How do you decide how much to charge for your products? There’s probably no question with higher stakes for a small business owner. Get it wrong—charge too much or too little—and you’ll end up struggling to survive. Luckily, an army of psychologists, marketers, and behavioral economists has studied this question. Here’s what the research says about setting prices.
There’s a reason so many prices at so many stores end in 9’s—this simple psychological trick works. But the research shows that irregular prices work best for basic or “utilitarian” items. Luxury items sell better at round, even numbers. The Atlantic
When faced with three options, consumers tend to pick the middle one. If you have an item you want to push at a particular price point, try introducing a ‘bargain’ and ‘premium’ version above and below it, to steer customers to that ‘just right’ choice. The Atlantic
Shoppers tend to get overwhelmed when faced with too many similar choices. If you’ve got a group of similar products, try setting slightly different prices for each one, to help customers differentiate between them and ultimately make the decision to buy. Yale University’s School of Management
How to charge more
Attaching a narrative to an object makes people willing to pay more for it—even if they know the story is completely made up. If you want to charge more than the big-box chain down the road, try giving customers a little information about how your product was designed, where it comes from, or why it matters to you. Behavioral economist Dan Ariely
Mentioning time in advertisements and marketing materials also makes customers willing to pay more. Thinking about time seems to push consumers to think about the product as an experience, rather than just an object. Jennifer Asker, professor of marketing at Stanford Graduate School of Business
Creating bundles of different products can make spending more look like a bargain—but this trick only works if you also sell those items separately. In other words, people don’t want to be pushed to pay more. But you can, in fact, push them to pay more if you make them feel like savvy shoppers. Harvard Business School’s ‘Working Knowledge’
How to do discounts right
Customers tend to be price-sensitive for “non-urgent” products, like a book or something else they don’t necessarily need right away. Time-limited sales or flash discounts can help increase that sense of urgency and push people to buy. (And built-in options within your Clover POS make pushing out flash sales to your best customers easy.) WWW2017 Conference
Before you simply slash your prices, try offering more of a product for the same price—consumers tend to value this kind of promotion more than a discount, even if the math doesn’t work in their favor. (Hint: most people are bad at math.) The Economist
Understanding young shoppers
Millennials are very price-sensitive. And you’re not paranoid: they are checking Amazon for cheaper prices while they’re in your store. But loyalty programs, rebates, and creative promotions like an option to save by buying online and picking an item up in your store can all work to attract these bargain-hunters. Entrepreneur
They’re price-sensitive, but they’re also open to spending more on brands that allow them to express themselves or signal something aspirational about their lifestyle. This research suggests that branding is crucial to attracting younger customers—especially branding that highlights how unique, healthy, environmentally friendly, or luxurious your product is. International Journal of Hospitality Management[image: shopping by Hamza Butt on flickr]
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