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Cheap Vodka: $9.99
Mid-tier Vodka: $14.99
The good stuff: $19.99

With this example ^^, what mental effect will these prices have on the consumer? The first two Vodka's are exactly the same as the first example after-all...

The result will likely be that most people will purchase the mid-tier Vodka. Why?

1) The cheap Vodka now looks low quality compared to the other two. "I deserve better than that!"

2) The mid-tier Vodka is under a lower mental price barrier compared to the higher priced Vodka. "That's a good deal!"

3) The good stuff looks rather expensive, as it is above the mental price limits of the mid-tier Vodka and the cheap Vodka. "Ohhh that's too much...maybe after my next paycheck!"
Great thread, some golden info here.

To get this effect, does there have to be a certain increase between the tiers?

For example,
Cheap: $4.99
Mid Tier: $19.99
Top Tier: $39.99

vs.

Cheap: $9.99
Mid Tier: $14.99
Top Tier: $19.99

Will this yield the same results despite having larger gaps in pricing, or would the larger price gaps cause the cheapest to be most appealing? And would the answer change for higher priced items?

For example(my situation): Could the $100 dollar difference between the cheapest and mid tier be a mental price barrier causing them to buy the cheapest instead?

Cheap: $75
Mid Tier: $175
Top Tier: $250

vs.

Cheap: $99
Mid Tier: $175
Top Tier: $250
 

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KassandraTB

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I love this topic! As I traveled down this road I was able to tweak buying habbits and increased my sales. I actually cam accross you tube videos by Dan Ariely. I implamented his opt in and opt out and your anchor price approach. I went from 13% of people signing up to 98% of signing up for 17 buck price point. Now I make a few thousand a month on it. I cant get enough information on this topic!

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I took a C-level (300-level) course on pricing strategy in university. It costs about $1000 to take. You covered the syllabus here. The only thing missing is the case studies.

I gave u $100 rep money hope that's payment enough.
 

BlahBlahBlah

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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 :)
I quote myself - any suggestion on this would be appreciated. I currently sell products priced between 50€ and 200€ and keep prices rounded for the reason about, however I was thinking to maybe change them to suggest "better value", but I am afraid to lose in prestige.

One more question, if I am selling an item for 100€ for example, would 99.00€ look same/worse/better than 99.99€ ?
 
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MidwestLandlord

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I quote myself - any suggestion on this would be appreciated. I currently sell products priced between 50€ and 200€ and keep prices rounded for the reason about, however I was thinking to maybe change them to suggest "better value", but I am afraid to lose in prestige.

One more question, if I am selling an item for 100€ for example, would 99.00€ look same/worse/better than 99.99€ ?
I've never sold luxury items...so I don't know.

I've heard this though, using even numbers to indicate higher quality or, well, "bragging rights"

So, this is a question you'll have to answer for yourself, based off your product and market.

Questions to ask yourself:

Competitor pricing?

How do Europeans react to pricing?

Does this matter with items up to 200 euros? Does this only really matter on high-end items? (even Rolex in the States prices at like $4995, $9999)

What emotional impact does $200 vs $199 have on your customers? (don't know how to write the euro sign haha)

Positive? Negative? Neutral?
 
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MidwestLandlord

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For example(my situation): Could the $100 dollar difference between the cheapest and mid tier be a mental price barrier causing them to buy the cheapest instead?

Cheap: $75
Mid Tier: $175
Top Tier: $250

vs.

Cheap: $99
Mid Tier: $175
Top Tier: $250
Depends on the product (don't share what you sell here please, it's nobody's business)

Does the cheap product have better over-all value for the price?

The large price difference implies that either the cheap product is a really good deal (value for the money), or that the other 2 products have much greater value for the money compared to the cheap option. Does that make sense?

Are your customers mostly buying the cheaper option? (your comment makes it seem like this might be the case)

1) Your cheap option might be priced too low
2) Your more expensive options might be priced too high (they'd rather "go without" whatever the added value is of the more expensive product and buy the cheaper option instead. The added value doesn't justify the extra cost)
3) Your more expensive options might be on a specific price point people don't like ($169 vs $170)
4) Your more expensive items might not be wanted at any price point
5) They might be buying the more expensive items, just not from you (price, quality, value add-ons, marketing, etc)
 
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MidwestLandlord

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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)
Excellent post, thank you!

Ever wonder why they use even numbers in split pricing? (assuming it's regular price for a single item)

2 for $6

2 for $3.50

etc?

Giving a discount, or multi quantity value add-ons in this example, creates a positive emotion. Using a "high impact" price, a highly emotional price, is using the opposite of the principals in this thread and instead the high impact price increases the positive emotions caused by the discount.

$1 soft drinks all day! (McDonalds)

$700 off Lasik! (every Lasik surgeon on the planet)

2 for $3 (Hardee's)

Was $6.98, Now $6 (Wal-Mart Rollback)

Etc...

Which sounds better, $699 off Lasik or $700?
 
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MidwestLandlord

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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.
See my response to @BlahBlahBlah above.

In my opinion though, it's never really about logic, only emotions.
 
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MidwestLandlord

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I took a C-level (300-level) course on pricing strategy in university. It costs about $1000 to take. You covered the syllabus here. The only thing missing is the case studies.

I gave u $100 rep money hope that's payment enough.
Thanks for the reps.

If I included case studies, I'd feel the need to charge for this info...

I'd only charge $999 though, not $1000 haha

:)
 

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Great thread! Right now I have a $2.99/month service that I've been wanting to raise to $4.99 but I've been waiting to get more users. It sounds like I should just do that now since it's not that big of a leap, and it would probably make my service look better at the higher price.

One question. My annual price right now is $29.99 (2 free months). When going to the $4.99 price, I was going to price the annual membership at $47.99 to show that by going for the annual membership they are essentially paying about $4/mo instead of $5/mo. Would it be preferable to just charge $49.99 for the annual membership and sell it as "2 months free"?
 
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MidwestLandlord

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One question. My annual price right now is $29.99 (2 free months). When going to the $4.99 price, I was going to price the annual membership at $47.99 to show that by going for the annual membership they are essentially paying about $4/mo instead of $5/mo. Would it be preferable to just charge $49.99 for the annual membership and sell it as "2 months free"?
Ignoring the 10,000 other factors that should be considered and only you would have the answers to, I don't think there's any difference whatsoever between $47.99 and $49.99

Does it work NOW, at $2.99 & $29.99?

If so, do you think you should of been at $27.99 this whole time?

100 x $27.99 = $2799
100 x $29.99 = $2999

$2999 / $27.99 = 107.15

($27.99 x 107.15 = $2999.13)

You have to sell a little over 7 more units per 100, to have break even gross revenue with the $2.00 discount. The math would hold true at $47.99 and $49.99 as well.

Would you sell that many more?
 

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Ever wonder why they use even numbers in split pricing? (assuming it's regular price for a single item)

2 for $6

2 for $3.50

etc?
A lot of times, it's about making it easy for the customer. As a customer, I find it frustrating if I have to break out my calculator to figure out the single price to validate whether I'm getting a deal. If it's not easy math, I move on rather quickly. If you really want the customer to jump at the deal, keep it simple.
Making it easily divisible also avoids complaints. We've had instances where we would price an item at 3 for $5.00. Our POS would ring in the 1st 2 at $1.67 and the 3rd at $1.66. Its seems ridiculous to think that someone would complain over a penny, but it's happened and actually forced us to change our POS to charge $1.66 for the 1st one and $1.67 for the subsequent 2.
 

CycleGuy

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Absolutely love this thread @MidwestLandlord !

I use several of your pricing models on a daily basis. Many people set mental blocks when purchasing things in their head. "I'm only going to spend $5,000 on this _____ !" or a similar round number. Almost every time they end up looking at something that is $5,995 or below. Because in their mind that's still $5,000.
 

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Thanks for the reps.

If I included case studies, I'd feel the need to charge for this info...

I'd only charge $999 though, not $1000 haha

:)
If it makes you feel better, my school didn't profit off of the case studies. Harvard did.
 
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MidwestLandlord

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A lot of times, it's about making it easy for the customer. As a customer, I find it frustrating if I have to break out my calculator to figure out the single price to validate whether I'm getting a deal. If it's not easy math, I move on rather quickly. If you really want the customer to jump at the deal, keep it simple.
Making it easily divisible also avoids complaints. We've had instances where we would price an item at 3 for $5.00. Our POS would ring in the 1st 2 at $1.67 and the 3rd at $1.66. Its seems ridiculous to think that someone would complain over a penny, but it's happened and actually forced us to change our POS to charge $1.66 for the 1st one and $1.67 for the subsequent 2.
I love these kinds of comments!

The actual nitty gritty, day to day execution of running a business. This is what it's all about right here.

Absolutely love this thread @MidwestLandlord !

I use several of your pricing models on a daily basis. Many people set mental blocks when purchasing things in their head. "I'm only going to spend $5,000 on this _____ !" or a similar round number. Almost every time they end up looking at something that is $5,995 or below. Because in their mind that's still $5,000.
"Sneaking in" that other $995 haha

Love it!

A friend of mine bought her first brand new car the other day. (she got a new higher paying job, so she was 'required' to buy a new car ...talk about following the script haha)

The sales guy asked "What would you like your payment to be?"

Her "$300"

Her new payment is $385

"He got my payment right where I needed it to be!"

This stuff works.
 

CycleGuy

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"Sneaking in" that other $995 haha

Love it!

A friend of mine bought her first brand new car the other day. (she got a new higher paying job, so she was 'required' to buy a new car ...talk about following the script haha)

The sales guy asked "What would you like your payment to be?"

Her "$300"

Her new payment is $385

"He got my payment right where I needed it to be!"

This stuff works.
It's crazy the mental gymnastics people perform to get something they want. $5,995 is still "FIVE THOUSAND" right? That 5 bucks is the cutoff sometimes lol.. Another fun thought is people search in even numbers when looking on different sites search functions. "No-minimum but up to $6,000". If I would have priced at $6,150 I would be missing a huge sector of people searching for under $6,000 even though they are in the same price range.



Also your poor friend fell into the sales trap of payment quotes/bumps/etc. It's a financially poor way to shop. The backend is where the majority of dealers bring in their income. That $85 didn't sound like much but over the full term of the loan if it's 60 months, she will have paid an additional $5100.

The old method of the "four square" paper is the most scummy shit in the book. Actually most of the old school deceptive practices in car dealers are why people have moved towards online buying recently.

I tell everyone to use their local credit union.
Be aware of the best current interest rates and terms.
Do not mention financing or "paying" cash, deal only with the price of the vehicle.
Shop online and use as many tools as possible online to make sure you get the most fair price.
 
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MidwestLandlord

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This thread is interesting.....I still cant understand why just changing the digits in pricing works and leads to more sales. Is this based on human psychology?
It's based on dozens of studies done by both psychologists and social scientists that specialize in economic theory.

I quote from memory 3 major studies in this thread, all 3 of which I used extensively to sway business owner's in pricing decisions. You can find all this info on google scholar, be prepared to pay big bucks to buy the studies (which is why I haven't linked to them here)

Beyond academic findings though, there is extensive use of these strategies across almost all industries.

Theory is great, but proof of concept is better, and the fact that most (if not all) businesses use these strategies is good enough for me.
 

KassandraTB

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A lot of times, it's about making it easy for the customer. As a customer, I find it frustrating if I have to break out my calculator to figure out the single price to validate whether I'm getting a deal. If it's not easy math, I move on rather quickly. If you really want the customer to jump at the deal, keep it simple.
Making it easily divisible also avoids complaints. We've had instances where we would price an item at 3 for $5.00. Our POS would ring in the 1st 2 at $1.67 and the 3rd at $1.66. Its seems ridiculous to think that someone would complain over a penny, but it's happened and actually forced us to change our POS to charge $1.66 for the 1st one and $1.67 for the subsequent 2.
I would think that by making the anchor item that you want people to buy having the simple math proce. That way they trust it a little more than the item that is 3.69 because we can all do 2 for 6...which seems like a deal!

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itmap

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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?


This thread is great! What about consulting pricing or service pricing or per month pricing for recurring monthly fees? Say I am an IT consulting business. Do I charge per hour to get a customer then setup a monthly cost, say 500.00 dollars per month, anything over that charge per hour. The obvious nights and weekends are extra. What about unlimited support hours on a quarterly, yearly contract signups?
 

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MidwestLandlord

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This thread is great! What about consulting pricing or service pricing or per month pricing for recurring monthly fees? Say I am an IT consulting business. Do I charge per hour to get a customer then setup a monthly cost, say 500.00 dollars per month, anything over that charge per hour. The obvious nights and weekends are extra. What about unlimited support hours on a quarterly, yearly contract signups?
I have my fingers in an IT consulting biz right now (eventually I gotta stop this business polygamy thing haha)

We do rather small jobs:

Initial setup is on a time and materials basis. We rarely do formal quotes, because of change orders getting out of hand.
$79 per hour
$299 monthly contracts (we only charge for nights and weekends if we feel abused, otherwise we don't sweat it)

In the restaurant consulting I used to do:

$149 per hour
$9,000 for 2 weeks on-site service
$25,000 for 4 week on-site new store opening service + $25 per hour per corporate certified trainer I brought with (6 trainers, 12 hour days, 28 days = $50,400) + daily restaurant supplied or catered meal service for my team (greatly under-priced services and I was barred from raising it by the franchiser. Should of been a $100k total service)

Hopefully something in there helps you, otherwise I'm afraid I'm not much help. If I were you, I'd go through the various IT, Web design, and AdWords posts with an eye for them mentioning pricing.

Maybe someone with that sort of experience will chime in here?
 

itmap

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I have my fingers in an IT consulting biz right now (eventually I gotta stop this business polygamy thing haha)

We do rather small jobs:

Initial setup is on a time and materials basis. We rarely do formal quotes, because of change orders getting out of hand.
$79 per hour
$299 monthly contracts (we only charge for nights and weekends if we feel abused, otherwise we don't sweat it)

In the restaurant consulting I used to do:

$149 per hour
$9,000 for 2 weeks on-site service
$25,000 for 4 week on-site new store opening service + $25 per hour per corporate certified trainer I brought with (6 trainers, 12 hour days, 28 days = $50,400) + daily restaurant supplied or catered meal service for my team (greatly under-priced services and I was barred from raising it by the franchiser. Should of been a $100k total service)

Hopefully something in there helps you, otherwise I'm afraid I'm not much help. If I were you, I'd go through the various IT, Web design, and AdWords posts with an eye for them mentioning pricing.

Maybe someone with that sort of experience will chime in here?
Thank you this was very helpful insight.
 

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This thread is interesting.....I still cant understand why just changing the digits in pricing works and leads to more sales. Is this based on human psychology?
You aren't affecting the reality of the product + price = buy equation. You're affecting the humanity element of it.
 
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MidwestLandlord

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Reminds me a lot of Nick Kolenda's blog. He posted a huge list of pricing strategies and the psychology behind why they work. 42 Pricing Tricks Based on Psychology & Neuroscience
Good stuff! (although I disagree with a few things, like separating shipping and the price. Most people expect free shipping thanks to Amazon)

This link should be required reading for anyone serious about learning this stuff.

Thanks @Hyrum
 

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Good stuff! (although I disagree with a few things, like separating shipping and the price. Most people expect free shipping thanks to Amazon)

This link should be required reading for anyone serious about learning this stuff.

Thanks @Hyrum
It's crazy how amazon changed the shipping game. Everyone expects everything in two days and free now. It has created however a customer that is more service oriented in other factors of life as well. I've noticed more people willing to pay an asking price on something whenever you offer free shipping vs trying to add shipping to a lower asking price.
 

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Great thread @MidwestLandlord! Thanks.

Any thoughts on how to increase prices? Increase until sales slow? Will people get pissed if you increase too far and then have to lower (if they paid the higher price?)
 
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MidwestLandlord

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Increase until sales slow? Will people get pissed if you increase too far and then have to lower (if they paid the higher price?)
Since you run a subscription service, yeah that's a concern.

But what's the goal?

Is it to charge as much as possible and chase money?

Or, is it to charge the appropriate price for the value you provide?

Questions to ask yourself:

What is it worth?

What do competitors with a like service charge?

Is it a big deal if the price is too high for some people? Are you trying to sell to everybody, or a select group?

Is the lifetime value of a higher paying client higher than the value of the small spenders? (sometimes it's ok to fire your customers if they aren't worth it. Think Rolex cares about people that buy a Timex?)

Which kinds of people (market) can you provide the most value to, and how much would those people pay? (in other words, you have tons of traffic...but who can you provide the most value to?)

Does the price of your yearly service make it hard to rationalize only buying a month? (Myfitnesspal app is $9.99 per month, or $49.99 a year. That's 7 months for FREE)

It sounds like maybe you've neglected this project? So...is the value there? Should you work on gaining clients at current prices (adjust them for mental limits though, $9.99 instead of $10.00) and THEN start increasing prices if you can?

Hope that helps.

Just remember that price is a reflection of value.
 

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