October 21, 2014

8 Pricing Strategies you can Implement Right Now

How to price products and servicesAs a companion to my review of the book “The Art of Pricing,” I’d like to highlight 8 pricing strategies that Rafi Mohammed, the author, offers.

Each pricing strategy asks you to use psychology with your customers. Most of these strategies have stood the test of time — for a reason. They play to human behavior.

Try some of these strategies and see what they do for your business:

1. The Nine and Zero Effect. People associate the number nine with value and zero with quality. Look at the difference between fast food and a gourmet restaurant. A burger meal can sell for about $4.99 while a gourmet entree at the best place in town may go for $30. So the psychology of pricing isn’t so much about gaining additional sales because the price appears to be lower, it’s about what the price communicates about your offering. So which do you want to communicate? Value or Quality? Now you can price accordingly.

2. Payments to Promote Satisfaction. Anyone who has ever paid for a gym membership and quit the second month has been part of this pricing strategy. If you offer a one-time payment, customers will perceive the item free after a while and not use it as often — thereby limiting satisfaction. Customers who pay more frequently for a product or service use it more often and perceive more satisfaction. So you’re better off charging monthly rather than a one time fee.

3. Prestige Pricing: Higher prices connote higher quality. Luxury brands are the perfect example of this strategy. A latte at Starbucks has a higher perceived value than a basic coffee with cream. Simply improving the look, packaging, delivery or promise of your product you can justify a higher price and support a prestige pricing strategy.

4. Anchor Pricing: When consumers are unfamiliar with a product, they will use the highest priced model within a category as an anchor. Private Label brands in the supermarket are a good example of this strategy. They are placed close to the branded product and the price is typically 15% lower.

5. Quantity Suggestive Pricing: Consumers are receptive to purchasing items in suggested quantities. This is the strategy that is responsible for my eating too many Arby’s sandwiches. The offer typically reads “5 for $5.” When you suggest how many you want your customers to buy and give them an attractive price, they will do what you tell them.

6. Large versus Small Losses: Offer your customers multiple payments of less money. Think QVC (the shopping TV channel) offering items for 4 easy payments of $29.99 which is more appealing than $119.96. This strategy plays well with strategy #2 — multiple payments promote greater satisfaction. So your customers will not only perceive a lower price, but actually appreciate your offering more because they will pay more frequently.

7. Stuffing the Bundle to Convey Value: But wait there’s more! Consumers perceive more value when there is more stuff included in the bundle. You can even call this a form of value-building. TV informercials are notorious for this strategy. They introduce a main product and keep adding more and more items to the mix to build value — while simultaneously “discounting” the retail price.

8. Everyone Loves a Bargain: Using banners announcing large discounts increases purchases. There are two kinds of discount store shoppers: (i) those who are price sensitive because they can’t afford to spend more, and (ii) those who are price sensitive because they are bargain seekers and don’t WANT to pay more — they want to feel like they got a great deal. Big “Sale” and “Discount” signs make both sets of shoppers feel good about their purchase. If your price compares favorably in the marketplace and you’re offering a product or service for less — tell your customers so. Do not be afraid to show them how much less your price is or how much more they will save.

Use any of these strategies, or a combination of several of these strategies and see how you can uncover hidden profits in your business.

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Ivana Taylor About the Author: Ivana Taylor has spent over 20 years helping industrial organizations and small business owners get and keep their ideal customers. Her company is Third Force and she writes a blog called Strategy Stew. She is co-author of the book “Excel for Marketing Managers.”

20 Comments ▼

Ivana Taylor - Book Editor


Ivana Taylor Ivana Taylor is Book Editor for Small Business Trends and publisher of DIYMarketers , where she shares daily do-it-yourself marketing tips, and is the President of Third Force, Inc., a marketing firm that specializes in getting your ideal customer to choose you. Ivana is the book editor for Small Business Trends and co-author of the book "Excel for Marketing Managers."

20 Reactions

  1. Absolutely loved the 9’s and 0’s, and the prestige pricing ideas. SO right on!!!

  2. This is a really useful list of strategies. These bring up a lot of good ideas, I have lots of thinking to do.

  3. Another strategy I’ve seen alot online is having the normal price of a product listed with a slash through it and then a discounted price listed right next to it. Even if the “discounted” price is the normal price and the price with the slash through it is some artificially inflated price, the customer will think they’re getting a deal.

  4. Hi Ivana, thanks for taking the time to outline these tips from Rafi — succinctly put.

    Earlier this year I joined two communities that require a monthly payment. One was $97 a month, and the other was $100 a month. Sort of a variation on the 9 and zero effect.

    I’m not sure if it’s the pricing strategy or the substance, but I seem to get a lot more value out of the $100/month subscription. More than a mere $3 extra.

    So now you’ve got me wondering: has the pricing colored my perception of value?

    — Anita

  5. Maybe I am in the wrong market, but the prestige pricing, at least during last year, isn’t entirely popular. In fact, I resorted to it as a method to scare off customers I can’t afford to take. 40 to 0 cases in my book say prestige pricing has to be applied to right markets only.

  6. This post sums up many of the pricing strategies available for businesses. For #1, if the price is small, personally I don’t see the perceived difference between $4.99 and $5

  7. Ivana,

    I remember Arby’s offers from Ohio, but I didn’t eat much there. How about Subway’s loyalty card that you eat 10 times or so in a 6 months period and then receive one sub for free when you purchase the 11th sub?

    I am interested in discussing the term value pricing, then both the seller and the customer understand how the trader principle works in the business transaction.

  8. Hi Vlad,

    I’m not a pricing expert, but I believe prestige pricing is alive and well. I see evidence of it all the time — from the grocery store to Web design services to consultants to restaurants.

    But as you say, you have to select your pricing strategy appropriately for your market. And you can’t have a shoddy product or service and just slap a big price tag on it.

    — Anita

  9. Great list! Very interesting to bring light to these common tactics.

  10. How about the loss-leader. We did this in Pearle Vision all the time – advertise something practically at cost (contact lenses are a great example) with the hopes of the customer coming in and purchasing additional items.

    When we offered the BOGO – buy one get one – we trained our associates to detail the actual full price of the free pair they would receive. If we didn’t so this – the perceived value of the free pair was non-existent. However, by including on the receipt the price of their free pair, had they paid – all of a sudden the value skyrocketed.

    Just happened to me at a dress shop. I took advantage of a 50% off sale. The sales person rang up my sale, told me I owed $36.00 with tax. Then as she handed me my bag she said – “congratulations, you saved $34.50 today.”

    Wow – I felt great.

  11. This is a really interesting list of tactics and strategies and prestige pricing is quite an interesting topic. This is really, good useful advice that people can begin to implement immediately into their small business – very helpful.

  12. If they tell me “You saved $X” I usually retort with “no I didn’t – I SPENT $X”

    I find that a minor insult to the intelligence.

  13. I like this list very much. It gives some great pricing tactics. If you want to make profit from a business, I guess pricing is an important strategy. When you are introducing a product, you should follow one strategy and when it gains popularity you change the strategy. Thanks Ivana for such a nice article.

  14. These are some good items. I might add that customers also perceive value in paying only for what they need. In the email hosting business, we have basic plan pricing in blocks of 25 but for the guy that needs 62 mailboxes and nothing more, we can work up a price for exactly 62 mailboxes and not make him pay for 75. On the flip side, other clients perceive security in being well under a plan limit and don’t mind paying for 75 accounts even if they only need 62. Building flexibility into your pricing model and being able to please both types of customers makes the difference.

  15. Some great tips for the new business starter. Thanks.

  16. Thanks, these stratigies will help us with our new distribution and retail business

  17. Always offer a bargain price for your service as best you can so that everyone can afford it. Consumers comes first, profits follow. Visit RedHotFranchises to see many Great opportunities that will help all worldwide visionary entrepreneurs to grow.

  18. I totally agree with number 4 sometimes even just having a higher price makes people want it more, or think it”s better all else being equal. Almost make sense to always have 2 companies selling the same thing to capture the various level of pricing

  19. Love this, great blog, thanks.

  20. These are some great pricing strategies. I know I make sure to use several of these in my own online business. For instance, I make good use of discounting and bundling. I also competitors’ prices and show them near my better prices.

    I like to make sure my customers feel like they are getting a great bargain. For instance, after building someone’s website I may provide a video tutorial to show them how to use the administrative side of their WordPress site. I may also provide a free ebook on how to generate traffic and make the most of social media.

    Overall I make sure I underpromise, overdeliver, and ensure I am providing genuine value to my customers.

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