In 1983, behavioural economist Richard Thaler did an interesting experiment involving beer. Thaler had a group of people in the study, and essentially, he wanted to find out how much they were prepared to pay for a particular bottle of beer. The product was the same for everybody, it never changed, the only thing that changed was the way it was sold.
Thaler found that people were willing to pay a very different price depending on where and how the product was sold. This is called the Power of Context. If the beer is being sold in a messy corner shop, stacked in a dusty corner, people are willing to pay a much lower price for it than if they bought the exact same beer next door in a hotel bar, cold from the refrigerator. Likewise, they would pay more for the cold beer on a hot day than a cold one, sometimes even 2 or 3 times the price! Simply changing the context in which you are selling can raise prices.
Another study in 2002 from price psychologists Adaval and Monroe tested this...
I often talk about menu pricing and the power of three. It’s truly powerful stuff. It’s a fact that when faced with three options people tend to gravitate towards the middle option.
And it works with pricing too.
So you might only currently offer one package – your tax return package for example. By adding more services and creating two other packages you will find that many will choose to pay you more by going for the middle, and therefore more expensive, option rather than your basic package.
But how do we get them to do that?
There are things you can do to prompt your customers to pick that middle option but essentially it boils down to one thing. Social proof. It’s something we learn from Dr Robert Cialdini, author of Influence: Science and Practice. Social proof is one of the six main laws of influence. It is defined as follows: “As humans we are lazy when it comes to decision making. When it comes to making...
Everyone loves a bargain. But actually, there’s something they love more.
Getting something for free.
It’s the most powerful word in marketing. And it’s used all over the place in marketing copy.
A powerful way of presenting your prices to customers is through menu pricing using a tick list of options that shows customers what they do and don’t get. It’s visual, powerful and it works. And most of the time that technique means a series of ticks and crosses.
But sometimes you can add in something different. You can add in the word free.
It’s even more powerful than a tick.
As I’ve already said people love getting something for free. They love getting something more than they expected. It stands out.
Of course, it could be tempting to go overboard. To use it everywhere. But don’t.
People like getting a bonus. Something extra....
I’m a strong believer in the power of menu pricing. You create three different packages – three different options – that you then present to the customer to help increase your chance of an upsell.
But how can you best present those options?
One of the most powerful ways is the tick list technique. It’s simple. Visual. Powerful.
Essentially it’s as simple as it sounds. You set out a table with your options on it. Across the top are the packages you offer. Bronze, silver and gold for example.
Down the side, you list all the things you do.
Then, with a series of ticks and crosses you mark which services are part of that particular package and which aren’t.
Although the ultimate aim is convincing the customer it’s also useful for you. It’s a great way to plan and structure your...
The upgrade nudge strategy
Today, I’d like to share a tip I learned from the science behind the pricing of menus. I’m sure you’ve read my post on the magic of three, on how important it is to always offer clients three different packages to choose from. However, once you've done that, what’s the next stage? How do you price those three options?
One great strategy to use when you’re setting your prices is known as the ‘upgrade nudge strategy’, and it's particularly useful for compliance work. Imagine, for example, you have three packages: a bronze, a silver and a gold – or whatever you decide to call them. One of the things we’ve learnt from the magic of three, from the world of behavioural economics, is that most people gravitate towards the middle option. And, once you know that, you can use it to your advantage.
You can find out more about how it works by watching the video...
Today I’d like to talk about an incredibly powerful concept known as the ‘magic of three’. In brief, it means that any solution or service you offer should always, always give clients three pricing options. And there’s a reason it’s something all the most successful businesses do.
You can find out more about how powerful the magic of three is in my video here.
What’s the most profitable coffee shop on the planet, for example? That’s right. Starbucks. If you go into Starbucks most of their drinks offer three options – ‘tall’, ‘grande’ and ‘venti’ in the case of my personal favourite, latte! Why? It’s because behavioural economists have shown that, when faced with three choices, most people gravitate towards the middle.
Once you know this, it’s a huge opportunity....
I’d like to talk about why you should always reveal your most expensive solution first. A lot of research has been done in this area and there are a number of ideas we can learn from it to improve our pricing strategy and income.
One key idea is top-down pricing. Basically, it means we should always talk to clients about our most expensive option first because it creates a reference price, or an anchor. And what the research has found is that when we talk about the most expensive option first, people end up spending more money than if we’d revealed the cheapest first.
A related idea that I also teach is the price-order effect, and what this says is that you should reveal your prices in a certain order. Sometimes we might have a verbal conversation with a potential client about our services, and – using top-down pricing –...
I’d like to share with you why you should avoid coupling at all costs.
So what does coupling mean? To explain, I’ll need to refer to some research done in 1998 by Prelec and Loewenstein, two behavioural economists. Here are their exact words on what they learned from their study: "Coupling refers to the degree to which consumption calls to mind thoughts of payment and vice versa. Some financing methods, such as credit cards, tend to weaken coupling. Whereas others, such as cash payments, produce much tighter coupling. Sometimes this is referred to as saliency. What it means is that if we can change the way that we take money from the clients, we can reduce the association of payment pain."
Uber leads the way
I can give you a great example of how this works in practice by taking a look at the taxicab industry. I’m sure you’re aware of how it’s been revolutionised in the last...
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.
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...
In this post I’d like to share something you must never, ever do: please, please, please don't reveal your headline price. I can assure you it’s an incredibly powerful concept that will get you much, much higher prices with much less price resistance too.
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, at $194, I think you’ll agree it's pretty close.)