How verisimilitude – the appearance of truth – can improve your pricing
Today I’d like you to think about why you should use verisimilitude – the appearance of truth – in your pricing. To help, I’ll first need to tell you a little about the research behind it, and then I’ll explain how you can apply what you’ve learned to reap the rewards in your own business.
Rounded prices rely on emotions, non-rounded on cognition
In 2015, Wadhwa and Zhang – two Assistant Professors of Marketing – wrote: "Because rounded numbers are more fluently processed, rounded prices encourage reliance on feelings. In contrast, because non-rounded numbers are disfluently processed, non-rounded prices encourage reliance on cognition." Theirs was the first research that examined the impact of rounded prices on people’s decision to buy a product – and more specifically that was based on whether the decision was driven by feelings or by...
Why you should never, ever reveal your headline price
In this post I’d like to share something you must never, ever do: please, please, please don't reveal your headline price. As the Amazon number-one best-selling author of “Effective Pricing for Accountants”, I can assure you it’s an incredibly powerful concept that will get you much, much higher prices with much less price resistance too.
So, what is your headline price?
Very simply, your headline price is the total price. I can probably best explain the concept by telling you about an experiment done some years ago by Ryan Deis, one of the world's leading Internet marketers.
Ryan decided to sell one of his products at $197 and found he sold 340, which generated him just over $66,000. Not a bad result, but it’s what happened next that’s really interesting. He decided to find out what would happen if, rather than $197, he asked for two payments of $97. (It’s not quite the same price but,...
How phonetic simplification can make your prices seem lower
As the Amazon number-one best-selling author of “Effective Pricing for Accountants” I’d like to share how using a concept called phonetic simplification will get you better prices and results.
One of the things we’re just starting to understand is how irrational the human brain is. And how, once we understand that, we can use it to our advantage. (Some of you may already know Dan Ariely’s book “Predictably Irrational”?)
One key insight I want to share with you today was revealed in July 2012, when Coulter, Choi and Monroe published a research paper in the Journal of Consumer Psychology called “Comma N' cents in pricing: The effects of auditory representation in coding on price magnitude perceptions”.
The more syllables in a price – the higher it seems
In essence what the authors found was what they describe as “phonetic simplification”. In other...
Why the first number in your price is the most essential
This is a principle I refer to as left digit management. And it’s one that I believe can be even more powerful than the power of 9 – a commonly used price psychology method.
In the power of 9 you should always consider using a price that ends in a 9 because it will encourage more conversions. So instead of using £390 or $390 as a price for example you use £389 or $389.
It may only be a pound or dollar difference but the impact of the power of 9 means that more people will buy.
The power of the first digit
Apply a similar principle to the first digit however, and the impact is even more powerful. Say in this instance the price is £400 (or $400). Test it at £399 (or $399) and again – although it’s only a pound or a dollar difference the perception is an even greater difference than the previous example and therefore more clients are likely to convert.
The power of a price ending in 9
When you go shopping do you ever really take notice of the prices?
Next time have a quick scan of the receipt. How many of the prices of the things that you bought end in 9? Chances are, a vast majority.
Because 9 is a hugely powerful number when it comes to pricing and price psychology. There have been numerous studies into its power but one of my favourites involves three experiments carried out by Anderson and Simester in their research paper “The Effects of $9 Price Endings on Retail Sales”.
One of those experiments saw them testing an item in a catalogue at three different price points to see how the price affected conversions.
The results will surprise you.
How a mid-price option proved the most popular
At $34 they sold 16 units
At $39 they sold 21 units
At $44 they told 17 units
The cheapest did not sell the most. The most expensive did not sell the least. In fact the price point that converted best...
Why everything seems expensive without contrast
I often get asked what the most powerful technique is when it comes to pricing.
And I reply – “The contrast principle.”
I believe that it’s described most effectively in the introduction to a book called Influence, Science and Practice by Dr Robert Cialdini. The book – which I consider to be the best book on selling that I’ve ever read – talks about the primary laws of influence. Dr Cialdini calls the concept ‘perceptual contrast’ and describes it like this:
“When we see two things in sequence that are different from one another, we'll tend to see the second one as more different from the first than it actually is.”
It’s a theory that carries into pricing. Human beings are clueless about price.
Honestly. We don’t know the price of anything because we don’t know the absolutes.
Therefore we compare.
And our clients compare too. Without you...
How your clients know nothing about price
Did you know your clients are absolutely clueless about price?
Yes – clueless.
And it’s proven. In fact, it’s proven by psychophysics, a branch of science that has been around for more than a hundred years.
So what does it mean?
Essentially psychophysics means that we are more sensitive to differences than we are to absolutes.
Take sensory judgments such as weight, smell, taste and sight for example. If I showed you two shades of red you would be able to see the difference – i.e. tell me which shade was darker – but it’s unlikely you would have no idea on the absolute shade of red.
The same with your sense of touch. If I asked you to put your hands in two buckets of water – one hot, one cold – you would struggle to tell me the exact temperature of the water. But you would be able to tell me which one was hotter and which was cooler.
We are great at understanding the differences...
Why fixed pricing is always wrong
Or to be more precise… when you have a single fixed price
It’s always wrong.
Essentially it goes back to the basics of economics. I have always been fascinated by economics – so much so that I took a degree in it. One of the most important things I learnt was the theory of the equilibrium price.
Or in other words the fact that price should be set where the supply and demand curve intersects.
When you look at a visual representation of that it shows an area above the equilibrium price and below the demand curve that is the consumer surplus.
That is also the amount of profit available if we can tap into the fact that different customers will pay different prices.
You can watch the video here.
The concept of magic price
In a previous video I looked at the concept of magic price and how you figure out your magic price. I looked at the situation of you selling a tax return that costs you £50 in...
Taking the law of supply and demand to the next level
So what is a magic price
Essentially, it's the price that maximises your profit.
The law of supply and demand
When I started to study economics, even at school one of the very first things we learned was the law of supply and demand. That the point at which the supply curve and the demand curve intersect is the equilibrium – or ideal – price. The trouble is that while that works in theory, in practice it's difficult to measure.
If we could, if we knew, for example, exactly how many tax returns people would buy at £200 or £300, we could easily plot a demand curve. And then, if we worked out the profit for each price point, we’d end up with a bell-shaped chart. One that basically shows that a zero price – giving your stuff away for free, while still having to cover all of your costs – means you’d be making a loss.
Similarly, at the other end of the scale, if you price too high...
Debunking the myth of price sensitivity
One of the big myths I hear over and over again – and one of the main things holding us back with our pricing – is that our clients are price sensitive. But, as the Amazon number-one best-selling author of “Effective Pricing for Accountants”, I can tell you that they’re absolutely not.
Let me explain.
Most accountants and bookkeepers I speak to think their clients are price sensitive. But research by behavioural economists suggests that the number of price-sensitive people in society is about one in five, or 20%. And a typical example might be someone who’s retired, who collects the free newspapers and goes through them every weekend meticulously cutting out the 3p-off food vouchers.
So I admit all they care about is price. They’ve got time on their hands. But what I also know is that they’re not your clients. And, if they are, then you may want to revisit your ideal client process!