Pricing is notoriously hard. Simply asking your customers what they would pay sounds sensible, but often doesn't work. People frequently don't know what things are worth, and their stated preferences frequently don't match their real-world actions. But simply taking your best guess and slapping a price tag on something usually means you're leaving money on the table.
So what's an entrepreneur with a product to price to do?
One answer: turn to ConversionXL for advice. The site recently rounded up a wealth of tips on pricing all grounded in science to help business owners decide what to charge for their products.
The list reveals, first, that people are strange. Given that money is obviously important to our quality of life; you'd think people would generally make sensible decisions around what they choose to buy and how much they pay for it. Nope, notes ConversionXL, "people are weird and irrational," but there are plenty of handy rules of thumb to help you deal with customers' odd behavior, the site notes. Here's a sample.
Use a Decoy
You'd think the key factor in deciding on whether to buy something is whether we want the iteam and it's worth the price, but in reality we often decide on purchases by comparing them to other options. Change those options and you'll change customers' preferences.
"When people were offered to choose a trip to Paris (option A) vs. a trip to Rome (option B), they had a hard time choosing. Both places were great, it was hard to compare them," explains the post, but when, "they were offered three choices instead of two: trip to Paris with free breakfast (option A), trip to Paris without breakfast (option A-), trip to Rome with free breakfast (option B). Now overwhelming majority chose option A, trip to Paris with free breakfast. The rationale is that it is easier to compare the two options for Paris than it is to compare Paris and Rome."
How to put this to use? Plant a decoy option that's clearly inferior: "If you add a slightly worse option that is similar to A (call it A-), then it’s easy to see that A is better than A-, hence many people choose that."
Show Them the Deal
Everyone likes a sale sticker. But they like a sale sticker that also lists the original price even more. "Researches found that sale price markers (with the old price mentioned) were more powerful than mere prices ending with the number nine," says the post. So a sign saying an item is currently $40 but was original $48 outsells a sign simply stating an item is on sale for $39. Even better, according to researchers, is a sign that lists the original price and has a current price ending in nine.
These are just a few of the principles explored in the long post, so if you found them interesting, check out the remainder here. Or, for more insights on pricing, learn the ABCs of pricing here on Inc.com.
What rules of thumb do you use when it comes to pricing?