Pricing is an important part of any kind of strategy to be used in business and it’s not only responsible for causing an influence on gains but industry positioning and perception of customers. Psychological pricing is often seen as a means of preparing prices that are based on the psychology of consumers. In fact, it’s more than just merely calculating things – practicing it can influence the purchasing choices of customers. And that’s why, you see smart sales teams look for ways to improve the offer being presented to potential buyers.
The business world is ever-evolving and that means you need a strategy that can make your business activities and endeavors successful. Practicing psychological pricing is one art that can help play a key role in determining whether your company will succeed. Looking at today’s world, the lowest prices aren’t always the best and that’s because customers know that they get what they paid for which makes it vital for you to align your pricing strategies with this opinion. And that’s why, we’ll be having a very good look at some strategies that can help you set the right prices, putting into consideration the psychological factors that drive the behavior of customers.
What Psychological Pricing Is All About
Psychological pricing is a type of approach that makes use of cognitive bias and human psychology to customer perception about pricing. It’s a form of pricing strategy that includes preparing prices in a way that suits customers and this in turn influences their decision to likely make a purchase. And it’s formed on the basis that most customers make their decisions emotionally rather than through logic. Most times when using psychological pricing, the aim is to meet consumer’s psychological demand for whatever they want.
There are three basic needs that psychological pricing addresses and they include the following:
- Need to invest in a high-quality product
- Need to get an excellent deal
- Need to invest in the highest quality product
Psychological pricing comes with benefits that are as follows:
- Generating more revenue
- Increasing customer satisfaction
- Expanding market
Now that customers are aware of what they get when they pay for it, nobody wants to settle for less and that’s where psychological pricing comes into the fold as it uses price as a means to give the right signals that can make consumers feel successful.
How to Set the Right Prices
To achieve success in a world that is ever-changing, you need some smart strategies that can help your business stand out. One of these strategies is using psychological pricing to set the right prices for goods and services being offered to customers.
Not to worry much, let’s take a look at some of the strategies that you can use to set the right prices for customers:
1. Anchoring Effect
This is a pricing strategy that serves as a cognitive bias in which customers rely heavily on the first information they get when making decisions. When customers see a first price which acts as an anchor for either a particular product or service, this influences their perception of what the subsequent prices may be. A good example is the initial pricing of a good to subsequently have a lower price that can serve as a better deal. Also, in companies that prioritize services, they can provide customers with a premium package first which anchors towards a high value thereby making second-tier options more reasonable.
2. Value-Based Pricing
Most times, businesses make the mistake of selling their products or services to customers based on the cost of production rather than the perceived value of the product to the customer. The value-based price is a form of psychological pricing strategy that involves knowing what customers want to pay based on the benefits or quality of products being offered. Since customers understand that they get what they pay for, you should provide pricing strategies that resonate with giving them the best product and service.
3. Transparent Pricing and Building Trust
We’re in an era where customers are well-informed about pricing strategies and therefore value transparency which means businesses can build trust by practicing transparent pricing. When you communicate the motive behind the pricing, display what values customers can receive, and avoid hidden fees, this can give customers a positive perception of your business. For companies that provide services, giving explicit breakdowns of costs and explaining the resources involved can build the trust that customers place in them.
Summary
To set the right price, you need an excellent understanding of applying pricing statistics strategically and consumer psychology. Irrespective of what you offer (products or services), it’s vital to take into consideration the complicated relationship between customer behavior, perception, and value and recognize that the lowest price may not be the best option, therefore aligning strategies with perceived values that are offered. By understanding anchoring effects, value-based pricing, and transparent pricing, you can use psychological pricing to build loyal relationships with customers.
