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tristano

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Thanks for explaining this crucial point on pricing products, it's very interesting and useful. I heard something about it sometimes ago and your lessons are university level. Please, keep posting.
 

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MidwestLandlord

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$50
$60
$150

Those are my current prices on my website.

Now I'm sitting here wondering how many sales I may have stopped.

Time for my a$$ to make some changes.
Keep in mind the point of this thread though.

I am NOT giving hard and fast rules. I have broken the "rules" I list here many, many times. Your prices MAY be just fine.

The point is to get y'all to SEE this. To be aware that it exists, and to know your competitors ARE using it.

To think creatively.

To think of pricing with a more flexible mindset.

At the very least, probably gonna make y'all smarter consumers haha.
 
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MidwestLandlord

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Tax Adjusted Pricing

Simple strategy. Usually breaks the "end in 9" rule.

This is where you either put the sales tax in the listed price, or...

...you adjust the price point so that the after tax amount is a specific price.

This can be very helpful when selling things for cash.

Example:

I operate in a municipality where the sales tax on a $1.89 item brings it to $2.01 after tax. At that low price point, most customers pay cash.

I sell thousands of this product a week, and the extra cent after tax was a PITA for my customers and my cashiers. Lots of complaints from both. Lots of chaos over a penny.

So I took the tag price to $1.88...making it $2.00 even after tax.

The improved operational efficiency at the point of sale, the improved customer service by not asking for this penny, and the stress I saved my employees more than makes up for the lost penny in revenue.
 
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MidwestLandlord

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High-Low Pricing

Not very common. Difficult to do well.

This is where your normal price is higher than a like item at a competitor, but is lower net a discount.

Example:

Mail-in rebates
Coupons
Discounts for paying cash
$2 off a car wash with fuel purchase
50 cents off a donut with coffee purchase
Etc

I have seen this most often at car lots.

Usually advertised as a "cash back" with financing deal.

You might get $1,500 cash back for financing the car there, but often the same car will be that much cheaper at a lot NOT offering the cash back.

Remember: This is different from just discounting a product or service, as the starting price is HIGHER than the market norm.
 
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MidwestLandlord

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Price Discrimination

I hate this term, but that's the usual name for it. I call it "Market Specific Pricing"

I'm allergic to the word "discrimination"...makes me break out in lawyer bills.

This is where you sell identical items in different markets, and adjust the price for varying demographics in each marketplace.

A VERY common strategy that most people don't realize exists. If they have seen it, they don't realize WHY it happens.

Example #1:

Ever notice how some towns have a Wal-Mart in a nice area, and also a Wal-Mart in the "my cousin Jeb got busted for starting a meth lab in the men's room" area?

This is intentional. Wal-Mart is targeting different markets, based off different demographics. In this case, income.

If you look at the prices between both of these Wal-Marts, you'll see that some items (not all) are identical, but are priced differently.

This is due to price sensitivity in different market demographics. Income, age, race, gender, and product type have big effects on price sensitivity.

Example #2:

I have B&M stores in high-income areas, and low-income areas. Identical items, some are priced slightly different. (5-50 cents)

Junk food is priced higher in low-income areas, due to lower price sensitivity.
Healthier food is priced lower in low-income areas, due to higher price sensitivity.
Addictive items (caffeine, nicotine, alcohol) is priced higher in low-income areas, due to lower price sensitivity.

Household goods are priced higher in high-income areas, due to lower price sensitivity.
Personal care items are priced higher in high-income areas, due to lower price sensitivity.
Junk food is priced lower in high-income areas, due to higher price sensitivity.

Etc...

Now, if the only thing you got out of this post was:

MidwestLandlord is an a**hole that rips off poor people!

Then you missed the point.

The point is:

Know your market. Know how your customers think. Their spending habits. Their income. Their needs. Their wants.

And set prices accordingly.

Again, I'm not telling anyone how to price. Just laying out strategies. This is an advanced concept, use at your own risk.
 

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Good thread.. but a bit too tactical maybe? Newbs and intermediate folks need to learn difference in Strategy for pricing.

I think even more important lesson for Pricing is to learn how and why a Vodka company can launch a vodka that costs $50 or $80 and sell that and be a Premium product, rather than be competing in normal scale of pricing (9-15-20 bucks). The psychology and position behind this difference is huge lesson people need to learn. And it's interesting to see if a retail shop would carry that very Premium vodka and sell that...

But in any case, it's good to study the most Premium products and analyse why they can charge way way more than normal prices, than worry about $5 difference.
 
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MidwestLandlord

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Amazing response - I sent 199 rep points
Should've sent 200 points. That way @MidwestLandlord would register it in his brain as 100 points more. :cool:
Haha! You guys get it. Exactly how it works!

I was driving down I-25 through Denver yesterday.

The HOV driving lane fine, for not having multiple people in the car, is $250

$250

Think that's intentional? A nice, high, even number that sits right on a psychological price limit?

Would it have the same deterring effect at $249? $199?
 
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MidwestLandlord

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Good thread.. but a bit too tactical maybe?
Probably. But that's how I am, so that's how I speak haha.

I think even more important lesson for Pricing is to learn how and why a Vodka company can launch a vodka that costs $50 or $80 and sell that and be a Premium product, rather than be competing in normal scale of pricing (9-15-20 bucks). The psychology and position behind this difference is huge lesson people need to learn. And it's interesting to see if a retail shop would carry that very Premium vodka and sell that...

But in any case, it's good to study the most Premium products and analyse why they can charge way way more than normal prices, than worry about $5 difference.
Price sensitivity is closely related to the type of product, and the marketing behind it.

In other words, a luxury item, or an item that seems "cool" in the market, will have a lower price sensitivity point for people effected by that marketing and/or reputation.

Meaning, people are buying the feeling, not just the product itself.

Read anything written by @SinisterLex ...this is where copy, and telling stories, comes into play for sure.
 

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Should've sent 200 points. That way @MidwestLandlord would register it in his brain as 100 points more. :cool:
$25 rep sent :cool: *edit - my $25.99 rep joke rounded up to $26 haha.

Great thread - I will be putting this into use right away.
 

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MidwestLandlord

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Yield Management Pricing

"Yield" in this case meaning, grossing a higher total revenue off the product by adjusting it's price around specific events.

Day-parts
Seasons
Holidays
Sporting/tourist events
Geographic locations (think beaches)

Examples:

I live near a tourist destination. Parking during the off season is $15, parking during tourist season is $50 (round numbers, gah!)

I've noticed some restaurants, thanks to the ease of changing prices with electronic menu boards, charging MORE for coffee in the mornings (day-part yield. High demand in morning, people will pay)

How much is a hot dog at a pro ball game versus a c-store?

How much is a lemonade off a cart at the beach in Miami versus a restaurant in town?

Etc...

Market Specific Pricing (price discrimination) and Yield Management Pricing often go hand-in-hand or are even basically the same thing.
 
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MidwestLandlord

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Penetration Pricing

In my industry, this is called "scorch the earth" pricing haha

Very common.

You go into a market with a new product or service, and you set the price LOW to intentionally build sales volume, brand reputation, brand awareness, and especially in the case of 'repeatable sales' B&M...change spending habits.

You then either gradually, or not-so gradually, raise the price to get the margin you want.

This pricing strategy has been mentioned numerous times in the various threads on ecom by the heavy-hitters in the ecom space on this forum.

Simple strategy, but the downside if done incorrectly is that your stuff will be seen as poor quality.

I've most often done this when backed by major, multi-national brands with multi-million dollar advertising budgets and strong brand reputations. Customers then see the low price as temporary, a good deal, a special, a discount, and NOT a reflection of product quality.
 
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MidwestLandlord

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Skimming

I've heard this called "creaming" too, which is weird...don't be weird.

Basically the exact opposite of Penetration Pricing, and is very common. I use this OFTEN.

This is where you offer a new product or service, that already has strong brand recognition, and you charge MORE than the normal retail price to gain a higher margin yield from the temporarily lowered price sensitivity your customers have from the novelty and excitement of the product.

You then lower the price to your normal margin levels.

Example:

I sell Coca-Cola products. Coke frequently comes out with new products. About 25% of them end up maintaining market presence and share, and I keep them as core items. The rest die a slow death.

When Coke comes out with a new product, they back them with multi-million dollar ad campaigns. I will get people asking for this product because they saw it on the internet weeks before my market can get it from our bottler. Lots of interest, lots of excitement.

I will often bring that product in at a slightly higher than normal price, to benefit from the initial interest and yield a higher overall margin on the life of the product.

So a normal $1.49 might be initially priced at $1.99

Then, if Coke keeps the product and maintains advertising for it, I lower the price to the normal $1.49 so that I don't cross that $1.50 mental price sensitivity barrier that a NORMAL soda has in my locations.

It is now a "normal" product, so people will no longer buy it at a higher price point. If the price stayed higher, their habit of buying it will revert back to whatever they were buying before, because I am violating their price sensitivity limit.
 

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Example #1:

Ever notice how some towns have a Wal-Mart in a nice area, and also a Wal-Mart in the "my cousin Jeb got busted for starting a meth lab in the men's room" area?

This is intentional. Wal-Mart is targeting different markets, based off different demographics. In this case, income.

If you look at the prices between both of these Wal-Marts, you'll see that some items (not all) are identical, but are priced differently.

This is due to price sensitivity in different market demographics. Income, age, race, gender, and product type have big effects on price sensitivity.
They also have different store layouts and POGs. This is not a Walmart example, but another major retailer.

Example, we sell a semi-premium snack product. So, aside from grocery being in a different area of the store, our category layout looks different. So, for the sake of simplicity, say we have 3 basic income demographics:

No shirt no shoes: Our product isn't even in the store. In fact, the whole POG is 4' shorter and features no premium products.

Normie: Our product is on the shelf, but at ankle level, with staples at eye level.

Benzes on Benzes: Our product is at eye level, but in a sea of other premium SKUs.
 
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MidwestLandlord

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They also have different store layouts and POGs. This is not a Walmart example, but another major retailer.

Example, we sell a semi-premium snack product. So, aside from grocery being in a different area of the store, our category layout looks different. So, for the sake of simplicity, say we have 3 basic income demographics:

No shirt no shoes: Our product isn't even in the store. In fact, the whole POG is 4' shorter and features no premium products.

Normie: Our product is on the shelf, but at ankle level, with staples at eye level.

Benzes on Benzes: Our product is at eye level, but in a sea of other premium SKUs.
EXACTLY.

Restaurants do this too. Especially fast food.

Different menu layout, different prices, etc.

Fact of life that people with different incomes, from different backgrounds, and having different needs, will buy different products at different prices.
 
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MidwestLandlord

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Chances are, your attitude about pricing STINKS

Two very common attitudes about pricing I run into with business owners:

1) "I know what the price should be!"

This is where a business owner sets a price based off margin or whatever, and refuses to budge. They KNOW what the product is worth, and by golly, people are gonna pay it!

It's foolish stubbornness, and very detrimental to your success.

This is usually a result of the owner focusing too much on either his competitor's prices, or his COGS (or cost of service sold if applicable)

The market DOES NOT CARE what YOU think the price should be.
The market DOES NOT CARE what your costs are.
The market DOES NOT CARE what your margin is.

The market only cares if your product or service offers a solution for their need, at a price that is warranted.

Either get better at target costing, or ditch the product if the market will not support a decent price point.

2) "I can't charge that much!"


This thought process comes from a few different places:

a. The owner only thinks of price in terms of competing, and not in terms of the price being a reflection of the product's value. (too much focus on the competition's prices)

b. The owner feels guilty for charging a price that the market will support, because he thinks/feels it is too high. Morale superiority, essentially.

c. They don't feel their service is valuable enough to warrant the price (looking at you, upwork copywriters)

Again, the market DOES NOT CARE what your margin is, which means they also do not care if your margin is making you rich.

Really think about that. No one cares if you make a lot of money off them, only that you sold them a solution at a price that is warranted.

Leave your emotions out of it. Provide value, and charge what the market will support in exchange for that value.
 

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Fact of life that people with different incomes, from different backgrounds, and having different needs, will buy different products at different prices.
There's also the Warden Road effect.

upload_2017-4-15_10-47-54.png
 

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$50
$60
$150

Those are my current prices on my website.

Now I'm sitting here wondering how many sales I may have stopped.

Time for my a$$ to make some changes.
But think of it as an experiment! Get a track of sales now, then make the changes and see over a period of time (depending on how often you make a sale I suppoose) and take into account seasonal / weather difference if applicable.

Then you'll be closer to knowing for sure if it work with your customers and product.

Just saw a sign today for a fitness gym: $4.99 every 2 weeks!

Oh... you mean $10 a month [emoji2].

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Tax Adjusted Pricing

Simple strategy. Usually breaks the "end in 9" rule.

This is where you either put the sales tax in the listed price, or...

...you adjust the price point so that the after tax amount is a specific price.

This can be very helpful when selling things for cash.

Example:

I operate in a municipality where the sales tax on a $1.89 item brings it to $2.01 after tax. At that low price point, most customers pay cash.

I sell thousands of this product a week, and the extra cent after tax was a PITA for my customers and my cashiers. Lots of complaints from both. Lots of chaos over a penny.

So I took the tag price to $1.88...making it $2.00 even after tax.

The improved operational efficiency at the point of sale, the improved customer service by not asking for this penny, and the stress I saved my employees more than makes up for the lost penny in revenue.
I've thought about that for shirt sales but I think you're right it works best for people paying cash.

In Canada they eliminated the penny a couple of years ago, so anything you pay cash for you either save a pen or two or lose a penny or two depending on the final price. Paying with debit/credit/electronically you pay the penny.

Sent from my SM-A500W using Tapatalk
 
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MidwestLandlord

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Thanks to everyone that commented, liked, sent reps my way, and made me feel like this thread was worth my time. Giving value gives me the warm fuzzies haha

Much appreciated all.

Would love to hear about anyone taking this info, using it, and improving their business!

Just a reminder though, I am not telling anyone how to price.

Some of these are advanced concepts and some are possibly applicable to B&M only.

More tools to have in your fastlane toolbox, but pricing is not the toolbox itself, ok?
 

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Pricing as a Negotiating Tool

The pricing rabbit hole is deep. Multiple uses for the psychology behind numbers.

If ending a number in '9' lowers the first digit, and creates a positive emotion in the person reading it (or rather, avoids a negative emotion), can you use that in negotiating?

I think so.

Example:

I bought a rental house not long ago.

Was listed at $59,900

I told the realtor I wanted to offer $50,000 for it.

She said, "Let's just take $10,000 off, and offer $49,900"

I said no, then got on my pricing soapbox and schooled her.

$49,900 is good for the buyer, as it is not $50,000

But as the seller, the opposite is true. I didn't want this guy to have a negative emotional reaction to a price that started with '40' instead of '50', even though the difference is only $100

It's a BIG $100, emotionally.

He accepted the deal.

So...

Have you ever negotiated a deal, maybe a used car, and tried to get the price under the next digit? Maybe you offered $8,999 instead of the $9,999 they were asking?

Was that because of YOUR emotions regarding the price starting with an 8?

Did they counter with a price still in the same starting digit? Maybe $9400 or something? I would bet they did.

Would they have reacted different if your price still started with 9?

Lot's of unconscious emotions with numbers and prices.

Something to think about for sure.
 

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In the grocery world, we use a lot of Multi-Unit Discounts (MUD's or Bonus Buys). They range is use and parameters:

Threshold: $3.99 ea OR Buy 3 or more and pay $2.99 ea (must buy at least 3 units to get the deal - moves more units)
Limit Pricing: $3.99 ea limit 6. $2.99 ea after limit (6 or less, get the deal. Each unit over 6 is charged full price - reduces investment)
Group Pricing: $3.99 ea OR Buy groups of 3 $2.99 ea (must buy in multiples of 3 to get the deal. If you buy 4, the 4th is charged at full price)
Split Pricing: 2/$5.00 or $2.50 ea (no deal, but sometimes customers believe they need to buy 2 to get the deal - this borders on unethical and we recently discontinued it's use)

We use metrics like item count/basket to set up our MUD's. If product A is purchased in groups of 2 in 60% of baskets and groups of 3 in 30% of baskets, we will set the multi to 3 to push the 60% that normally buy 2 into buying 3.

These methods are good tools to combat the likes of Costco. We don't have a lot of Club Size items to compete with them on so we set up Threshold pricing to give customers an equivalent deal where we can.
 

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In the grocery world, we use a lot of Multi-Unit Discounts (MUD's or Bonus Buys). They range is use and parameters:

Threshold: $3.99 ea OR Buy 3 or more and pay $2.99 ea (must buy at least 3 units to get the deal - moves more units)
Limit Pricing: $3.99 ea limit 6. $2.99 ea after limit (6 or less, get the deal. Each unit over 6 is charged full price - reduces investment)
Group Pricing: $3.99 ea OR Buy groups of 3 $2.99 ea (must buy in multiples of 3 to get the deal. If you buy 4, the 4th is charged at full price)
Split Pricing: 2/$5.00 or $2.50 ea (no deal, but sometimes customers believe they need to buy 2 to get the deal - this borders on unethical and we recently discontinued it's use)

We use metrics like item count/basket to set up our MUD's. If product A is purchased in groups of 2 in 60% of baskets and groups of 3 in 30% of baskets, we will set the multi to 3 to push the 60% that normally buy 2 into buying 3.

These methods are good tools to combat the likes of Costco. We don't have a lot of Club Size items to compete with them on so we set up Threshold pricing to give customers an equivalent deal where we can.
Rep+++

Wish I had understood this when first dealing big with grocery buyers. They love to put us on 2/5, and it's all to drive up the total ring.
 

cmor16

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Wish I had understood this when first dealing big with grocery buyers. They love to put us on 2/5, and it's all to drive up the total ring.
Yes, often they negotiate a deal without revealing pricing strategy. They will just say "I have a Front Page deal planned. I am projecting X thousand units and I NEED a cost of $X and to make it worth it."
It can be a good negotiating tool for vendors as well though. You can base the deal on a volume commitments i.e. $2.50 cost on 999 units or less, $2.00 on 1000 or more.
 

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Evenly rounded off pricing to indicate high-quality/luxury...

I've read that evenly rounded off prices (e.x. $2000) imply higher quality and non-rounded prices (e.x. $1999) imply higher value.

They also speak to different parts of the brain. Rounded prices are more likely to be bought emotionally (e.x. "I deserve something nice") and non-rounded prices are more likely to be bought logically (e.x. "I should save money").

---

If your customers are making emotional buying decisions, it's better to use rounded prices to imply high-quality.

If your customers are making logical buying decisions, it's better to use non-rounded prices to imply high-value.

---

Thanks for the Awesome thread @MidwestLandlord! I'd like to see your thoughts on this :)
 

Gwenqou

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Very Interesting thread! Will definitively try it out with my products.

I realized something interesting today, which relates to your point of "cheap vodka and middle-tier vodka". I was buying food and was deciding between two brands. I've never heard of neither brands before. Brand A was $5.39 and Brand B was $5.79. The food pretty much look the same and Brand A even has a better packaging. Eventually I went with Brand B the $5.79 one even though I KNEW that they are the same thing. But the price of Brand B just emotionally make me feel like Brand B has higher quality even tho I logically knew they are the same thing. The idea from this is that maybe if you price just a little bit higher than your competitor, people may still choose your product because the perceived quality is higher.

This is just a theory. Would love to hear if others had the same experience.
 
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Interesting thread. There is something I am a bit confused about though, I had all the pricing in my online store set in the .99 format, than I read a few months ago "Cashvertising" and on Chapter #38 ("The Psychology of Pricing") and on the 4th paragraph I read the following:

"Prestige pricing, by contrast, says that if you want something to be perceived as higher quality you should use only ROUNDED whole numbers when pricing. For example $1,000.00 suggests higher quality than $999.95 simply because we have been conditioned to interpreter fractional pricing as suggestive of value. ETC. ETC."

Any opinion on this please? Thank you :)
 

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@MidwestLandlord What a fantastic thread, Bookmarked a number of your comments for future use. This kinda stuff helps tons of things all across the board regardless of what kind of business you're in. I know its marked notable but i think this is already golden!
 

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