Whether you specialize in a product or a service, you have to put a price on whatever it is you’re selling. It’s not always easy to price something, and many ecommerce merchants resort to just picking a number and hoping it works out. In reality, a lot of time and thought is involved in determining how to appropriately price items. In the world of ecommerce sales, determining how to strategically price products and run successful promotions is critical to success.
The good news is that picking a price doesn’t have to be a complete guessing game. Consumers have a tendency to respond to certain types of prices, and the psychology behind this concept can help you price products and services in a way that will better appeal to them. By strategizing correctly, you can influence and persuade people who are making purchase decisions to make them more likely to buy from you.
The Basics of Pricing Psychology
Simply put, pricing psychology is a strategic way to price your products or services to influence people when making a buying decision. Psychological pricing began during the late 19th century when newspapers started competitively pricing their papers. Since then, companies both big and small have been putting a lot of work into figuring out the best strategy for pricing products, and many develop their own pricing psychology based on their industry and target customers.
Using Odd Pricing to Increase Your Ecommerce Sales
Odd pricing is the strategy of taking a few cents off your price to give the illusion that it is much cheaper than other, similar products. This means pricing goods just below the nearest found figure, such as charging $9.99 instead of $10.00 or $1,995 instead of $2,000. The psychology behind it works by creating the appearance that you, the retailer, carefully calculated the price of the product based on its actual value. When consumers see this slightly lower figure, it creates higher demand. The practice of odd pricing has been around for some time in retail, but it continues to work as a way to increase ecommerce sales as well.
Speculations abound as to why odd pricing is effective. Many companies have found that a consumer sees an odd price as being closer to the lower amount (the left number effect) than the amount it is actually closest to; for instance, if a product is priced at $2.99, they will interpret it as being closer to $2 than $3. The illusion of the lower cost can trigger an enhanced buyer response.
Product prices that steer away from the typical round numbers of $1.99 can also have a positive effect, so charging $397.67 instead of $399.99 or $400 can have a considerable effect on your overall sales. This psychological pricing strategy tends to work best for products in the tech world, such as laptops and mobile phones, because it gives the impression that it has been precisely calculated. The customer believes that the price has been fully researched and decided upon based on an actual formula of what the customer is receiving, plus an additional, nominal profit for the seller.
A customer might take time to make their decision and inspect the details, specifications, and features of a product before considering purchasing it. Once they have done the initial research, offering them the rational price of an odd number can sway their buying decision.
Additional Tips for Developing an Ecommerce Pricing Strategy
In addition to odd pricing, there are other things to keep in mind that can help you win the online pricing war.
Know your Margins
The reality is that the lowest price doesn’t always win. It has much more to do with perceived value—and if you are pricing your products too low, your customers might not be as enticed. You still need to make a profit, so it’s important to ensure that you aren’t lowering your prices to a point where you are losing money. Choose a sustainable price based on the profit margins you need to keep your business going.
Knowing your unique selling proposition (USP) is also important. What makes your product different from your competitors? Every company has to be able to define and explain their unique selling propositions to their target market. For ecommerce stores, the differentiation could boil down to having a totally unique product, key features you offer, unparalleled customer service, etc. Pricing competition is at an all-time high now, so it’s critical to think outside the box when positioning your company and your product to consumers.
Pricing your product or service well can help you make sure your ecommerce store sees the success it deserves. By paying attention to the psychology involved, you can increase the perceived value of what you’re selling, leading to higher conversions and more revenue for your business.