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mikey3times

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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?
Thanks for the help. Great stuff.

I ditched the membership model since it wasn't recurring anyway. I have always been in the single purchase mode.

Earlier in the thread you talked about people pricing too low. I want to make sure I am pricing right, but concerned that I am low balling myself. So I was considering slowly increasing the price to see how the market reacted.

I might increase my product from $12 to $14.99 to see what happens. Then you have to ask yourself, is that extra $2.99 doing anything? It isn't going to make me rich, but will it increase the perceived value of the product?

There is so much to consider! I'm curious how you go about testing price points. I guess you just do it.
 

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Sheps

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Another way to view that change @mikey3times is $12 to $14.99 is almost a 25% increase, which is significant. Also if sales do drop off, then you can put it on sale for $12. Which I would think would act to increase perceived value... Now your product should be worth the price you're asking, can't get away from that.

"You Save 25%.
Was $14.99 now just $12!"
Limited time offer.
Copy isn't my bag, but you get the idea, you've seen these things before.
 
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I ditched the membership model since it wasn't recurring anyway. I have always been in the single purchase mode.
My bad. I misunderstood your insider's thread.

Earlier in the thread you talked about people pricing too low. I want to make sure I am pricing right, but concerned that I am low balling myself. So I was considering slowly increasing the price to see how the market reacted.

I might increase my product from $12 to $14.99 to see what happens. Then you have to ask yourself, is that extra $2.99 doing anything? It isn't going to make me rich, but will it increase the perceived value of the product?

There is so much to consider! I'm curious how you go about testing price points. I guess you just do it.
Yeah, you basically just do it.

Most pricing starts from a "guesstimate" though.

Competitor pricing, what the market will support, margin, etc.

It's harder to price a service because it is difficult for most people to figure out 'cost of service sold' (unlike 'cost of goods sold' which is easier) So you'll have to use other metrics, like educated guessing.

As @Sheps pointed out, that's a 25% increase in your sale price though. Which is good (for you)

I think if you focus on the value aspect, the price will figure itself out as you understand your market better...ya know?

Pricing is not the end-all-be-all. Easy to start chasing money with pricing, instead of chasing value and pricing accordingly.
 

mguerra

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Solid advice! Thanks for the information buddy!

And the observation about the plastic bottle was genius, never thought about it that way. Rep transferred ++
 

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This is a great thread. After reading this on Friday I bumped my pricing up within the 5-10 dollar limits on some just-launched products. I had prices sitting at the low end of the limit ranges and was skeptical I could push it up several more dollars, but decided to experiment and sales jumped along with the price hikes. Almost seems counterintuitive. Actually it's hard to say for certain if the sales increase is directly related to the price increase, but for sure it didn't hurt sales.

Rep transferred, thanks for the high value post!
 
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After reading this on Friday I bumped my pricing up within the 5-10 dollar limits on some just-launched products. I had prices sitting at the low end of the limit ranges and was skeptical I could push it up several more dollars, but decided to experiment and sales jumped along with the price hikes. Almost seems counterintuitive. Actually it's hard to say for certain if the sales increase is directly related to the price increase, but for sure it didn't hurt sales.
Didn't hurt sales (maybe even increased sales) AND put a little more jingle in your pocket...nice job!

:thumbsup:
 
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Increase in both
Have you figured out why you increased unit sales?

Did you have an original price that turned people off?

Was it a perception of "low quality" stemming from a "too good to be true" price?

Was it just that the product(s) was new and you would of seen an increase in units sold anyway?

Hard to know for sure, I realize that. But curious if you figured it out...
 

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Have you figured out why you increased unit sales?
Hard to say, as I can't isolate the price increase from a few other variables (for example I changed the copy when I raised the price which is why I can only say that the increase did not hurt sales). I appreciate your questions, and will be spending time to get it figured out.
 

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Came back to this thread while working on my products and used the psychology taught here.

This thread needs a bump because it's relevant to everyone here.
 

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Question for you p̶r̶i̶c̶e̶ ̶m̶a̶e̶s̶t̶r̶o̶s̶ - pricestros;

If I have a product and I want to create demand, are numbers that are bad for good-pricing going to be good for implying the product is going fast i.e. "only 17 left" is better than "only 20 left" because 20 is a nice, round, comfortable number where 17 is not?

Does that make sense? In other words, in good pricing we want people to be comfortable with the numbers but if I want to create a sense of urgency would less desirable numbers work better?

Also, Bump.
 

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A Good book on this topic is Predictably Irrational by Dan Ariely. Filled with quirks of human decision making.

From a Blog:
Ariely begins with a story of how he was browsing the internet and came across an offer from The Economistmagazine.

  • Option 1: online subscription to the magazine’s website for $59
  • Option 2: print subscription for $125
  • Option 3: online and print subscription for $125
He uses this as an example of relativity. It is near impossible to estimate the value of an item by itself, so we instead compare it to something else. In this case option three seems like the best option when compared to the others. It’s almost as though we are getting the online subscription for free. Ariely tested this on 100 students and found that 84% chose the third option and only 16% choose the online subscription even though they could get the same articles at half the price (No one choose the print only option leading Ariely to call it the “decoy” option). However he later repeated the experiment by removing the 3rd option leaving only the choice between an online or a print option. In this case 68% choose the online and only 32% choose the print subscription.
Edit: just did the math on that - by having the third option present Even though no one purchased it the difference in income is an additional $3,432!!!
 
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Question for you p̶r̶i̶c̶e̶ ̶m̶a̶e̶s̶t̶r̶o̶s̶ - pricestros;

If I have a product and I want to create demand, are numbers that are bad for good-pricing going to be good for implying the product is going fast i.e. "only 17 left" is better than "only 20 left" because 20 is a nice, round, comfortable number where 17 is not?

Does that make sense? In other words, in good pricing we want people to be comfortable with the numbers but if I want to create a sense of urgency would less desirable numbers work better?

Also, Bump.
The point would be to create a sense of urgency, right?

Which one does that better for your product?

17 BMW's left is still a lot, 17 spots left on a cruise ship is not.

If I HAD to choose, I would go with 17 though. I would only use even numbers when trying to create good feelings ($20 off!) and not a "you're gonna miss out if you don't buy now!!!" sense of urgency.

Feeling left out is a negative emotion and you are selling the ability to avoid that feeling. It's fear, and you should use whichever number best says "ACT NOW to avoid being left out!"
 
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A Good book on this topic is Predictably Irrational by Dan Ariely. Filled with quirks of human decision making.

From a Blog:
Ariely begins with a story of how he was browsing the internet and came across an offer from The Economistmagazine.

  • Option 1: online subscription to the magazine’s website for $59
  • Option 2: print subscription for $125
  • Option 3: online and print subscription for $125
He uses this as an example of relativity. It is near impossible to estimate the value of an item by itself, so we instead compare it to something else. In this case option three seems like the best option when compared to the others. It’s almost as though we are getting the online subscription for free. Ariely tested this on 100 students and found that 84% chose the third option and only 16% choose the online subscription even though they could get the same articles at half the price (No one choose the print only option leading Ariely to call it the “decoy” option). However he later repeated the experiment by removing the 3rd option leaving only the choice between an online or a print option. In this case 68% choose the online and only 32% choose the print subscription.
Edit: just did the math on that - by having the third option present Even though no one purchased it the difference in income is an additional $3,432!!!
Good post, thanks!

I love, love, love decoy pricing exactly for that reason. Option 3 has so much more value, who could pass that up?
 

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Perfect for today. I've been scratching my head on my current price list and trying to shift it.

Today -
I have 3 packages I am selling. The prices are 1800 - 1450 - 900.

Concern -
I sell my top package 70% of the time. Middle package 30% of the time. Lowest package 0 (well once, but it's close enough to zero!)
Note - I also offer ala carte, and clients choose ala carte pricing 25% of the time.

What this tells me is -
Drop the lower package and add a new top package.

Concern 1 - I do not want to change the selling items of the lower package. I just want to change the price. I don't want anyone to buy it. It's my decoy package.
Opportunity - I do not mind adding additional value to the top package as I shift pricing.

Concern 2 - Numbers.
So, if I go by what is being shared. My origianl package prices are wrong to begin with (ending in zero)
Also, when I push the top package over 2k and the lower package over 1k, I fear I will lose customers there as well.
If I leave the bottom at 900 and shift the middle up to 1800 range, I feel there is too much of a jump from bottom to middle?

So thoughts are:
Keep bottom package at 900, or move to 1049 (or maybe even to 1249?)
Move middle package 1849
Create top package at 2249
1) 2200 - 1849 - 900
or
2) 2249 - 1849 - 1049
0r
3) 2249 - 1899 - 1249
or
4) 2050 - 1850 - 1250

After staring at them awhile, I guess I am drawn to the 3rd option. The bottom 2 seem closer together, and the 1K barrier break doesn't seem so obvious as it feels in the 1049 price. Thoughts?
 
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Today -
I have 3 packages I am selling. The prices are 1800 - 1450 - 900.
Yeah, not very tempting prices there.

Concern -
I sell my top package 70% of the time. Middle package 30% of the time. Lowest package 0 (well once, but it's close enough to zero!)
Note - I also offer ala carte, and clients choose ala carte pricing 25% of the time.
My first thought it that your top package is underpriced. 3-tier decoy pricing typically tries to get people to buy the middle option.

Concern 1 - I do not want to change the selling items of the lower package. I just want to change the price. I don't want anyone to buy it. It's my decoy package.
It's not your decoy package. If anything, option 2 is your decoy for option 1.

Option 3 is pushing people into ala carte purchases, hence your 25% rate of sales there. They don't see the value in #3 versus just buying what they want separately. So, in my estimation, #3 is acting as a decoy for ala carte which is likely not what you want.

So thoughts are:
Keep bottom package at 900, or move to 1049 (or maybe even to 1249?)
Move middle package 1849
Create top package at 2249
1) 2200 - 1849 - 900
or
2) 2249 - 1849 - 1049
0r
3) 2249 - 1899 - 1249
or
4) 2050 - 1850 - 1250
My thoughts:

Idea I like the least:

Introduce a new top package.
Price such that your new top package makes your middle package look good, and sell that (which is actually your current top package)
Price the bottom package (current middle package) to entice more ala carte buyers to upgrade, but without getting middle package sellers to downgrade.

Idea I like the best:

Keep your current packages.
Price the top and middle packages to entice your 30% middle package buyers to upgrade. Aim for people to buy the best one.
Change the pricing on your lower package to entice your 25% ala carte buyers to upgrade.

Your bottom package is either priced too high for the value it provides, or the ala carte's are priced too low for the value it provides.

Package #3 vs Ala Carte is a value compared to price issue, not just price. Same with the 30% not choosing the best package.

Your big psychological limits will be $500, $1000, $1500, $2000

So maybe:
$1999
$1599
$899

The $1999 keeps you under $2000. The $1599 puts you above $1500 which makes $1999 look better (to upgrade)

The $899 looks cheaper than $1000 and cheaper than your current $900. But, what you need to do is compare your bottom package to how much people are spending in ala cartes on average. If they are spending $450 for example, then you know that there is a psychological limit happening in those customers at the $500 mark. What value would you need to provide to get them over the $500 mind-limit? (Raise price of ala cartes? Lower package #3 price? Additional value in #3? Offer for ala cartes to upgrade later with their ala carte purchase being applied to the package price? etc)

Not a big price increase on the top package compared to your current price, but, if you can get middle package buyers to upgrade, and get ala carte to upgrade, that's a huge percentage of your customers spending more.

Another option:

$2000 with advertising that it was normally $2499 and they can save 20%!!! (even numbers [$2000] is great to use for promotions, as you want them to notice the price)
$1599
$899

Hard to answer without knowing the product of course, so I hope something in there helps!
 

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@Vigilante mentioned in this thread how he set the price for his new book, and mentioned price points in consumer psychology: Vigilante's Book "Vigilant Kids" Step by Step

I used to consult for a major fastfood chain, and was responsible for pricing with all new franchisee's in the USA. Figure I'd share the knowledge. Of course, I use all this in my B&M too. I assume most of this knowledge would also work for ecom, and I know for a fact they work with selling services as well.

Caution: Long post!

What is a price point?

A price point is just that, the retail price. However, a price point is much more than just the sale price, and there are several strategies you can use when pricing to create the effect you want.

1) Charm Pricing

Charm pricing (also called psychological pricing) is using the specific digits of the price to affect the consumer, and sales, in the way that you wish.

a. Ending pricing.
This is where the price ends in either a '9' or a '5'
Several studies have shown that ending prices in a '9' has resulted in increased sales volume of up to 60.7% compared to evenly priced products. This is why you see $19.99, instead of $20.00

Prices ending in '5' are less common, but have also shown to have positive impacts on sales in the +30% range, again compared to even prices. Obviously, the "best practice" is that if you can price it ending in '5', you can price it ending in '9' and increase your margin with no negative impact.

(Fun Fact: this is why gasoline is priced in the USA with tenths of a cent in the price. $2.299 seems cheaper than $2.30. Also, gas stations used to compete using lower tenths of a cent, like .498 per gallon instead of .499)

Example: A product with a $5 cost and you are after a 50% margin. An exact 50% margin would be $10.00. In this case you would price at $9.99 (seems much cheaper, no?)

b. Dollar Digit
Charm pricing also involves excluding odd numbers in the DOLLAR digit of your price. The theory is that consumers are turned off by odd prices in the dollar digit, and you should hit an even dollar whenever possible (far from a hard and fast rule though)

Example: Instead of pricing an item at $13.99 (an odd '3' in the price) you'd price at either $12.99 or $14.99

2) Price Limits ("that's too expensive!")
This of course depends on what you sell. However, there are several "limits" that consumers will be hesitant to purchase if your price crosses, and your price should be set below or above these limits to account for them.

Common limits are: .50, $1, $5, $7, $10, $13, $15, $20, (every $5 thereafter)
After that, major ones are at $50, $100, $500, $1000

Example: A product with a $6.50 cost and you are after a 50% margin. At margin, your price would be $13.00. $12.99 would work well here as it keeps you under the $13 limit, ends in '9' and has an even dollar digit. Another option if you feel the market would support it is to go to $14.99. This is just like the $12.99, but falls just under the next mental "that's too expensive!" price limit.

As a very soft rule: If they will pay $13.99 (odd dollar), they'd pay $14.99
If they'd pay $15.99 (odd dollar), they'd pay $16.99

3) Decoy Pricing (I use this OFTEN)

This is where you use 2-3 products at different prices, to intentionally drive sales for a certain product.

Example: I'll use Vodka, as Vodka is all pretty much the same...but has multiple price points.

Cheap Vodka: $9.99
Mid-tier Vodka: $14.99

In this example ^^, most people will buy the cheaper option as it is below the $10 mental limit and is cheaper than the only other option. But what if the mid-tier has better margin and you want to sell more?

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!"

You sell more of the product you want to sell, and the others are directing the consumer in the direction you want!

Keep in mind this all applies whether you are the one selecting brands to sell and pricing them (like me), or if you are the brand owner and need an MSRP, or are deciding on pricing compared to the competition for direct sales.

If there's any interest in this, I can cover other strategies I often use(d) like:

Skimming
High-low
Penetration pricing
Price discrimination
Yield management pricing
This is fascinating! Thanks for the post!
 

Dylan_91

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@Vigilante mentioned in this thread how he set the price for his new book, and mentioned price points in consumer psychology: Vigilante's Book "Vigilant Kids" Step by Step

I used to consult for a major fastfood chain, and was responsible for pricing with all new franchisee's in the USA. Figure I'd share the knowledge. Of course, I use all this in my B&M too. I assume most of this knowledge would also work for ecom, and I know for a fact they work with selling services as well.

Caution: Long post!

What is a price point?

A price point is just that, the retail price. However, a price point is much more than just the sale price, and there are several strategies you can use when pricing to create the effect you want.

1) Charm Pricing

Charm pricing (also called psychological pricing) is using the specific digits of the price to affect the consumer, and sales, in the way that you wish.

a. Ending pricing.
This is where the price ends in either a '9' or a '5'
Several studies have shown that ending prices in a '9' has resulted in increased sales volume of up to 60.7% compared to evenly priced products. This is why you see $19.99, instead of $20.00

Prices ending in '5' are less common, but have also shown to have positive impacts on sales in the +30% range, again compared to even prices. Obviously, the "best practice" is that if you can price it ending in '5', you can price it ending in '9' and increase your margin with no negative impact.

(Fun Fact: this is why gasoline is priced in the USA with tenths of a cent in the price. $2.299 seems cheaper than $2.30. Also, gas stations used to compete using lower tenths of a cent, like .498 per gallon instead of .499)

Example: A product with a $5 cost and you are after a 50% margin. An exact 50% margin would be $10.00. In this case you would price at $9.99 (seems much cheaper, no?)

b. Dollar Digit
Charm pricing also involves excluding odd numbers in the DOLLAR digit of your price. The theory is that consumers are turned off by odd prices in the dollar digit, and you should hit an even dollar whenever possible (far from a hard and fast rule though)

Example: Instead of pricing an item at $13.99 (an odd '3' in the price) you'd price at either $12.99 or $14.99

2) Price Limits ("that's too expensive!")
This of course depends on what you sell. However, there are several "limits" that consumers will be hesitant to purchase if your price crosses, and your price should be set below or above these limits to account for them.

Common limits are: .50, $1, $5, $7, $10, $13, $15, $20, (every $5 thereafter)
After that, major ones are at $50, $100, $500, $1000

Example: A product with a $6.50 cost and you are after a 50% margin. At margin, your price would be $13.00. $12.99 would work well here as it keeps you under the $13 limit, ends in '9' and has an even dollar digit. Another option if you feel the market would support it is to go to $14.99. This is just like the $12.99, but falls just under the next mental "that's too expensive!" price limit.

As a very soft rule: If they will pay $13.99 (odd dollar), they'd pay $14.99
If they'd pay $15.99 (odd dollar), they'd pay $16.99

3) Decoy Pricing (I use this OFTEN)

This is where you use 2-3 products at different prices, to intentionally drive sales for a certain product.

Example: I'll use Vodka, as Vodka is all pretty much the same...but has multiple price points.

Cheap Vodka: $9.99
Mid-tier Vodka: $14.99

In this example ^^, most people will buy the cheaper option as it is below the $10 mental limit and is cheaper than the only other option. But what if the mid-tier has better margin and you want to sell more?

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!"

You sell more of the product you want to sell, and the others are directing the consumer in the direction you want!

Keep in mind this all applies whether you are the one selecting brands to sell and pricing them (like me), or if you are the brand owner and need an MSRP, or are deciding on pricing compared to the competition for direct sales.

If there's any interest in this, I can cover other strategies I often use(d) like:

Skimming
High-low
Penetration pricing
Price discrimination
Yield management pricing
I love psychology and pricing since I’m always “marketing” focused so this was a great read! I’ve always messed with .95 as an ending number seeming it to be better than .99 (I.e. 3.95 for my inexpensive items). I see now with your experience and great post I’ll be adjusting. Also I never knew even over odd in dollar amount - so I learned some new pricing strategies for sure - thanks!

Would a 3.95 to a 4.99 price point be a smart jump or too high of an increase for the cheaper item? To avoid the odd dollar and achieve .99

Also question - I’ve occasionally sold at trade shows where people tote cash moreso than using cards. I’ve always thought simple dollar amounts worked best (I.e. $15 for a shirt we’re selling) instead of 14.99. Just some thoughts - thanks for the post!
 
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Would a 3.95 to a 4.99 price point be a smart jump or too high of an increase for the cheaper item? To avoid the odd dollar and achieve .99
Really depends on the item. There seems to be much higher price sensitivity with lower price items, so a full $1.04 increase may be a deal breaker. Test it to find out, essentially.

Other options though:
3.99
4.29
4.49
4.69
4.89

Keep in mind there is nothing wrong with ending in '5' (.95), just studies show that '9' (.99) probably sells better or at the very least you get 4 cents more with no effort and no sales impact (as always, test to find out)

Also question - I’ve occasionally sold at trade shows where people tote cash moreso than using cards. I’ve always thought simple dollar amounts worked best (I.e. $15 for a shirt we’re selling) instead of 14.99. Just some thoughts - thanks for the post!
Yeah, ending in .99 goes out the window in a cash only environment. Too much hassle for you and the customer.

The other strategies work well though. Maybe $14 instead of $15

or (and you'll see this a lot at cash only type places)

2 for $20
2 for $30
4 for $50
BOGO for $5 (buy one get one for $5 more)
Buy 2 get 1 free
1 for $15, 2 for $25

Shirt for $15, place a $5 item right next to it. Encourages people to spend their whole $20

High quality item for $20, a slightly lesser quality item (I.E higher ROI item) next to it for $15 (sweater versus t-shirt for example. Encourages them to buy the higher ROI t-shirt, and they feel like they saved money)

Etc...

Definitely don't be afraid to adjust the "rules" of pricing when it suits you, your environment, your products, and/or your customers.
 

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@Vigilante mentioned in this thread how he set the price for his new book, and mentioned price points in consumer psychology: Vigilante's Book "Vigilant Kids" Step by Step

I used to consult for a major fastfood chain, and was responsible for pricing with all new franchisee's in the USA. Figure I'd share the knowledge. Of course, I use all this in my B&M too. I assume most of this knowledge would also work for ecom, and I know for a fact they work with selling services as well.

Caution: Long post!

What is a price point?

A price point is just that, the retail price. However, a price point is much more than just the sale price, and there are several strategies you can use when pricing to create the effect you want.

1) Charm Pricing

Charm pricing (also called psychological pricing) is using the specific digits of the price to affect the consumer, and sales, in the way that you wish.

a. Ending pricing.
This is where the price ends in either a '9' or a '5'
Several studies have shown that ending prices in a '9' has resulted in increased sales volume of up to 60.7% compared to evenly priced products. This is why you see $19.99, instead of $20.00

Prices ending in '5' are less common, but have also shown to have positive impacts on sales in the +30% range, again compared to even prices. Obviously, the "best practice" is that if you can price it ending in '5', you can price it ending in '9' and increase your margin with no negative impact.

(Fun Fact: this is why gasoline is priced in the USA with tenths of a cent in the price. $2.299 seems cheaper than $2.30. Also, gas stations used to compete using lower tenths of a cent, like .498 per gallon instead of .499)

Example: A product with a $5 cost and you are after a 50% margin. An exact 50% margin would be $10.00. In this case you would price at $9.99 (seems much cheaper, no?)

b. Dollar Digit
Charm pricing also involves excluding odd numbers in the DOLLAR digit of your price. The theory is that consumers are turned off by odd prices in the dollar digit, and you should hit an even dollar whenever possible (far from a hard and fast rule though)

Example: Instead of pricing an item at $13.99 (an odd '3' in the price) you'd price at either $12.99 or $14.99

2) Price Limits ("that's too expensive!")
This of course depends on what you sell. However, there are several "limits" that consumers will be hesitant to purchase if your price crosses, and your price should be set below or above these limits to account for them.

Common limits are: .50, $1, $5, $7, $10, $13, $15, $20, (every $5 thereafter)
After that, major ones are at $50, $100, $500, $1000

Example: A product with a $6.50 cost and you are after a 50% margin. At margin, your price would be $13.00. $12.99 would work well here as it keeps you under the $13 limit, ends in '9' and has an even dollar digit. Another option if you feel the market would support it is to go to $14.99. This is just like the $12.99, but falls just under the next mental "that's too expensive!" price limit.

As a very soft rule: If they will pay $13.99 (odd dollar), they'd pay $14.99
If they'd pay $15.99 (odd dollar), they'd pay $16.99

3) Decoy Pricing (I use this OFTEN)

This is where you use 2-3 products at different prices, to intentionally drive sales for a certain product.

Example: I'll use Vodka, as Vodka is all pretty much the same...but has multiple price points.

Cheap Vodka: $9.99
Mid-tier Vodka: $14.99

In this example ^^, most people will buy the cheaper option as it is below the $10 mental limit and is cheaper than the only other option. But what if the mid-tier has better margin and you want to sell more?

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!"

You sell more of the product you want to sell, and the others are directing the consumer in the direction you want!

Keep in mind this all applies whether you are the one selecting brands to sell and pricing them (like me), or if you are the brand owner and need an MSRP, or are deciding on pricing compared to the competition for direct sales.

If there's any interest in this, I can cover other strategies I often use(d) like:

Skimming
High-low
Penetration pricing
Price discrimination
Yield management pricing
I've been looking for info around the psychology of pricing and didn't have enough baseline knowledge to tell good resources from internet fluff - thanks so much, and rep sent!! I especially like all the examples you've both given and answered, as well as your emphasis on value perception. This is extremely helpful stuff!
 
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This is fascinating! Thanks for the post!
You're welcome. I hope it is helpful to you!

I've been looking for info around the psychology of pricing and didn't have enough baseline knowledge to tell good resources from internet fluff - thanks so much, and rep sent!! I especially like all the examples you've both given and answered, as well as your emphasis on value perception. This is extremely helpful stuff!
42 Pricing Tricks Based on Psychology & Neuroscience

^^ here's a good resource to get you started. I don't agree with everything he say's, but most of it.

Thanks for the reps! Glad you found it helpful.
 
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Hi @MidwestLandlord ,

You had mentioned that prices ending in 9's did better than 5's, but what about 7's?

I've seen a lot of prices ending in 7's.

Thanks! :)
I haven't seen any actual studies talking about 7's versus 9's or 5's recently.

But, I don't think it's hard to make some educated guesses.

1) B&M retailers differentiating themselves through pricing

Walmart really lead the way on this. They are especially fond of prices ending in .97 and .88

When most, if not all of their competition was pricing ending in 9 or 5, Walmart used other numbers to appear cheaper or at the very least different. Grocery is of course extremely competitive (commodity), so pricing is a big part of their marketing strategies.

Other retailers are following suit, such as Target, Kroger Brands including c-stores, Couche-Tard, Safeway, etc

2) Online pricing algorithms and artificial intelligence

Amazon lead the way in using pricing algorithms, and later artificial intelligence, to crawl the web and respond to changing prices to remain competitive. This naturally leads to prices ending in less than 9, as they will take a penny or 2 under the lowest price found.

Artificial intelligence pricing is hitting certain categories of B&M hard too. I compete directly with companies using artificial intelligence for pricing, and they only seem to focus on volume versus margins. I think it will be awhile before retailers start using the tech to improve margins as well. Meanwhile, this leads to more market efficiency and lower prices.

3) Search ranking and wantrepreneurs

Beyond tech setting prices, there is a glut of online retailers that only know how to compete on price, and use the -1 cent or -2 cents on their competition to get first page in search results.

The cluster-f*ck that is eBay is a good example of this. When 10,000+ other people are selling the same thing as you, the only way to compete is price.

It's a common strategy taught in retail arbitrage courses.

This naturally leads to prices not ending in 9.

Tl;DR

Partly B&M retailers differentiating themselves via pricing, and partly online retailers using pricing to manipulate search rank results for their products on various platforms.

The real trouble is in having even prices.

9.99, 9.98, 9.97 will all usually sell better than $10.00 even (with exceptions of course)
 

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How far down the pricing rabbit hole do ya wanna go?

Short answer: $999

Long answer:

I'll have to dig up the studies I used when consulting that showed all this.

There are 3 theories that would help at this price range.

1) We read left to right

$999 instead of $1000

In studies, subjects were asked the price of something they had just purchased moments ago. They couldn't remember. What they did remember was the FIRST digit of the price (and sometimes the second). So a $9.99 item was remembered as $9

So the point of Charm Pricing is NOT to end the price in a '9', but to reduce the first digit. Essentially, you are "sneaking in" the other 99 cents (or dollars)

The theory is that since we read left to right, the first digit is what triggers an emotional reaction in our brain. The brain tends to "gloss over" the rest of the digits after that. (this is why the digits after the decimal are often in smaller print in ads, to help the brain ignore it)

2) We have 5 fingers on each hand

This theory states that since we are born with 5 fingers on each hand, and as children use our fingers to learn how to count, that the brain places emotional significance on "5's" and "10's"

So we read a price from left to right, which creates an emotional reaction. The brain also places special significance on "5's" and "10's", creating an even stronger emotional reaction if that is the digit we first read.

3) Number of digits

First study: Had subjects read 2 cards. Both were approximately the same price, but one had cents added to it...resulting in 5 digits instead of 3. Later the subjects were asked if the first or second card had a higher price. The overwhelming majority could remember which card was higher, but not the actual price. Researchers believe this means that the brain created an emotional reaction to the number of digits, and not the price itself.

Example:
Card one: $999.99
Card two: $999

They could remember that card one was more expensive, due to 5 digits.

Second study: Had subjects read 2 cards. Both were prices, both had 3 digits, but one was significantly higher in price. Then they were asked later if the first or second card was a higher price. They couldn't remember. The researchers believe this to mean that the brain has an emotional reaction to the number of digits in the price, and not necessarily the price itself.

Example:

Card one: $9.99
Card two: $999

Subjects could not remember which card was higher, implying that the larger valued price did not make a significant emotional impact compared to the lower price, because they are both 3 digits. (I know, I thought it was bullshit too, but it seems to work IRL)

Logically of course, we know one price is higher than the other. However, we humans are much more instinctual and emotional than we like to admit.

Also, it seems to be more and more common now that retailers are selling products over $100 without any "cents" attached to it.

$149
vs
$149.99

Bottom line:

$999

Less digits and avoids the mental price sensitivity limit of $1000
Just wanted to thank you for sharing the ideas here. I actually improved my pricing by using some of the strategies you suggested. And by improved, I mean people picked the right price :)
 

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Common limits are: .50, $1, $5, $7, $10, $13, $15, $20, (every $5 thereafter)
After that, major ones are at $50, $100, $500, $1000
You've talked a lot about pricing under $20. Can you talk a little more about pricing $20 to $100 or more? That is where my online products are priced. If, for example, I'm selling well at $29.99 and I want to test whether the market will bear more... I could raise it to $30.99, 32.99, or 34.99 before hitting the next $5 hurdle.

Instinctively, I feel 30.99 would be off-putting and that I should choose 32.99 or 34.99 for my test. Is that true? I should consider a) whether the value perception might support it (product features, benefits, and value v. price; and competitors' value v. prices) and b) the percent overall increase (10% v. 16%). Other than that, it's just a matter of raising the price and seeing what happens to sales. For that, you'd need to know your current average sales volume in order to tell the effect of a price change.

If my customers are not repeat buyers, does the percent increase really matter that much?

Is there anything else I should consider?
 
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Instinctively, I feel 30.99 would be off-putting
I agree. $30.99 = :thumbsdown:

I should consider a) whether the value perception might support it (product features, benefits, and value v. price; and competitors' value v. prices)
Always the biggest consideration, absolutely.

and b) the percent overall increase (10% v. 16%).
Not really, unless you're a big numbers nerd and like to track that kind of stuff. It's easy to get stuck on "I must get XX% increase!" though, so be wary.

Other than that, it's just a matter of raising the price and seeing what happens to sales.
And your gross profit.

Current price / new price = sales percentage required to maintain revenue

Current gross profit / new gross profit = sales percentage required to maintain gross profit


Let's say you have a cost of goods sold of $20.00 on your $29.99 example.

Revenue:
29.99 / 34.99 = 85.7
You could sell up to 14.3% less units (100 - 85.7) and maintain your revenue.

Gross profit ($20.00 COGS):
9.99 / 14.99 = 66.6
You could sell up to 33.4% less units (100 - 66.6) and maintain your gross profit.

So somewhere between a 0% drop and a 33.4% drop in sales is your acceptable number. That number is whatever you feel comfortable with. All else being equal, I personally don't mind a drop in units sold (less work and less capital outlay for me) leading to less revenue if I still gross profit more dollars.

If my customers are not repeat buyers, does the percent increase really matter that much?

Is there anything else I should consider?
Percentage doesn't really matter.

However,

Non-repeatable = buy once and done.

So...

If your price is too high, they'll buy from someone else, and you likely lost that customer forever.

Consider being cautious in your testing. You can always raise again later.
 
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Just wanted to thank you for sharing the ideas here. I actually improved my pricing by using some of the strategies you suggested. And by improved, I mean people picked the right price :)
That's what I like to hear! Woot! Woot!

@MidwestLandlord - when you do comparison pricing (i.e. placing a $100,000 watch next to a $30,000 watch) - how do price a payment / installment plan generally? i.e. 50% above retail or 20%. Appreciate your insight.
Not sure I understand the question fully.

Are you adding 20% (or whatever) and that is the final price after all payments?

If so, add whatever percentage gets you to a good number.

If adding 20% gets a payment of exactly $600 for example, maybe adjust the percentage for a payment of $590 or something similar.
 

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