8 Pricing Psychology Facts You Need to Know - Brain Driven Brands

Summary5 min read

Brain Driven Brands – Episode 8: Pricing Psychology Facts You Need to Know

Release Date: November 7, 2024
Host: Sarah Levinger

In Episode 8 of Brain Driven Brands, host Sarah Levinger delves deep into the intricate world of pricing psychology, unveiling eight critical facts that every marketer and e-commerce brand should understand before implementing discount strategies. Drawing from extensive studies and the insightful Handbook on the Psychology of Pricing by Dr. Marcus Hussman Kopetzky, Sarah equips listeners with actionable tactics to optimize pricing, boost sales, and enhance consumer engagement.

Introduction

Sarah begins the episode by emphasizing the paramount importance of psychology in marketing. She asserts that while marketing trends may fluctuate, human psychology and behavior remain relatively stable, making it a reliable lever for business strategies.

[00:00:45] "Out of everything that changes in marketing, human psychology and human behavior usually does not. At least not very quickly."

She highlights the overwhelming response from a previous episode on pricing psychology, setting the stage for a comprehensive exploration of the topic during the Black Friday discount frenzy.

1. The Power of Price Endings

Key Insight: The way a price ends significantly influences consumer perception and sales performance.

Sarah challenges the conventional wisdom that prices should end in 7 or 9. Instead, she presents studies indicating:

Low-Priced Products (<$100): Perform better when ending in .99 (e.g., $19.99).
Higher-Priced Products: Sell better when ending in .95 (e.g., $199.95).

[00:03:50] "Low price products actually sell better if they end in 99... Higher price products tend to do better if they ended in 95."

These findings suggest that tailoring price endings based on product price tiers can enhance sales effectiveness.

2. Mental Difference Between Form and Function

Key Insight: The psychological impact of pricing varies based on whether a product is utilitarian or hedonic.

Sarah differentiates between:

Hedonic (Pleasure-Focused) Products: Items like chocolates or games benefit from round prices (e.g., $47).
Utilitarian (Function-Focused) Products: Items like supplements or tools perform better with fractional prices (e.g., $32.95).

[00:06:20] "If you're selling pleasure-focused products... tend to sell better at round prices."

This distinction ensures that pricing aligns with the intrinsic value and consumer perception of the product type.

3. People Think of Themselves a Lot

Key Insight: Personalized pricing can enhance perceived value and engagement.

Sarah reveals that consumers respond more favorably to prices that resonate personally, such as aligning with their birth year or birthday.

[00:09:15] "If the price matches their birth year or their birthday, they will just psychologically be drawn to that price a lot more."

Implementing personalized pricing strategies, like birthday discounts, can foster a deeper connection between the consumer and the product, thereby increasing conversions.

4. The Left Number is Critical

Key Insight: The first digit of a price significantly influences overall price perception.

Sarah explains that for multi-digit prices:

First Digits <5: Perceived as a better deal (e.g., $109 feels more appealing than $199).

[00:12:40] "The number on the left is the most important number. Prices that start with numbers lower than five tend to be interpreted as kind of a better deal."

This principle is crucial when adjusting prices around significant thresholds (e.g., moving from $199 to $209), as the initial digit sets the consumer's perception of value.

5. Similar Products Should Never Have Similar Prices

Key Insight: Differentiating prices among similar yet distinct products enhances consumer decision-making and boosts conversions.

Sarah advises against pricing similar products uniformly, even with minor differences. Instead, slight price variations can help consumers discern value differences.

[00:16:30] "Similar products should never have similar prices... that small shift in price for slightly different products can increase conversion rate by up to 77%."

This strategy leverages the consumer's natural tendency to evaluate and choose based on perceived value discrepancies.

6. Font Size Influences Price Perception

Key Insight: The presentation of price, particularly font size and weight, affects how consumers perceive its value.

Sarah discusses how smaller and lighter fonts can make prices appear less daunting, even if the actual value remains unchanged or is higher.

[00:20:10] "Smaller font sizes and weights help customers perceive the price as smaller... the brain will perceive it as smaller than it actually is."

Brands can strategically use font variations in pricing to influence consumer perception subtly, enhancing affordability and attractiveness.

7. Color Sensitivity in Pricing for Men

Key Insight: Color usage in pricing can differently affect male consumers' perception of discounts.

Sarah highlights that:

Red Prices: Increase perceived savings among men.
Black Prices: Do not elicit the same level of value perception.

[00:23:00] "If the price is in red, most men will rate the perceived savings of a product higher than if it's in black."

For brands targeting a male demographic, incorporating red in discount pricing can amplify the attractiveness of deals.

8. Sensible Sales and Logical Discounts

Key Insight: Logical and easy-to-process discount prices lead to higher conversion rates.

Sarah emphasizes the importance of ensuring that discounted prices make mathematical sense, avoiding confusing or illogical reductions that burden consumers with unnecessary mental calculations.

[00:26:45] "Make sure that whatever the original price was matches whatever the discount is now. So if you're going to do discounts, make sure that the discount price makes logical sense on a mathematical level."

Clear and straightforward discount structures facilitate quicker decision-making, enhancing the likelihood of purchase.

Conclusion

Sarah wraps up the episode by reiterating the significance of understanding and applying pricing psychology in business strategies. She encourages listeners to engage with her for further insights and offers resources like the NLP report to identify core consumer emotions during the purchasing process.

[00:32:10] "Emotions are how we make decisions. It's how we actually go about and make consumption purchases like in our life."

By leveraging these eight pricing psychology facts, brands can craft more effective pricing strategies that resonate with consumers on a psychological level, leading to reduced costs, increased sales, and broader market appeal.

Additional Resources:

Book Mentioned: Handbook on the Psychology of Pricing by Dr. Marcus Hussman Kopetzky. Available on Amazon and linked in the show notes.
Connect with Sarah Levinger:
- Twitter: @sarahlevinger
- LinkedIn: SarahLevinger
NLP Report: For brands interested in identifying core emotions during the purchasing process, contact Sarah via her social media channels.

Thank you for tuning into Episode 8 of Brain Driven Brands. Equip your brand with these psychological insights and transform your pricing strategies today!

Loading summary

Transcript1 lines

[00:04]
Sarah Levenger
Welcome back to the podcast. So, like I said, I feel like I need a better intro other than just welcome. Hi, I'm Sarah. This is my podcast. If you don't know me, I am Sarah Levenger. I use psychology to help D2C brands and really brands in B2B, SaaS and everywhere else use psychology to decrease cost on their advertising, boost sales, and really just captivate the masses in general. Mostly because out of everything that changes in marketing, human psychology and human behavior usually does not. At least not very quickly. So this is the reason why I prioritize psychology over everything else, because it's the only lever in business that we have that is applicable to every market and every consumer and every single person on the planet. So today I have yet another very interesting study to bring you guys, actually a few different studies to bring you guys specifically about price. I did a a podcast I don't even know a couple weeks ago with Nate, my co host, about pricing psychology. And I can't tell you how popular that one was. People like, were coming out in droves in the dms, all over the place, just like, please do more about pricing psychology. So we're going to do one all about pricing psychology today. This is the eight biggest pricing psychology facts that you need to know before you start discounting. And I say that specifically because we are in discounting, period. It is Black Friday. Here we go. Everybody's going to be throwing discounts into the ecosystem. And I don't think marketers quite understand how much power we actually have over consumer decisions, specifically when it comes to our pricing. So let's talk about these 8 pricing psychology facts that you need to know before you start discounting. The very first one is I one that I just can't get enough of. The ending, the ending of prices matters so incredibly much. And I know that, you know, as a marketer, if you're listening to this episode, you already know 7 and 9. Very crazy important. It's big. Everybody uses them. We know that things have to end in a seven or a nine. I'm going to show you a few different studies that are actually debunking this particular thought process around ending your prices in seven or nine. But for this first psychology fact, it's pretty important to realize that studies have actually shown low price products actually sell better if they end in 99. So low price meaning like anything probably under $100 and then higher price products sell better if they ended in 95, which I thought was really interesting. And just to wrap this back all of these different studies are actually coming out of a book that I was reading and do read a couple times a year actually called the Hand Back the Handbook on the Psychology of pricing. It's by Dr. Marcus Hussman Kopetzky, Dr. Marcus Hume Hussman Kopetzki. You can look it up on Amazon if you want or I'll put it in the show notes for you. But this is. But all of these different studies were referenced in his particular book. Fantastic resource. I couldn't get enough of it. Like just couldn't put this book down. So very first fact that you need to know that low, low price products really sell better if they end with that 99. Higher price products tend to do better if they end in 95. Fact number two, there's a large mental difference between form and function when it comes to pricing. And this is all, I can't get enough of the psychology behind this one huge mental difference between prices that are attached to utilitarian products and prices that are attached to like pleasure focus or what we call hedonic products, right? So products built for pleasure, we're talking like chocolate, right? Things that are just, they're just nice to have as compared to things that are built for a purpose, like wrenches. Adding different prices to these things will do drastically different things to the consumer behavior. So specifically when it comes to products built for pleasure, right, Those tend to sell better at round prices. So for instance, use a 47 price instead of a 47.99 if you're selling pleasure focused products, right? Chocolates though, like is what we're talking about, right? Anything that, that is just for funsies. Basically the opposite though is true for utilitarian products. So you want to price your utilitarian product, you know, supplements, those type of things at 32.95 instead of just 32. And this is because the brain kind of attaches these like dollars and cents kind of psychology to whether or not this product is actually usable, right? So like I said, if you're, if you're selling supplements, it's actually better to add some sort of a change onto the end of it than if you're selling something that's just for the fun of it. For instance, like card games or things like that, round hole numbers, those type of things. So that's number two, Number three, pricing psychology facts. Number three, we gotta know this before we start discounting and setting prices for our particular products. Number three, people think of themselves a lot. This is really weird psychology fact. And I, I just love that this one's even a thing. But people actually view prices that remind them of themselves in kind of a better light than if the prices are chosen at random. So great example of this good tactic to use. If the price matches their birth year or their birthday, they will just psychologically be drawn to that price a lot more. So this is the reason why a lot of times, if you're going to run any sort of like loyalty programs inside your brand or inside your company, your business, it's very smart, prudent of you to make sure that you're sending out these loyalty prices based upon these people's birth dates. Now, I realize that that's difficult because everybody has a different birthday, but it would be fascinating if you could generate any sort of like coupon or a discount that specifically goes to that particular person's birthday. So if they were born on April 1, 1988, or whatever it was, let's do a price that's $19.88, right? Or specifically, I mean, if you have a high price product, $1,988. Right. Doing this just helps people attach their own identity to your product and will increase conversions and engagement over time just based upon the fact that people think about themselves a lot. So that's number three. Number four. This is massive. Key. If you take nothing else from this podcast, please take this. The left number is the most important number. The number on the left is the most important number. Prices that start with numbers lower than five tend to be interpreted as kind of a better deal, right? So any, any number that, that is on the left hand side, the very first number that they're going to read is going to inform them about what they should believe about the rest of the numbers in the sequence, right? So it's especially true for prices that are three or more digits long. If you have a price that's 109, that one is going to inform them. Should I basically, should I accept the. The rest of the sequence of numbers? Right? So this is especially true when I start working with brands who are trying to decide we have a product that's priced at 199 and we would like to bump it up above 200. How should we do that so the consumers don't just like hate us in general, right? Because a 199 is very different than a 209. Right. In that particular case, I'm prioritizing that left number. Right? One, no matter what, if you, if you increase the price just by bumping it up to that, two is going to create some sort of a barrier, right? It's going to create kind of like this, like, I don't know that I want to pay 200 for this. Even if it's just a ten dollar difference, the brain is going to attach the value onto the first number it reads, which is the one on the left. So, so make sure if you're going to be increasing or decreasing your prices above that $100 threshold, you, you've got to be so, so careful about how you change those numbers because that left number is going to be the very first thing that they're going to judge the price based on. Hopefully that makes sense. Fact number five, similar products should never have similar prices. And I kind of love this one. Now, I'm not talking about similar skus, right? So if you sell sweatshirts for a living and you have like, you know, a red, blue, green one, those are all, they can all be different skus, but they're the exact same product. I'm talking about similar products, not the exact same product. So we should never price similar items with the same price, even if they're like minimally different. Make those prices like at least slightly different so that people can make a judgment call as to whether or not these products are actually different. Right? Right. So even a small shift in price for like slightly different products can increase conversion rate by up to 77% according to this particular study. And again, if you want to read all of this stuff, this is coming from the Handbook of Psychology of Price by Dr. Marcus Huseman Kopetzky. I always have to reference that because people keep asking, like, Sarah, what's the book? It's the Handbook on Psychology of Price. So this number five one was really interesting though, because I see a lot of brands take different, different, like not SKUs, but like different products that are like a little bit slightly different, maybe different flavors or like maybe just slightly different. I don't know, like bells and whistles to it. Like, I don't know, not for bundles in particular, but any product that's just like a little bit different than the ones next to it, and they try and price everything the same just based upon the fact that it costs them the same to make it. I disagree with this. Based upon these studies, make sure that even if it's a minimal difference in production type, things should have different prices based upon value. Right? Based upon how they value it differently. So fact number six, we're almost there. Font size, kids. Font size matters. And I think people are going to think I'm Nuts about this one, but I've seen this anecdotally and in studies and in this book. The interpretation of a price and value is heavily influenced by how large the price is presented. This is the weirdest thing that humans do when it comes to processing price. But it's everywhere. Every time I use this particular psychology tactic, it works every time. So smaller font sizes and weights help customers perceive the price as smaller. Right? Even if the price is higher than it actually the, like the actual original price or the discounted price, whatever it is, even if it's a high price, high cost, if it's presented with a thin font or a small font, the brain will perceive it as smaller than it actually is. And I've actually seen this in a few DTC ads where the brand will have the price of like competitors. Specifically, Billy does this a lot with their razors. So they'll have the competitor's price of $10, and it's big, bold, chunky text. And they'll cross that out and then next to it, they'll put their price, which is usually like the five to eight dollar range. And their price is very thin font, very small font. Use this and test it, because I can't tell you how ridiculous it is. Humans are so incredibly sensitive to the strangest things. And this one in particular is so easy to implement everywhere across your site, everywhere in your ads. Just make the font size smaller. Okay, so number seven. This is a weird one. No offense to all the dudes out there, but you guys are so sensitive to the most interesting things. If you're a dude, if you're a male, you're more likely to be affected by the color red when it comes to discounts. So studies have shown that when the price is in red, most men will. Will rate the perceived savings of a product higher than if it's in black. So if the, if the discount price is shown in red, most guys are going to say that's a good value. If the same price is. Is listed in black, most men are going to say that's not a, that's not a good enough discount for me. Now, oddly enough, they've done this study on both children and women, and it doesn't seem to affect us the same as it does for guys. So if you're running a brand and you would like guys to perceive your discounts at like a higher value, you want them to value that more, just change them to red. Change the discount price to red. Not the original price, the discount price. Last one on here. And I Think this is very important because we're just running straight into Black Friday. We're almost to the point, we're going to start running our ads. We're almost to the point, hopefully that you guys, everybody has their discounts and Black Friday Bund built. But if you don't, and if you absolutely have to discount, if you have to use a discount, which I don't suggest you do, discounts drive me a little crazy because there's so many other ways to create psychological value. But if you have to know that sensible sales have better conversion rates, right? Consumers are more likely to buy things when the original number of the sale is related to the discount, right? So the easier it is to do that mental math, the larger the perceived value difference. So I want you guys to remember, when you are doing any sort of discount focused sales, make sure that whatever the original price was matches whatever the discount is now. So I see a lot of these, these discounts that drive me absolutely crazy where the original price was 82 and then the discount price is like 64 or 67 or it's just like the mental math makes no sense. So good rule of thumb for if you're going to do discounts and you start at 82, I want you to drop it to like 62 or 52 or 72. Don't make your consumers do more mental math than they could possibly handle because it just, it's so incredibly hard for the brain to decide whether that's a valuable discount or not. So if you're going to do discounts, make sure that the discount price makes logical sense on a mathematical level. Which, again, I talk a lot about emotions everywhere on Twitter, on LinkedIn, here on my podcast. Emotions are how we make decisions. It's how we actually go about and make consumption purchases like in our life. But at the end of the day, there are some things that the brain just needs to be easy and logical and especially when it comes to prices, this is incredibly important. So that's what I got for you guys today. Hopefully you enjoyed this one. I love talking about price. Like, if you guys want to talk more about this, please let me know. Like and share. Subscribe. It would really help out the channel and the podcast. I don't have sponsors. I do this because it's fun and because producer Scotty tells me that I'm, I'm building something great. And thanks you to producer Scotty. Hopefully I'm doing a good job. But in general, if you want to follow me and learn more about pricing, psychology and how to use psychology in your business and your brand, you can go to Twitter. I'm eralevenger at SarahLevinger on LinkedIn as well. And if you guys want to learn how to actually, like, inject emotion into your advertising, in particular, I run something called an NLP report. It's natural language processing. Helps the brand identify the top three core emotions that your audience feels during the purchasing process, not after it, which is what post purchase surveys usually do. These are the emotions that are coming out during. And based on that information, we can start to generate ads that are actually going to be lower in cost, higher in conversions, and just higher performers, longer performers overall. So if you guys are interested in running an NLP report this year for your brand, go to Aralevinger and hit me up on the DMs. Otherwise, have a great week. Oh God, I feel like I talk way too fast. I need to slow down. I get super excited and I can't stop. Thanks, Scotty. The Brain Driven Brands podcast is part of the Learn and Laugh series on the Quickfire Podcast Network.