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...
How top-down pricing can improve your turnover
As the Amazon number-one best-selling author of “Effective Pricing for Accountants”, 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.
Create a high reference price – and watch clients spend more
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...
Do you want to streamline getting paid? Then avoid coupling
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 few years...
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...