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The
Psychology of Pricing
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Pricing
is more than just about numbers; it is a play on perception. In many cases,
the psychology of pricing is more important than the actual price itself.
by Nach M
Maravilla
Power Homebiz Guides Publisher
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Pricing is more than
just about numbers; it is a play on perception. In many cases, the
psychology of pricing is more important than the actual price itself. And
small businesses that understand how psychology plays with their pricing
strategies can come out the winners.
(article continued below ...)
People process numbers differently, and we’ll often never know what is
in their minds when they consider prices and how this affects their
behavior. Traditional economic thinking assumes that markets are always
efficient and participants always rational. However, consumers behave
differently, sometimes even irrationally when presented with a variety of
triggers. When setting your prices, consider that perception plays a large
role in customers’ acceptance.
Price is multi-faceted. In setting your prices, the first crucial
question you need to answer is: "What price do I charge?" But you
also need to consider the how, what, when, where and what form of pricing by
asking the question: "How do I charge?" Customers will react
differently if you break the price into parts, bundle the product or service
with other items, request for payment late or early. All these factors
contribute to what we call the psychology of price.
Here are some ways when perception plays a large role in pricing:
1. The Perception of Savings.
Ever wonder why retailers end their prices
with the ubiquitous $0.99, instead of a “0” or “1”? Obviously, $9.99
is not much better than $10.00. After all, that’s a mere $0.01 savings!
But nonetheless, customers look at items with prices ending with “.99”
more favorably. The perception of savings makes for a powerful pricing
strategy.
2. The Perception of Value. A common ploy of many retailers as well as
Internet marketing gurus is to bundle their products, and offer some for
free. This strategy gives customers the perception that they are getting way
more than what they are paying for. Everybody likes freebies and bonuses! So
you see and read catching offers like:
“Buy Now and Get 1 Free” “Buy Today -- and Get 4 Valuable Bonuses
Valued at $199 For Free!”
If you are in the market for the products offered, then getting $199
worth of widgets for free may seem like a great deal. Others craft their
offers by including not one, but four bonuses for the purchase of one
product. From TV Shopping Networks to the Internet, this strategy has proven
to be very effective in getting customers to buy.
3. The Perception of Discounts. Discounts from 10% to 75% off
almost always never fail to attract buyers. Of course, the bigger the
discount, the better! People just love to feel that they are saving and
getting good value for their money (and who wouldn’t?).
4. The Perception of Unbundling. Unbundling of price into routine
payments also affects the decision to purchase. Marketers have discovered
that price unbundling can make the very same cost trivial to customers
and hence, more attractive.
Take for example life insurance. You’ll hear pitches like: “For only
$5 a day, you’ll get a lifetime of assurance.” or "Life Insurance
for $1.00." Pitched this way, the
premiums sound very reasonable and within easy reach. The price takes on
a different spin if the same insurance company markets their product as “Pay
Annual Premiums of $1,825.” Now, the price takes on a “big money”
perception, and can actually discourage people from buying the product.
May
20, 2003
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