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.
And that’s good news. There are no universal standards that dictate whether a price is high or low — it all depends on the consumers perception of that price and how consumers learn about how pricing works.
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.
Use Discounts Strategically
If not used properly, discounts can actually harm your business. In fact, some people suggest that you should never use discounts.
That advice is pretty extreme. You can use discounts…you just need to use them properly.
Where can you go wrong? If used too frequently (or too deeply), discounts can make people more price conscious moving forward. They’ll keep waiting for the next discount.
Discounts can also lower people’s internal reference price for your product, causing them to buy less in the future (because your price will seem too high).
Reducing the frequency and depth of your discounts can help. However, this section will give you a few additional tactics to maintain the strength of your discounts.
TACTIC 25: Follow the “Rule of 100”
Earlier, you learned that people can perceive different magnitudes for the same price, depending on the context.
Discounts are no different.
When you offer discounts, you want to maximize the perceived size of them. That way, people feel like they’re getting a better deal.
Consider a $50 blender. Which discount seems like a better deal: 20% off vs. $10 off?
If you do the math, both discounts are the same monetary value. However, one discount has an advantage over the other.
How do you pick? Jonah Berger (2013) suggests following the “Rule of 100.”
- When your price is under $100, use a percentage discount (e.g., 25% off).
- When your price is over $100, use an absolute value (e.g., $25 off)
In both cases, you’ll be choosing the discount with the higher numeral (which will influence people’s perception of the magnitude).
TACTIC 26: Provide a Reason for the Discount
To avoid the negative perception of discounts, you might want to avoid the term “discount.” At the very least, you should give a specific reason for the discount.
For example, every-day-low-pricing stores often refer to supplier price cuts:
“In advertising rollback prices, EDLP stores (e.g., Wal-Mart) often convey the message that additional cost savings they are able to obtain from suppliers are being passed on to customers… presumably to minimize the negative effects of promotions…” (Mazumdar, Raj, & Sinha, 2005, pp. 88)
By providing a reason behind your discount, you reinforce that the new price is unusual. Since the price is abnormal, people will be less likely to incorporate it into their internal reference price.
TACTIC 27: Avoid Discounts With Precise Numbers
Earlier, I explained that you should use precise numbers for large prices. Since people associate precise numbers with small values, you can influence people to perceive large prices to be smaller in magnitude (Thomas, Simon, and Kadiyali, 2007).
With discounts, you want to maximize the perceived magnitude. Choosing discounts with precise numbers can actually hurt you. Those precise numbers will make your discount seem smaller.
Supporting that notion, Thomas and Morwitz (2006) found that people perceived the difference between 4.97 – 3.96 to be smaller than the difference between 5.00 – 4.00, even though the difference is roughly the same (1.01 vs. 1.00).
To maximize the perceived magnitude of your discount, use rounded values. Customers should be able to compute the general magnitude pretty easily.
Related Resources:
- The Only 3 Acceptable Pricing Page Discounts — Lincoln Murphy
- Data Shows SaaS Discounting Lowers Sales By Over 30 Percent — Patrick Campbell
- The Race You Can’t Win — Tim Peter