How to set the prices of your products if you’re in business?

Late last year, an ultimate guide to the psychology of pricing by Nick Kolenda, marketing expert and psychologist, caught the attention of the business world as well as consumers. Pricing and presentation has been his career-long topic, and he’s offered the public a kind of condensed script that covers everything psychologists have ever discovered about how to price your products if you’re in business.

Psychological tricks and trouble with prices

In one of the interviews, Kolenda presented his experience in working with business people and singled out the most frequent answer he had gotten to the question of what they wished they had known before starting their businesses.

A typical response would be: “I wish I knew how to price. When we first launched the product, we priced based on what we wanted to charge, rather than optimizing to maximize revenue and profit.”

According to Kolenda, there are many entrepreneurs who regret this. For beginners especially, pricing seems both extremely important and completely confusing. Buyers are known to have all sorts of unusual biases and unexpected desires and expectations when it comes to how much they’re willing to pay.

– On the other hand, at the same time, properly valuing your products can mean a world of difference between a healthy income and too much topping on your pasta plate – Kolenda said.

The only thing left is to offer entrepreneurs a solution that does not involve reading endless literature and the enormous amount of time it takes to learn what is necessary when forming prices. Kolenda has offered an attempt in the form of an easy-to-read and easy-to-understand guide consisting of tips or tricks he recommends.

Nick Kolenda says that this extensive list of buyer quirks and strategies and how to exploit them offers as many as 29 ideas to help you master the “dark art” of pricing.

Charm pricing

You’re probably already familiar with the most common tactics that fall under the broad category of “charm pricing” according to Nick Kolenda. That’s using prices ending in .99. But these are not the only prices that are unusually (and irrationally) attractive to customers. Kolenda offers plenty of other tricks, like avoiding ending with .99 for emotional purchases and using round numbers instead.

– Round prices (for example, USD 100) are easier to process. A price of USD 98.76? Not as easy – explains the author.

Can one choice generate more sales? Researchers think so. According to Kolenda, researchers Wadhwa and Zhang (2015) found that round prices work better for emotional purchases because they are easier to process. When consumers can process the price quickly, it “simply feels right” to them, concludes Kolenda, although he includes a big caveat in the text.

Fewer syllables in prices

Another tactic: choose prices that have fewer syllables when spoken out loud.

– Our brain uses more resources to process phonetically longer prices which triggers the fluency effect. Since we spend more mental resources, we mistakenly conclude that those prices are higher – writes Kolenda.

You might think that this suggestion doesn’t make sense because when you see the price you don’t say it out loud. You just read it.

– I do the same – Kolenda answers this and adds – But, according to research, that is not important.

Adjust the price

In addition to our strange attraction to certain numbers and aversion to others, buyers are also deeply influenced by the context in which they see the price. Kolenda uses this fact for a number of effective pricing strategies.

For example, shipping and handling charges should always be separate.

– When you use “split pricing” (breaking the total cost into multiple components), you turn the customers’ attention on the base price instead of the total cost. When they’re comparing your price to the reference price, they’re more likely to include your base price into the comparison – he explains.

Some other psychological tricks

Try to “rephrase” the price to its daily equivalent (e.g. USD 0.87 per day). You should still keep the regular price in focus, just mention the equivalent daily price along the way.

For even more complex psychological reasons, using smaller fonts and physically placing the price to the left (say, on a website) can make it appear lower.

If your target group is men, always write the prices in red. For men, the color red is associated with savings.

Reduce the fonts representing currency (dollars, euros, dinars).

If you offer products and their prices in menus, arrange them from higher to lower. This is proven to increase revenue.

Make a space between the old and reduced price, because this space psychologically signifies a numerical difference as well.

Help customers imagine they’re getting more by paying less. Separate the “What you get” and “What you pay” sections so that the field where you present what customers get is always larger than the price field.

Nick Kolenda

guide to the psychology of pricing

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how to form prices

charm pricing

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