In his article "Pricing tips for selling in a tough market" in the Wall Street Journal, Jonathan Clements presented pricing tips for the difficult housing marketing. Using this universal psychology of pricing I have translated his concepts to help you price your products to sell.
Make your first number count
Have you noticed how $4.99 looks like and feels like a lot less than $5.00? Manoj Thomas, a marketing professor at Cornell University's Johnson Graduate School of Management explains, "We read from left to right so we anchor our judgment on the first thing we see. We make that judgment in a fraction of a second." A $99 home study course will look more affordable than a $100 one. A $124.75 teleclass series will feel like a better bargain than the same one at $125. Pay attention to number on the left. It's the one your prospect will remember.
Make effective price comparisons
One study of price comparisons found that, if the left digits are the same, buyers will focus on the right hand numbers. Thus an ebook at $12.75 feels a lot more expensive than one at $12.54. Have you ever been on Amazon ordering a book from an outside source? The prices vary by only one penny, but you inevitably go for the cheapest one. We love bargains.
It also turns out that buyers perceive the discount to be larger if those numbers on the right are declining from two to one rather than from nine to eight. Go figure.
Sometimes comparisons get out of hand. Have you ever been on a sales page that says you are getting $3,572 worth of bonuses? I personally don't need that much information, so it is a comparison that is not compelling to me. But if you tell me there is an Early Bird Special in which a $125 teleclass I'm considering is available for $99 I may jump on it. And you know what, that's a 20% savings. Which number did you respond to—the dollar amount or the percentage amount? I'm a dollar and cents type of person but it doesn't hurt to use both in your copy providing it’s a good percentage drop.
What is a reasonable price?
The best way to make a pricing decision has never been determined. There are guidelines, but no easy to apply rule. Obviously you want to be within the range your market dictates. When I priced my first ebook, a colleague said, "Oh well, you can always offer a discount." I knew then that I had priced it too high. You may not be able to sell an ebook for $29.95 since you are probably sitting there with a bookshelf full of very informative hard cover business books that average $12 each. It's very common to look at the amount of effort that went into creating your product and over price it.
Another decision is what your target market can afford. Eckhart Tolle prices his book A New Earth: Awakening to Your Life's Purpose at $7.70. In doing so he made it available to anyone who wants it. He wants to get his message out. And it will be since he's an Oprah book club selection. Suze Orman felt so strongly about getting her message to women that for 24 hours she recently gave away a free PDF of her book Women and Money also through Oprah. If you have a book that you want to reach as many people as possible, keep it in a price range that will entice them.
Another consideration is that academics are used to paying more for a text book than the average reader. Research your market and stay within a reasonable price range for those you want to buy your product and services.
Do you want to convey quality or a bargain?
An interesting discovery about the psychology of pricing is that a round number will convey quality. A precise number will indicate a bargain. Vicki Morwitz, a marketing professor at New York University's Stern School of Business says that's because we associate precise numbers with lower-priced products. A precise number also indicates you have given a lot of thought to your pricing. Look at Amazon prices, the last two numbers are all sorts of un-rounded numbers – $14.37, $12. 64. It makes you feel like you are really getting a bargain because you assume they have arrived at those prices in order to be the lowest source for that product.
Make the discount easy to calculate
Make it easy for your buyer to relate to the price cut. If it is difficult to do the math, they will perceive the savings as small. A drop from $149.85 to $127.48 taxes anyone's math skills. But with a drop from $149.85 to $129.85 you can see a $20 savings. And in a drop from $150 to $130 the $20 savings is extremely clear.
Instead of cutting prices, add bonuses
In my coaching practice I have two ways for people to pay for my major package. They can pay in two payments, or if they pay in one payment, they get a bonus of four of my ebooks that are related to what they will be doing in our coaching sessions. My reasoning? Every time a prospect pulls out her credit card, she has the opportunity to reconsider the purchase. Fortunately my shopping cart can automatically charge monthly payments but my clients have an opportunity for some valuable bonuses if they pay in full. What kind of added value can you add to your bundles?
Don't stay married to your price
Price your product or service reasonably and if it doesn't sell lower your price. If it rushes out the door, consider raising your price. You could easily do some split testing by having identical sales pages with different prices and send half your list to one and half to the other and monitor the results.
Give it time
It takes prospects as many as nine exposures before they purchase. That's why building your list is vital to your success. An opt in list gives you permission to market. The prospects are willing to hear from you again. Through emagazines and special offer promotions, you will have time to speak to them often enough to build their trust and get ultimately them to purchase.
One last thought on information products
An information product is not your business, it is an adjunct to your business. It enhances your expert status, it lets people move up your marketing funnel. When people come to me for help in developing an information product, I make certain they have a strong name capturing system in place on a compelling web site with strong content that stimulates conversion. Laying that strong foundation is paramount to your success. Then you can create all the products you wish and use the psychology of pricing to position your products to sell.
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Cara Lumen, The Vision Distiller, helps pro-active entrepreneurs translate their passion into a profitable presence on the internet with a minimum investment by using time, energy, information, and imagination. Through The Magnetic Marketing Method she offers innovative, inexpensive, and impactful ideas for internet marketing, content strategy, and signature product development. Her own information products are noted for their clarity and richness. Find more articles like this in The Success Magnets Emagazine at www.caralumen.com
Great article. I like that you mention the absurdity of $3,XXX.XX bonuses for a $50 product. A $20-$50 bonus is much more believable, and that's key.
Another trick for price comparisons is to show the large comparison prices with the cents included, like $135.67, and the actual price of the product with out the cents, $85. The 2 digits vs 5 digits helps to make the number look much smaller.
Posted by: Stephen Dean | March 04, 2008 at 02:03 PM
No wonder the market is filled with price tags that have .99 or.75 cents running after them. I was still in primary school when my uncle taught me the logic behind adding cents to 4.99 instead of just making it a full five. And I have to say that such a strategy works on me as well.
Posted by: Jay, writer Memberspeed.com | March 07, 2008 at 07:22 AM