Pricing psychology: Dealing with "barrier" prices

How to increase sales by 10% -- by cutting a penny from your price!

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You can change the perceived value of your product or service with this pricing strategy.

If your product or service is priced at a whole number, you’re throwing away sales – unless your product is a specific type mentioned later in this article. To tap the power of human psychology, your price should not be $15 or $10,000. Instead, $14.99 and $9,950 are likely to gain you 5-15% more orders.

And… we all know this. The problem is that lots of people think they’re too smart to use this technique.

“That’s ridiculous!” I’ve had clients tell me. “Everyone knows that $299 is really $300. You’re not fooling anyone. I’m not going to insult people by using a stupid price like $299.”

However, as marketers we’re supposed to give people what THEY want – not what WE think they should want. You might believe people should respond to $14.99 exactly the same as to $15.00, but that doesn’t mean they do. Customers have shown repeatedly, in test after test, that they prefer $14.99 to $15.00.

Because 5-15% more people are likely to buy at $14.99. Why? Because they perceived it as a higher value than the same offer at $15. So even if 85% of your customers saw no difference, it obviously mattered to the rest of them. And, frankly, who are you or I to tell customers what they should be doing?

Could dropping your price by pennies increase your sales? BackCountryStore.com dropped all their whole-dollar prices by a nickel and told MarketingSherpa.com “It’s had a pretty dramatic effect. We’re having more sales because of it.”

What about consulting or other high-ticket prices?

People about to spend $10,000 or $20,000 for a consultant are human too. They would prefer to spend in the $9,000s instead of in the $10,000s. But a $9,999 price has too “bargain basement” a look to it. Instead, price at $9,750. That $250 you give up could greatly increase your likelihood of getting the job.

If you can’t give up the $250 and still make an acceptable profit, then price at $10,750. The difference between $10,000 and $10,750 is not enough to cause you to lose the job – and could make a big profit difference for you.

Who should NOT use these techniques?

If you have a luxury product or service, you should probably not use discount-looking pricing. Certainly not without a test to see if it hurts your product or service’s positioning.

If you’re the best hairstylist in L.A., your prices should be whole dollars. If you’re selling the most expensive bubble bath in the world – price in whole dollars.

For example, Harvard publishes a number of health newsletters. Given the Harvard name, these marketers have decided to use whole dollar prices – selling those newsletters at $22 or $24 instead of $21.95 or $23.95.

An interesting question, however, is whether $29.95 would outsell $30 – even for them and their image. Some price points are small in a consumer’s mind (e.g., from $21 to $22) while others are huge (e.g., $29 to $30).

What should you do?

If you’re using whole-dollar prices and are not a luxury product, you should immediately test prices just below your whole dollar number.

If you’re a hold-out in running price tests, as many are – even though they’re leaving big profits on the table – drop your prices for a period of time and monitor the results. Even though it’s not a precise price test, you may get such strong results you’ll be thankful you did!

Additional resources: Pricing Psychology Report.

By Marlene Jensen