at each scenario.
First, your product should be hedonic (emotional), rather than utilitarian (rational). Since hedonic purchases trigger more guilt (Khan & Dhar, 2006), a bundle reduces that guilt, especially when you attribute the discount to the hedonic product.
As Khan and Dhar (2010) explain:
“…framing the discount on the hedonic item provides a justification required to reduce the guilt associated with the purchase of such items. However, since no such guilt is associated with the purchase of utilitarian items, framing the discount on utilitarian component of the bundle has little additional impact.” (pg. 18)
If you can only add a utilitarian product, then describe a hedonic use for that product. Khan and Dhar (2010) tested a bundle that consisted of a $50 lamp and a $50 blender. People were more likely to purchase the bundle when the description emphasized a hedonic use for the blender (e.g., making exotic cocktails) compared to a utilitarian use (e.g., making healthy shakes).
TACTIC 21: Don’t Bundle Expensive and Inexpensive Products
Second, avoid bundling expensive and inexpensive products. Inexpensive products reduce the perceived value of expensive products.
Brough and Chernev (2012) asked people to choose between a home gym and a 1-year gym membership. Roughly 51 percent of people chose the home gym — a pretty even split.
However, when the researchers bundled the home gym with a free fitness DVD, only 35% of people chose it. The fitness DVD reduced the perceived value of the home gym.
TACTIC 22: Shift the Focus Toward Time-Related Aspects
When describing your product, avoid mentioning any references to money. Instead, mention a concept that has a much greater benefit: time.
Mogilner and Aaker (2009) conducted an experiment with a lemonade stand. They alternated three signs advertising the stand, each emphasizing a particular quality:
- Time: “Spend a little time and enjoy C & D’s lemonade”
- Money: “Spend a little money and enjoy C & D’s lemonade”
- Neutral: “Enjoy C & D’s lemonade”
When participants arrived at the stand, they were told that they could choose how much they wanted to pay — anywhere between $1 to $3.
The results were clear: the “time” sign outperformed the others. Those people paid twice as much (and that sign attracted twice as many people).
The researchers attributed those results to a personal connection with the product:
“Because time increases focus on product experience, activating time (vs. money) augments one’s personal connection with the product, thereby boosting attitudes and decisions.” (Mogilner & Aaker, 2009, pg. 1)
When writing copy, emphasize the enjoyable time that people will spend with your product or service. Not only will that message make your offer more appealing, but it will also distract people from the pain of paying.
TACTIC 23: Create a Payment Medium
What do casino chips and gift cards have in common? They both reduce the pain of paying.
By creating a separate medium between your customers’ money and their payment, you distort the perception of paying. They’ll know that they’re paying, but it won’t feel like it.
Why won’t it feel like paying? Researchers find that, with the presence of an additional medium, people are too lazy to calculate the conversion between those currencies (Nunes & Park, 2003).
Here’s a cool idea. When new customers open an account with your business, you could require them to deposit a refundable $10 into their account (to be used for your services).
Since the money is refundable, customers might not give too much additional resistance. More importantly, that payment medium will distort the essence of that money. Once it enters a separate medium, it won’t feel like money (and people will be more willing to spend it).
TACTIC 24: Avoid Connotations With Real Currency
You could also strengthen that perception by referring to that money as “[Your Company] Balance” (or any other name that avoids connotation with real currency).
If you implement that strategy, you might also want to match customer deposits by a certain percentage. For example, if a customer deposits $10 into their account, you could match it by 10% (which would bring their account value to $11).
By matching their deposits, you trigger two benefits.
First, you incentive customers to deposit more money. With the psychological impact of payment mediums, you should enhance the appeal of deposits as much as possible.
Second, you create an off-balance conversion between their money and their account value. Dreze and Nunes (2004) explain that payment mediums become more effective when consumers have trouble converting the values:
“With increased exposure and experience, the conversion between two or more particular currencies can, in theory, become second nature. If this were the case, we would expect that combined-currency prices across the currencies lose their efficacy.” (pp. 72)
Related Resources:
- SaaS Pricing: Features that Make People Upgrade — Jason Shah
- 8 Psychological Triggers to Optimize Your Pricing Page — Talia Wolf
- 26 Pricing Page Examples and Best Practices — Talia Wolf
- How to Use Urgency to Increase Conversions — David Rosenfeld
- How to Increase eCommerce Conversion Rate With Personalization— Ryan B. Miller