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Pricing and Psychology

nkolenda

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Vigilante (one of the moderators) asked me to join this forum so that I could post an AMA. Here goes...

My name is Nick Kolenda, and I recently posted a massive article on pricing psychology (which sparked a lot of interest around the web, including the INSIDERS portion of this forum).

Some other relevant pieces of my background...
  • I'm the author of Methods of Persuasion, which has done pretty well (sold over 10,000 copies).
  • I've worked as a Marketing Research Analyst (focused on new product development), as well as an SEO and PPC Specialist.
I'd be happy to participate in any discussions involving pricing, psychology, conversions, authorship, or anything else. Not promising to have all the answers, but hopefully I can offer some value in those areas.

Best,
Nick
 
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The Grind

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Oh boy oh boy!

Thanks for coming and spreading some knowledge.

Question: All the 19.99, 19.95, 17.99 prices. Does 17.99 and 18.00 make that much of a different to make someone buy the product or not.

I used to have a sales job where the prices were 71.99 and 77.99 And the sales reps would tell the potential customers, its 72 and 78, They just rounded up because they said "It makes it less complicated for the customer"

Are they just shooting themselves in the foot?
 

nkolenda

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Does 17.99 and 18.00 make that much of a different to make someone buy the product or not.

Surprisingly, it makes a big difference. As I describe in the article, those "charm prices" are effective because of the way our brain processes a price. When the left-most digit is lower (e.g., $7.99 vs. $8.00), our brain encounters the 7 first and it becomes anchored around that numeral. All of that happens before our brain finishes reading the price. By the time we finish reading it, our brain has already registered a value near 7.

But a few caveats based on your example...
  • The effect will be more powerful in accordance with the leftmost digit. With $7.99 vs. $8.00, the leftmost digit changes. With $17.99 vs. $18.00 the second left-most digit changes. It'll still be effective, but it won't be as effective.
  • I'm not sure if that effect would still hold if the price was verbalized (as you mentioned). I don't think I've stumbled across any academic studies investigating that scenario. In fact, verbalizing the non-charmed price might be more effective. As I explain further in the article, we perceive numbers with fewer syllables to be lower in price. Since $72 has fewer syllables than $71.99, people may perceive that price to be lower. It would also depend on many factors, but I would guess that the charm prices would still hold their ground, and that $71.99 would still be more effective. But that's a good question.
 

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How would you price an ebook, under 200pages?
What points would you consider before making a decision?

Edit: Almost forgot: Hey Nick, welcome. Thanks for offering your insights ;)
 
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nkolenda

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How would you price an ebook, under 200pages?
What points would you consider before making a decision?

Here are the factors that I would consider:

General Factors

Goal: What's more important: money or awareness? With a lower price, you'll gain more readers (that you could upsell to other products and services).
Competition: What are the prices of similar eBooks?
Market Size: How large is your target market? If it's small, then the price should be higher so that you'll still generate a sizable amount of revenue. That also means your material is probably laser-focused on a niche topic, so there's not as much information out there (and those people will be willing to pay a higher price because the supply is lower).

Marketing Factors

Value: How much value are people getting from the eBook?
Positioning: How do you want to position your brand (e.g., prestigious vs. inexpensive)?

Psychological Factors

Content
: Is the content based on rationale or emotion? Non-rounded prices (e.g., $18.64) work better for rational content. Rounded prices (e.g., $18) work better for emotional content.
 

MJ DeMarco

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Thanks for joining us Nick, greatly appreciated.

My name is Nick Kolenda, and I recently posted a massive article on pricing psychology (which sparked a lot of interest around the web, including the INSIDERS portion of this forum).

FYI for anyone peeking in this thread, that article is a MUST READ for everyone who makes pricing decisions.
 
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nkolenda

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Thanks for joining us Nick, greatly appreciated.

FYI for anyone peeking in this thread, that article is a MUST READ for everyone who makes pricing decisions.

Thank you! I had never heard of this forum before, but I've been looking around, and it's awesome. It seems to be a very helpful and supportive community.
 

DaRK9

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Wow. Awesome article. Rep+

Question:

Do you have any thoughts on the order of multiple pricing?

Example.

39 59 79 vs 59 39 79
 
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D

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Hi Nick,

Thanks for the ama.

I briefly started reading your pricing article and I must say I'm impressed.
I had no idea just changing a couple of numbers could have such a profound effect.

I especially enjoyed the part where you mentioned how having fewer syllables changes how the price is perceived.

This was something I was able to implement into my own business immediately.

However, one thing I'm currently struggling with in regards to my pricing is competition.

Undercutting, specifically.

For reference, let's say my price is 99.99 and my competitors is 69.99.

How would you deal with a competitor undercutting your price for the same product?
 

Ikke

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Hello Nick, welcome to the forums.

I once bulk bought a product which ended to not be as good as I expected. I tried selling them all off at a low price and I sold very few items. Then I increased the price by about 400%. Now it started selling and at the time it became my fastest moving product. I can only assume this is because people associate a high price with high quality.

Why do people associate a higher price with a higher quality? And do you think that increasing a price for any random product will also increase the quality perception with the consumer?
 

tafy

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Nice article I enjoyed it

Question: Hotels never use the .99 price tags, I guess it hardly makes any difference when a price is $167 or $167.99

Hotels often have to raise their prices slowly every year to stop that price jump from happening. so one year you can have that good price of $79 a room but next year it needs to be $82. What would you suggest as a good practice of pricing hotel rooms?

btw Airlines, while they have the same problem of limited inventory (Seats vs Rooms) they always do demand pricing where the first people to book get the cheapest prices, than as the seats fill up the prices get bigger. Some hotels have started to do this also, what do you think about that strategy?
 
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nkolenda

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Do you have any thoughts on the order of multiple pricing?

Example.

39 59 79 vs 59 39 79

Could you clarify what you mean by multiple pricing? I could be wrong, but I was under the impression that multiple pricing involved creating a single price for multiple items (e.g., buy 5 boxes of cereal for $10, rather than stating $2/box). If that's what you mean, then I think it can be an effective strategy (and I should have included it in the article).

Although I didn't come across any research specifically tied to it, I can see two psychological principles at play: social norms and anchoring. By offering a suggested quantity, some shoppers might infer that most people choose to buy that quantity - a social norm which would make them more likely to follow suit.

Also, by offering a suggested numerical quantity, that number will anchor a higher purchase quantity. In one study, that effect became even stronger when you coupled it with a limitation (e.g., limit of 12 per customer).

How would you deal with a competitor undercutting your price for the same product?

That's a tough situation. I'll give you a few possible solutions, but whatever route you take, you should usually never fight back on price. You could be starting a pricing war that never ends.

Solution 1: Convey More Value

Think about ways you could enhance your value proposition. Why should people be pay more for your product? What extra value are they receiving?

Although that solution is important and useful, it's somewhat wishy washy. Sometimes you're in a very price-sensitive market. It just happens. If that's the case, the next solution could be more useful.

Solution 2: Emphasize the Total Price

If a competitor is offering a lower price, usually they reached that lower price by reducing the quality of their product. Oftentimes, the reduction in quality can cost the consumer more money in the long run (e.g., consumers need to purchase a replacement product at a closer point in the future).

If that's the case, you could compete on a lower total cost of ownership (e.g., your product has higher quality, so people only pay $99 compared to $139.98 in the long run).

Why do people associate a higher price with a higher quality? And do you think that increasing a price for any random product will also increase the quality perception with the consumer?

I would guess that people associate higher prices with higher quality because consumers assume that more costs and materials have entered the equation - so it must be higher quality. Also, higher priced products are usually offered by companies that have branded and positioned themselves as a leader in quality (e.g., Apple).

Increasing the price for a random product should increase the perception of quality. However, that increase would be moderated by many different factors (e.g., the industry, the company's reputation, competitors' positioning).

What would you suggest as a good practice of pricing hotel rooms?

When I was doing my research for the article, I stumbled across a very helpful book for hotels, called the Handbook of Hospitality Marketing Management. I found a full PDF through Google Scholar, but it looks like someone removed it in the meantime. If you do pricing/marketing for hotels, I would recommend that resource.

btw Airlines, while they have the same problem of limited inventory (Seats vs Rooms) they always do demand pricing where the first people to book get the cheapest prices, than as the seats fill up the prices get bigger. Some hotels have started to do this also, what do you think about that strategy?

I mention in the article that dynamic pricing can lead to negative perceptions (and consequently, lower revenue). However, those negative effects emerge when you charge different prices based on a consumer's willingness to pay. Those negative perceptions aren't as prevalent when those different prices are based on supply and demand factors (e.g., airlines charging lower prices with higher supply). So I think it's a good strategy to maximize their revenue.
 

DaRK9

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I should have said multiple tiers of pricing. Say for hosting or a web service.
 

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eliquid

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I'm gonna ask something not price related, but more persuasion related.

Since you wrote Methods of Persuasion and have also been a Marketing Research Analyst... if you could figure up a formula that would work, say at least 80% of time, for all copy/launches of a product/service, what would that formula look like?

I know all industries are different, but just curious what you have seen work over the long term across different verticals.

Could be anything, such as:

1. Pairing up 3 testimonials with at least 2 different emotional pain points and a 200% money back gar.

2. Plain language copy in short bursts on the page mixed with social triggers and a free giveaway ( reciprocation ). Maybe anchor with a limitation.

3. High price, limited quantity, time urgency type cues where visitor is in the last stage of the buying cycle.

Could be anything like the above, or something totally new. Just curious if you have any "go to" methods and examples that have worked for you in the past well.
 
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Andy Black

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Great article. Thanks. Rep+ and just ordered your book on Kindle.

Thanks to @Vigilante too.
 

nkolenda

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I should have said multiple tiers of pricing. Say for hosting or a web service.

Ah, gotcha! I like multiple tier pricing. Recently, Mochon (2013) found a "single-option aversion." In other words, when presented with only one option, people are more likely to search for additional options (and thus choose a competitor's product). Multiple tiered pricing helps prevent that search from happening.

That pricing structure is also conducive for upselling. For example, I mentioned the decoy effect in my article (i.e., offering an extremely high priced option will anchor people to choose a higher priced version of your product).

But you can also guide their choice in other ways. With the image you attached, I can think of a few A/B tests that would probably be successful:
  • Distinguish the middle option in some way (e.g., a different color scheme or indicating "Most Popular").
  • Adjust the CTA text from "Get Started" to "Get Started Now"
Not sure if that's your pricing page, but I love the design.

If you could figure up a formula that would work, say at least 80% of time, for all copy/launches of a product/service, what would that formula look like?

As you mentioned, it depends on many different factors. However, if I were forced to recommend a specific structure for a product launch, I would choose an approach similar to Jeff Walker's "Product Launch Formula."

Assuming that you've already built an email list, here's how I would launch an informational product (e.g., eBook, online course). But the process could be adapted to any product or service.

Step 1: Create a Free Video Course

Whether you take pieces from your current info product or whether you create new information, you should create something that will give people real value. Not only do you give them a taste for the type of content in your premium product, but you also trigger a form of reciprocity (one of Robert Cialdini's six principles of influence). Once you give them that free value, they'll feel more obligated to return the favor. On top of that, the video course will also give you a chance to establish rapport and liking (another one of Cialdini's principles).

Step 2: Drip the Video Content Over Time

Don't release the course all at once. If you created three videos, perhaps you release one video every 3-4 days (and at certain points throughout the video, you casually mention that your premium product will be available after they get through the free course). This structure builds excitement and anticipation for the release of your premium product.

In the last video of the course, incorporate more information about the premium product and explain that you'll be releasing it in the next few days.

Step 3: Announce the Release

After they get through the video course, send them an email announcing that you released your product and that it's available for one week. Some people have different opinions on the level of scarcity to incorporate in a launch. Whether you only keep your course open for one week or whether you give a temporary discount, you should always incorporate some element of scarcity during that initial launch. Also, in your email, you should tell people that you'll be emailing them more value over the next few days.

Step 4: Start Email Funnel

During this one week launch, you should email your list every day. However, each email should contain value. Everyone on your list - even people who have absolutely no interest in purchasing your product - should enjoy reading those emails. Don't make them entirely promotional.

Although it won't work for every product, the ideal topic to discuss is motivation. Give tips and advice to help with motivation, productivity, and taking action. Whenever we're exposed to a certain topic or idea, we experience a psychological tendency to engage in that behavior. When you talk about motivation and taking action, people will feel a stronger urge to take action. I explain that principle in more detail in my book.

So you could email your list each day during that week with a new insight on motivation. Each email could also contain a new selling point for your product or service. For example, the selling points might look like this:
  • Email 1: More Benefits
  • Email 2: Case Study
  • Email 3: FAQS
  • Email 4: Testimonials
  • Email 5: Final Scarcity Pitch
Final Thoughts

Although I applied that funnel toward info products, the core structure could be applied to nearly any product or service. But I'm a big fan of that structure. It incorporates many different psychological principles, and it's very flexible. Hope that helps!

Great article. Thanks. Rep+ and just ordered your book on Kindle.

Thank you! Much appreciated. Hope you enjoy it :)
 
G

GuestUser140

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I love this type of knowledge.

Without paying attention, I already used plenty of your ideas based on gut feeling.

I immediately implemented the bigger/smaller font (reference price) idea after reading your article.

Some questions:
  • How much does the .99 pricing matter with higher prices?
I noticed a competitor has xxx,99 prices, while I just do xxx. (I do use .99 with under $100 items).​
  • Last week, I ran a promotion on stock that had been lying on the shelves for over a month. I just calculated my minimum sale price with $20 profit (vs $100 before), crossed the old price online, set the new price, and everything sold in days. Where do these people come from?
Anyway. I had the idea to repeat this with that select part of my stock, but make both the crossed price and the new price higher, so that my profit is closer to $100 than $20. Recommended? Why (not)? Any pointers?​
  • This might be farfetched, but can the same ideas of pricing psychology be applied to wages / commissions?
Let's say I want to pay my sales employee partly based on commission. Obviously, his commission has to look as high as possible. If your info applies, you could use:
- "Mention the daily equivalence to make the price seem low." In this case, you do the opposite to make the commissions seem high. Could you mention the monthly commission, with the yearly equivalent in parentheses?
- "When your price is under $100, use a percentage discount (e.g., 25% off)." Since his commission would be <100/sale, would you be better off to state his commission in % rather than $?
Thank you for the wealth of info though (and the handy graphics in the article)!
 
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Bila

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Hello and thanks for the article....Any tips for pricing a groupon offer ( service )?
 

DaRK9

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Ah, gotcha! I like multiple tier pricing. Recently, Mochon (2013) found a "single-option aversion." In other words, when presented with only one option, people are more likely to search for additional options (and thus choose a competitor's product). Multiple tiered pricing helps prevent that search from happening.

That pricing structure is also conducive for upselling. For example, I mentioned the decoy effect in my article (i.e., offering an extremely high priced option will anchor people to choose a higher priced version of your product).

But you can also guide their choice in other ways. With the image you attached, I can think of a few A/B tests that would probably be successful:
  • Distinguish the middle option in some way (e.g., a different color scheme or indicating "Most Popular").
  • Adjust the CTA text from "Get Started" to "Get Started Now"
Not sure if that's your pricing page, but I love the design.

Awesome. Not mine but I have a very similar one. Great stuff, will be ordering your book.
 
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Polarbeans

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Hi @nkolenda and welcome to the forum, great to have you here!

How do you go about to understand and flesh out your audience?

Say I have an ebook in the survival niche and it's for men, basically. I THINK the best clients are 30-35 living in Northern states/Canda. But how do I go about finding more about that audience? without reading page after page on forums and blogs, but getting some hard statistics, like through Facebook ads or similar testing.

What are your top 3 SEO tips that really makes a difference?
 
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Awesome thread!! Rep+

Scenario: For our soap listed on Amazon, we currently have a list price .... crossed out ...... price where you save.....
Untitled.gif

Understanding that testing would be the way to know for sure.... what are your thoughts on the following two lines of questions:
1) Is soap rational or irrational? Should we go for emotion and make the price an even dollar amount (especially with a 7 in it) or are we a less than $10 item so we need to feed the $x.99 rational?
2) To raise our prices, should we keep the crossout and raise both or should we go to the list price and ditch the lower amount? Or should we only raise the price on a few items to make them seem like our high end? Or are we doomed to have to keep the same prices and the only way to really raise prices without a fuss is with the introduction of new items (at the new price)?

Thoughts?
 
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nkolenda

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  • How much does the .99 pricing matter with higher prices?
I noticed a competitor has xxx,99 prices, while I just do xxx. (I do use .99 with under $100 items).​

With higher prices, there's probably a point where .99 pricing might start to backfire. Since the effect stems from changing the left digit, you could reduce the price by $1 to achieve that effect (e.g., $500 vs. $499 - instead of $499.99) When you add the extra $0.99, it extends the physical length of the price, which might cause them to perceive the price to be higher. Plus, if your price is in the hundreds, then I'm assuming you want to convey some aspect of quality. Since .99 pricing is usually associated with low-priced goods, it might tarnish the perceived quality of your item.

With prices that are over $100, I would probably either (a) leave out the $0.99, or (b) use more specific cents (e.g., $498.32). And I would base that decision on whether the item was an emotional or rational purchase. For emotional purchases, I would leave out the $0.99. for rational purchases, I would add the specific cents. See Tactic 2 from the article.

  • Last week, I ran a promotion on stock that had been lying on the shelves for over a month. I just calculated my minimum sale price with $20 profit (vs $100 before), crossed the old price online, set the new price, and everything sold in days. Where do these people come from?
Anyway. I had the idea to repeat this with that select part of my stock, but make both the crossed price and the new price higher, so that my profit is closer to $100 than $20. Recommended? Why (not)? Any pointers?​

I don't have too much context on the situation, so don't place too much weight on this recommendation. But since that seems like a pretty big leap from $20 profit to $100 profit, it might be good to break up that test in smaller increments. Maybe adjust the price from $20 profit to $50 profit. If it's still effective, then try it again at $80 profit, then $100 profit. Again, I don't have too much background on the situation, so that's just an idea you could consider.

  • This might be farfetched, but can the same ideas of pricing psychology be applied to wages / commissions?

I never considered applying that pricing information to wages, but I think that's a great application (and everything should still apply). As you mentioned, you could make commissions seem higher by mentioning the monthly/yearly equivalence or using the Rule of 100. I think those principles would still be effective.

Also, to motivate salespeople, you should let me them choose their type of commission (e.g., monetary commission vs. vacation days vs. other). That higher autonomy elicits more intrinsic motivation (which should lead to a higher level of performance).

Hello and thanks for the article....Any tips for pricing a groupon offer ( service )?

I've never used Groupon before, so I won't be able to offer any tips specifically related to it. However, all of the tactics in the original pricing article should still apply, regardless of the pricing environment.

How do you go about to understand and flesh out your audience?

Say I have an ebook in the survival niche and it's for men, basically. I THINK the best clients are 30-35 living in Northern states/Canda. But how do I go about finding more about that audience? without reading page after page on forums and blogs, but getting some hard statistics, like through Facebook ads or similar testing.

I think the best answer depends on the reason why you're trying to get that information. If you're trying to sell more eBooks, I think there are better routes than targeting age, gender, location, and other general demographics. You'd probably have more success by targeting people who show an interest in survival, regardless of their demographics. If you're using paid ads (e.g., Facebook ads), you could target people who "like" pages related to survival. If you're using SEO/social, you could create a piece of content on survival to attract people who are interested in that topic.

With that being said, you could still find the demographic information for your audience by using Google Analytics. You could create an article on survival, promote it through various channels, and look at the Demographics report in Google Analytics to understand the type of people who are visiting the page and who are spending the most time on it.

What are your top 3 SEO tips that really makes a difference?

Since SEO strategies will usually depend on business and marketing goals, here are my top three tips for new blogs/websites that want to use a content marketing strategy to attract visitors.

Tip #1: Create Epic Content

I know this advice is pretty common, but it's almost a necessity for new blogs. Even though my blog is brand new, I managed to get roughly 100,000 unique visitors this month, thanks to my pricing article. When you don't have an audience, you need something that will make a splash. Ideally, your content should have a combination of virality (clever, enticing headline) and SEO potential (keywords with search volume and low competition). That way, even if your content doesn't achieve virality, you'll still have an insurance policy with your SEO (i.e., you should still get streams of organic traffic moving forward). Plus, if your content is epic, it'll have a greater chance of ranking in search results.

Tip #2: Promote Your Content

Don't fall into the trap of "build it and they will come." When you don't have an audience, you need to promote your content. If I didn't promote my pricing article, it would probably still be sitting on my website with a small handful of views.

I don't want to come across as promotional, but I'll be releasing a full online course in a few months for new blogs and websites. I'll be explaining how I made my pricing article go viral, even though I didn't have an audience to amplify it.

Tip #3: Don't Worry About Link Building

For new blogs and websites, link building can be very counter-productive. If you did your job right in creating and promoting an epic piece of content, links should come naturally. Plus, search engines mainly care about delivering the most relevant results. If your content truly solves a searcher's intent for your main topic, then search engines will gradually become aware of that, and they will move your content up the ranking. Link building would simply be an inefficient use of your time.

Awesome thread!! Rep+

Scenario: For our soap listed on Amazon, we currently have a list price .... crossed out ...... price where you save.....
View attachment 9781

Understanding that testing would be the way to know for sure.... what are your thoughts on the following two lines of questions:
1) Is soap rational or irrational? Should we go for emotion and make the price an even dollar amount (especially with a 7 in it) or are we a less than $10 item so we need to feed the $x.99 rational?
2) To raise our prices, should we keep the crossout and raise both or should we go to the list price and ditch the lower amount? Or should we only raise the price on a few items to make them seem like our high end? Or are we doomed to have to keep the same prices and the only way to really raise prices without a fuss is with the introduction of new items (at the new price)?

Thoughts?

1) I'm assuming that most people purchase the soap because it's organic? If so, it seems like it might be a rational purchase. I think I would keep the charm pricing.
2) I don't know enough about the business, so I wouldn't want to give a definitive answer. However, if you're going to raise the prices on items, I would raise both the crossed out price and the actual price.

Also, I would recommend changing the current charm pricing for your crossed out price. When you're trying to show the difference between the actual price and a reference price, you want to make the reference price seem as high as possible. So I would change the list price from $8.99 to $9.00. That way, people are more likely to perceive a $3 difference, rather than a $2 difference.
 

LibertyForMe

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Very very helpful stuff, thanks a lot!

I'm launching a product that will be potentially priced at about $60. I can't really decide if it is a rational or an emotional purchase. It is rational in that people will likely research before they buy, but their reason for buying it will probably be emotional. It isn't really an impulse buy.

If I priced at $59.99, the item would be less likely to be seen as a $60 item. BUT, Fifty Nine Ninety Nine is a lot of syllables, compared to Sixty.

This product is being positioned as a high end and luxury item, with a lifetime warranty. Any thoughts?
 

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@theag I mentioned you this article some days ago.

@nkolenda , solid article, solid answers, really top notch.

Guys, take your time to make GOOD questions, don't just ask the first thing that comes to your mind.
 
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Vigilante

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As a side note...

7 messages for the OP.

$700+ and counting in the rep bank.

And that... is a microcosm... of how the real world works.

You exchange value for $$. In this case, the rep bank may be fictitious, but it is a representation of how the value exchange works in the real world.

He didn't come in here promoting a book. He came in here and offered something of value, and people here are then compelled enough by his investment that they seek to buy his book. In 7 messages, he offered enough insight that people want more of what he has to offer.

He didn't have to "sell" anything. You hear MJ talk about PUSH marketing vs. PULL consumers? Look back at this thread. The OP offers his own insight, and his book becomes PULL.

Would you rather strategize on how to "market" people into buying what you are selling, or would you rather have content or products that are so compelling that people seek them out?

Boom. Fast lane.

How long have YOU been here? What's YOUR rep bank? What value are YOU bringing to the table?

:::end of rant. back to regularly scheduled programming:::
 

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