Using Psychology to Price Your Retail Merchandise
We’ve all had those moments in our own lives as shoppers: you’re in a store, you see a price on a label on the store shelf and something about it catches your attention. The pricing of the item itself – independent of product packaging or all other factors – can make you feel a sense of urgency to buy it. Whether it seems like a good deal, a limited time offer or even a choice of numbers (such as seeing an item priced at $4.99 instead of $5.05), there are a variety of ways that retailers use psychology to drive their pricing strategies.
And a better pricing strategy can often lead to bigger sales and more efficient retail operations. Often just by changing a few simple details in the way you price your merchandise – without changing anything else about your products or your business – you can change the way people perceive your products’ value, and can persuade people to buy more from you.
Small retail business owners should take a closer look at the psychology of pricing merchandise to drive bigger sales at their businesses. Marketing expert Nick Kolenda wrote a massive blog post, backed by academic psychology research, called “The Psychology of Pricing: A Gigantic List of Strategies,” which includes many helpful tips on how to price your products for maximum profitability. The whole article is worth reading, but here are a few of the highlights:
The tactic of “Charm Pricing” involves setting prices in a way that gives consumers the impression that they’re getting a slightly better deal on the product – for example, the classic technique of pricing items with numbers that end in .99 or .95. However, it can also be a good strategy to use round numbers ($100, for example) in order to help your customers “process” the price more “fluently” in their minds.
But this pricing strategy depends on what type of product you sell – if your customers buy products based on emotional factors (comfort foods, nostalgic items), then round numbers are likely to work better (the customer will tell themselves that a price of $100 for this handmade scarf just “feels right”). But if your customers buy products based on rational decisions, add the details of the cents at the end – charge $99.95 for your hard-to-find auto parts, instead of $100 (the customer will think, “$99.95 sounds like a logical price for this product”).
Reframing Your Price
Consumers don’t judge your price on its own merits – they judge it according to a larger context of how your price relates to others. For example, consumers have a general feeling for what is a “high price” or “low price.” This means that you need to price your items in a way that is competitive – not necessarily by actually offering the lowest price, but by presenting your price in a way that makes it “look” and “feel” lower.
How can you do this? One way is by using “partitioned pricing” and splitting up your product’s total price into a few different components. Consumers will tend to associate your product’s “base price” with your total price, even if your total price is higher. For example, if you list shipping and handling as included with the price of an item, people will tend to think that the price is “higher” than it is – so you should always list shipping and handling costs separately. (Amazon does this – they list the shipping costs separately once you have added an item to your cart and proceeded to checkout.)
Another way to reframe your price is to list the price’s equivalent in terms of a smaller, ongoing cost – like how much it would cost “per month” or “per day.” This can be a way of comforting the consumer and making the price feel lower or like a better value – if you prompt the customer to think about how little it will cost them to own your product per month or by the day, they will be more likely to buy.
Position Your Price to “Look” Smaller
People don’t just look at the numbers of your price – they are also influenced by things like font size and even where your prices are positioned on the price tag or on the screen. Research has shown that when prices are displayed on the left, people tend to think of the price as being “smaller” (because our brains are accustomed to seeing numbers increase from left to right, with “bigger” numbers on the right). Using smaller font sizes and smaller “kerning” (spacing between digits) can also help your prices appear smaller than they are. Another “positioning” tip is to remove commas from your prices – instead of $1,299 you should list your price as $1299.
Pricing is complicated and there are many different factors to consider, depending on what type of products you sell and what target market you’re selling to – however, it’s important to be willing to experiment and test different pricing strategies. See what works, and do more of it. And stay focused on what your prices really “mean” to the minds of your customers.
Want more great “psychological” pricing tips? Check out Nick Kolenda’s blog post on The Psychology of Pricing.