How to Generate More Profits by Focusing on Your Pricing Strategy

How to Generate More Profits by Focusing on Your Pricing Strategy

The consumer’s mind will use the more expensive watch to create an anchor bias, which makes the $1,500 watch seem like a great deal. Seeing a $1,400 TV next to similar TVs for $700 and $380, the consumer will use the higher-priced product as an anchor. Let’s look at a great example from SAXX: Customers aren’t really getting a better deal per piece if they buy a 3-pack for $86 or a 2-pack for $57. But if they buy the 2-pack that’s on sale, they’ll get each pair for $23. So what does the customer do? They consider buying two of the sale items. This strategy gives the company’s customers a reason to keep adding more items to their shopping carts. Furthermore, the site has meal plans designed for different diets: traditional high protein paleo The meals target customers based on what type of food they need and what they can afford. If your customers get used to buying only when items are discounted, full price products may never get bought. Some consumers don’t want to buy products on sale.

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You can tell a lot about a business by how it sets its prices.

Psychologically, consumers are programmed to behave a certain way when they see the price of a product or service. Your pricing strategy can control the entire perception of your brand.

It’s similar to the way different color schemes can impact sales on your website.

Whether you realize it or not, I’m sure you think the same way when you’re shopping.

If you see the same item listed for $5 at one store and $50 at another, which option would you say has higher quality? The more expensive one.

However, even though one store is selling products at a higher price point, it doesn’t mean their quality is superior to that of the products from the store with bargain prices.

It’s all about perception.

Don’t blindly price your items. You need to have a reason and a strategy behind your pricing decisions.

Just look at how popular car brands are perceived by consumers based on their prices:

cars

Ironically, the majority of your business efforts will cost you money. But your prices will ultimately be the determining factor in whether or not you’ll make a sale.

I see this problem all the time in my consulting work.

Many business owners don’t have any rhyme or reason behind their pricing strategies. As a result, their sales numbers aren’t where they should be.

I’ll explain how you can generate higher profits by putting more focus on your pricing strategy.

Depending on your brand, some of these strategies will work for you better than others. Review this guide, and decide which ones you want to use in your business.

Avoid similar prices

When brands set their prices, they might be tempted to price certain items the same.

On the surface, this makes sense. If you’re selling the same shirt with different patterns, they should have the same price, right?

Believe it or not, research suggests that similarly priced items hurt conversions.

In an experiment, researchers studied behavior when customers were presented with two different packs of gum, both priced at $0.63.

In this case, 46% of people bought a pack of gum. That’s not a terrible conversion rate, but it could be better.

When the prices were changed, with one pack of gum priced at $0.62 and the other at $0.64, the conversions increased.

As a result, 77% of consumers purchased a pack of gum.

Setting different prices increases the chances of your customers making a purchase.

percent completing purchase

As you can see from the experiment, the differences in the prices don’t need to be drastic.

Even a slight adjustment can boost your conversions.

Take a look at the prices in your stores and on your website. If you notice that the majority of similar items have the same prices, make an adjustment and see if that helps you drive more sales.

Understand the psychology of anchoring

Some of you may have heard of anchoring, but you may not be sure how to use it.

Before you can implement an anchor pricing strategy, you need to understand how the mind works.

Focalism is a psychological term, more commonly referred to as anchoring or anchor pricing in the marketing world.

Anchoring impacts the way humans make decisions. We depend heavily on one piece of information, which is the metaphorical anchor. Once the anchor is set, our minds are trained to use that information when making a decision. That information biases our decision-making.

For example, think about what goes through your mind when you’re buying a car.

If it’s a used car, the first questions you might ask are:

How many miles does it have?

or

What year is it?

That’s the bias you use to determine the value even though it would be more reasonable to ask whether the engine and transmission have been properly maintained.

Now let’s get back to your pricing strategy.

How do you sell a watch for $1,500? Put it next to a watch that costs $8,000.

The consumer’s mind will use the more expensive watch to create an anchor bias, which makes the $1,500 watch seem like a great deal.

Take a look at this example from Best Buy:

best buy
These three TVs are very similar. Just look at the common features they have:
  • LED
  • 4K
  • 2160p
  • HDR
  • Smart TV

The only major difference is the size and brand. Plus, the sizes aren’t even that drastically different.

Seeing a $1,400 TV next to similar TVs for $700 and $380, the consumer will use the higher-priced product as an anchor.

For half the price, they can get a TV that’s just five inches smaller. This is still a great deal.

Budget-conscious consumers can buy the $380 model without thinking twice about it. They are getting a great value for the price.

We’ll discuss value and segmenting prices for different types of customers in greater detail shortly.

Offer incentives to spend more

Your prices can determine how much each customer spends per transaction. Obviously, you want to set these prices so that your customers spend as much money as possible.

You need to give the consumer a reason to spend more money. How can you accomplish this?

Let’s look at a great example from SAXX:

saxx 1
This page has four different products for sale. As you can see, it also uses the anchor pricing strategy.

Customers aren’t really getting a better deal per piece if they buy a 3-pack for $86 or a 2-pack for $57. It’s still about $28 per pair of underwear.

But if they buy the 2-pack that’s on sale, they’ll get each pair for $23. This is a better deal.

However, they’ll have to pay for shipping if they buy the sale package because it doesn’t meet the $50 threshold. So what does the customer do?

They consider buying two of the sale items.

This gives them a better value per piece, and they’ll meet the free shipping requirement.

Mack Weldon uses a similar strategy on its ecommerce site:

mack weldon

Orders over $50 will be shipped free, but the site offers more: 10% off orders over $100 and 20% off orders over $200.

This strategy gives the company’s customers a reason to keep adding more items to their shopping carts.

Research your competitors

Who are your biggest competitors? How do their prices compare to yours?

If you don’t…

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