Now that I've blown off steam complaining about the Wells Fargo fraudulent account scandal, let's get back to some basic marketing, shall we? Few elements of marketing are more important than pricing, so that's a good place to start.
Entrepreneurs (and novice marketers) often assume that customers are always looking for the best value and make decisions to buy based upon finding the best possible price. Neither of those assumptions are true.
Customers are deeply irrational and make decisions based upon emotions rather than logical thought. Fortunately, numerous studies have shown these emotional reactions to be highly predictable. Here are
1. Similar prices prevent sales.
More customers will buy at least one of two products if they have slightly different prices than if they have identical prices. Example: two T-shirts priced at $9.50 and $9.60 will sell better than if they're both priced at $9.55.
2. High-priced alternatives increase sales.
Customers are more likely to buy a product after being exposed to an expensive alternative. For example, the Tesla Model 3 (at $35,000) became the most pre-ordered automobile of all time in part because would-be buyers compared it to Tesla's existing high-priced models.
3. Buyers do not notice price hikes <10%.
As a general rule, customers don't really care that much about price increases until the increase exceeds 10% of the original price. A good example of this is the $.35 that fast food restaurants charge for a piece of cheese (cost: approx. $.01) added to a $3.75 burger.
4. Customers buy more with installments.
Customers are more likely to buy a product if the price is broken into multiple payments (like 3 payments of $50) rather than a single price ($150). Partly this is due to a desire to control cash-flow but it's mostly because customers don't do the math in their heads.
5. Price can be re-framed to seem smaller.
Customers will consider a price more attractive if you compare it to something else that seems trivial. A common example: "it costs less than your daily cup of Starbucks coffee" makes $766.50 seem more palatable.
6. Too much choice prevents buying.
Customers are more likely to buy if they're presented with fewer choices. As Scientific American recently put it: "Logic suggests that having options allows people to select precisely what makes them happiest. But, as studies show, abundant choice often makes for misery."
7. Bundling options increases add-on buying.
Customers confronted with add-on options are less likely to buy when buying requires separate decisions and more likely to buy when the options are bundled into a package. Apple's bundle-rich website is a perfect example.
8. Yes, $999 sells better than $1,000.00
I recently wrote about this technique in The Old-School Pricing Technique That Still Works. Note that $999 also sells much better than $999.99 because the decimal makes the number seem larger. Go figure.
9. Customers will pay more in fancy places.
Weirdly, customers are perfectly willing to pay two or three times as much for the same product when that product is purchased in posh surroundings. This is why upscale hotels can continue to charge (for instance) $10.00 for a $.50 glass of milk.
10. Customers will buy anything that's scarce.
Customers pull out their wallets when told something won't be available in the future. The archetypal example of this is the Pontiac, a car that pretty much nobody wanted until GM retired the brand in 2010, at which point every car left on the lots sold within a couple of weeks.