Cost and value are subjective

Cost and value are subjective in terms of what a customer is willing to pay and what they perceive as a good deal. Many large corporations spend a lot of time and money to develop ways to boost their sales solely through psychological pricing. There are a few tricks of the trade that they use, and that you should be using too.

First look at the way your prices are written. Smaller prices are better. This does not mean that lower prices are necessarily better as we will discuss later, it means for a written price, smaller fonts are better. Many companies make the mistake of having their sale prices written in huge, red fonts, but more consumers feel that fonts that match the size of the original price are a better deal. Sometimes that has to do with the perceived value of something. Large fonts not only make the price itself seem larger, it also may make it seem like the value of the item is not equal to the price.

Also think about the way the price is written. Studies show that more people purchase an item priced at 1000 rather than the same item priced at 1,000 or even 1,000.00. Even though all three prices are the same, the first of these looks smaller and therefore conveys the feel of a lower price. For that same reason, you should also leave off the dollar sign. Subconsciously, consumers think that 1000 looks lower priced that $1,000.00.

It has long been known that prices ending in 9 sell much better than any other. For example, even though we know that $9.99 and $10 are basically the same price, more often than not, the one labeled at $9.99 out sells the $10 item. There are even some cases where an item ended in the number 9 has outsold the same item with a price ending in any other number, even though the second of the two was cheaper. According to Mark Zhang of makermogul.com, “in a paper titled Effects of $9 Price Endings on Retail Sales: Evidence from Field Experiments conducted by the University of Chicago, researchers discovered: ‘A dress at $39 outsold the same dress priced at $34 by 24%.’” This might have been due to price comparison.

In a study done by Williams-Sonoma, a bread maker entered the market at $275 but it did not sell well. That is because there were no similar items to compare whether or not it was a good value for the money. As soon as they introduced a premium bread maker for $550, the original version started selling incredibly well. This is called Anchor Pricing. When offered low, middle, and high priced version of something, the average priced item normally sells better.

Finally, it is important to distinguish between discounts and bonuses. When offered a discount, the perceived value of the product goes down. In as study by the Journal of Consumer Research, customers who purchased a jar of tomato sauce were offered spaghetti. When the customers were offered the spaghetti for free, customers on average estimated the spaghetti’s worth to be almost $3. However, when offered the spaghetti at a discounted price of $.50, the customers estimated the spaghetti’s worth to be $1.83. As Zhang writes, “[the discount] cheapened the value of the spaghetti.” To get around this problem, it is better to offer bonuses to drive up sales rather than to offer discounts. Bonuses add value to an item rather than taking it away.

Zhang, Mark. “7 Psychological Pricing Hacks to Double Sales” Makermogul.com Dec. 23, 2014.