← The Brainy Business | Understanding the Psychology of Why People Buy | Behavioral Economics
The Brainy Business | Understanding the Psychology of Why People Buy | Behavioral Economics
484. The Psychology of Pricing: Framing with Numbers
00:28:58
In this episode of The Brainy Business podcast, Melina Palmer revisits the fascinating concept of framing with numbers. She explores how the presentation of numerical information can significantly influence decision-making and consumer behavior....
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- [00:01]
Melina Palmer
Have you ever wished you had more influence at work? That people would naturally be more likely to buy in on whatever idea you're selling them, whether they report to you or not? Well, you're in luck. I teach a virtual 10 week class on internal Communication and Change Management through Texas A and M University and it's enrolling now. Get details and enroll at HBL Tamu Edu and click on Certificate Program. You get to learn directly from me, including live virtual office hours over zoom with a cohort of interested brainy folks like you from around the world. Again, learn more and enroll in the internal communication and change management course at HBL TAMU EDU. That's HBL like Human Behavior Lab, DOT TAMU like Texas A&M University EDU and.
- [01:00]
Unknown
Click on Certificate Program.
- [01:02]
Melina Palmer
Your future self will thank you and when you're ready, enjoy the show. Welcome to episode 484 of the Brainy Business Understanding the Psychology of why People Buy Today's episode is all about framing with numbers. Ready? Let's get started.
- [01:24]
Unknown
You are listening to the Brainy Business Podcast where we dig into the psychology of why people buy and help you incorporate behavioral economics into your business business, making it more brain friendly. Now here's your host, Melina Palmer.
- [01:40]
Melina Palmer
Hello. Hello everyone. My name is Melina Palmer and I want to welcome you to the Brainy Business Podcast. Welcome to Framing Week. I love framing and I'm so excited to refresh this episode today which was originally episode 17 of the podcast and we're talking about unlocking the power of numbers by testing out different frames. While numbers aren't the only frames out there, they are a great place to start because they give you something concrete to begin with. You can dig into data in a way that lets you flip things around and make little shifts that can make all the difference when it comes to getting others to buy in. I won't share too much about it now since that's what the whole episode is about, but definitely be ready to take some notes and feel free to pause and grab some of your own data or past ads or emails or anything else to find some real world case studies from your own business to try practicing reframing with. It's going to be fun. Now, if you're wondering why I'm refreshing this episode today, it is because of my guest on the next episode, Mikhail Klintman, who recently wrote a book called Framing. While it is not specifically about framing with numbers, it was still a great opportunity to get you warmed up and and excited about the concept before that episode comes out in a couple days. If you aren't already subscribed to the Brainy Business podcast, now is a great time to do so. To ensure you don't miss that or any other episode, don't forget links for my top related past episodes and books are waiting for you in the show. Notes for this episode, which are found within the app you're listening to and@the brainybusiness.com 484 all right, let's talk about framing with numbers.
- [03:30]
Unknown
Here's a little refresher on framing and how it works. Essentially, the way you say something is often more important than what you're actually saying. This ties back to loss aversion, which was the focus of episode nine, where framing something as a loss means someone is twice as likely to take action than when the exact same thing thing is framed as a gain. And it doesn't mean you need to use different statistics to get the point across. Simply flipping it around can have a big impact. A common example I give on this is if you were shopping for yogurt or ground beef or turkey, you're more likely to buy it when it's listed as 90% fat free than if it's listed at 10% fat that obviously it's two sides of the same statistical coin saying the same thing, but the subconscious brain focuses on and takes action very differently from one presentation to the next. So what does this mean for your business? As I mentioned at the top of the episode, I get asked about pricing strategy a lot, which makes sense considering this podcast is called the Brainy Business. Understanding the Psychology of why People Buy Pricing gets into that. Hopefully you've already listened to the very popular episode 5 the Truth About Pricing, which was the first episode in the It's not about the Cookie series. I didn't get into this too much on that episode because as I say there pricing is not about the price or what you're selling. All the things leading up to the price matter more than the number itself. Still, because this is one of the most common questions I get asked, I want to be able to have something to reference back to for people and make it really easy to answer this question and so you can share the information and that I can let you know my stance on this. I tend to get asked this question about pricing in three different ways and I'm going to go ahead and line them all out for you and then give you my answer to each one. The first question that I get asked a lot is is it really better to end something in 99 than rounding up to the nearest dollar or 100 or thousand or whatever. The next question is, should my prices end in 99 or. Or 97? And finally, should I have a random but interesting number instead, like $456.78? Okay, I'm going to break it down one by one. I'm going to answer each of these questions for you that have probably been burning in your brain, because like I said, I get asked them all the time. Okay. First, in General, on the 99 versus the full dollar question, it's better to round down. However, the main reason this works is because you're bringing down the first number in a whole digit, meaning 599 looks better than 600 because the first digit is now a 5 instead of a 6. And there's some psychology behind our lazy brains not making it all the way to the end of the number. So even though 599 is much closer to 600, your brain kind of stops after that 5 and assumes it's in the $500 realm versus in the $600 realm. This tends to have less impact when you get into middle numbers dropping down. So if instead of having a price be 2500, you were to bring it down to 24.99, it's not going to have as much of an effect as the 600 to 599, because the 4, which is kind of wedged between a bunch of numbers, there is what's coming down, and you're still starting with a $2,000 front price point. It can still be better to bump down, but it might not pack quite as much of a punch when it's in the middle of a number like that. However, consistency is key. So if you have your prices all listed out and you're explaining them to someone, or you have them on a site and you list them like one on top of the next, and you were to say it's 399, 499, 999, and 2500. It's just weird. And it's gonna throw people off more than anything, which is going to flag the conscious brain and make them evaluate all the prices differently than they would have otherwise. Then people might get more hung up on that strange transition, have their brain get overwhelmed, and be less likely to take any action at all. So if you pick a number in that sort of ending or a strategy for your pricing, just stick with it and keep it consistent. This is less of a concern, though, if you don't List out all your prices together or you have different segments you market to. For example, if you have some packages that are on your website that are all, say under a thousand dollars, but then you do in person sessions that are in the multi thousands, or you have packages that are at whole numbers, you know, you can kind of play around with that. But just the. At the basic level, keeping consistent is always more valuable than not. So for your own peace of mind, it might be worth keeping it the same too. I mean, you could go through and test if you had one segment all ending in round numbers and one segment where they were all less and you wanted to see if they did better, but that's likely to get your brain confused and you might misquote people and it's just a bad experience. So consistency, as in so many other areas of our lives, is really key in this setup. Okay, next is the great debate of 99 versus 97 or even 95. So this would be the question of, you know, we already answered, should you price at 500 or 499? And then now would be once you know you're going to round down, should it be 499 or 497 or maybe 495? Unfortunately, if you do the research, go looking around, there really isn't a conclusive answer here. Nothing that would definitively say that one number is always best. In general, any of them will typically convert better than the rounded zero because of the first digit difference that I talked about already. I of course, have an example at the end of this section about a time where you would want to use the zero. But hold on, we'll get there in a second. Okay, because as you've heard me say many times before, on many episodes, everything leading up to the pricing matters more than the number itself. I'm going to say it again. It doesn't really matter if you're 99 or 97 or 95. Pick one that you like and stick with it. One study claims that the seven sold a little better than nine and a lot better than five. Some people swear by ending in nine. No one has done enough research to have a conclusive and definitive answer. And as I've said, and I'm going to get into this example in a second, the framing matters and makes a difference in which time you want to use, which type of pricing or number. For me, I use nines in my pricing. Many of my friends have sevens. Do with that what you will. The last question I get fairly often in pricing is about using totally random and sometimes interesting numbers. So this would mean instead of pricing something at 5,000 or 4,600 or even then bumping down to 4,599, you, you would instead price it at $4,567.89. And in case you heard that number and thought that's a long number, you might not have realized that when you look at that number it reads 4, 5, 6, 7, 8, 9. So the reason that this could work is this is something that's more likely to make someone stop and say what? And that can be good. If you're trying to disrupt a set buying cycle. This gets into habitual buying, which is going to be the focus of an upcoming foundations episode. But in general, 95% of purchases are considered to be habitual. And if you are the thing being bought habitually, you do not want to upset the process. So if you're the market leader or you have somebody that's consistently buying from you, you don't want to put weird numbers like that out into the world because it's going to make them shake things up. You're going to kind of buck their trend. However, if there is a very well established or set market leader and you're trying to compete against them and get somebody to notice you if you're new to a market or in a different space than you've been before, before having a weird number, whether it's $4,567.89 or someone when I was just in Arkansas asked a question about pricing that was they said they did something with photos and the pricing was 13, 25, 28 or I don't know, weird numbers, but not in a sequential setup like for the 4, 5, 6, 1. If you're trying to again buck the system, that can be helpful. If you're not, it could actually do more harm than good. And that helps lead into why all of this is relevant on this number framing episode. There was a study that was done a couple years ago in the Journal of Consumer Research called this number number just feels right. And of course there's a link in the show notes they did some research into pricing of round numbers versus odd ended numbers. And the study found that luxury pricing or other things that are bought on emotion like a bottle of champagne sold better when they were priced at an even $40 instead of being 39.72 or 40 28, which you know, makes sense because essentially the discount that whether it's 99 or 97 or 72 in this case makes your brain trigger to think it's going to be a deal. And if you're buying something that's more of a luxury item or you're buying on emotion, you want that higher quality and you don't want to have this idea of it being at a discount. Another experiment looked at pricing for a camera. In this case, one group was told that it was being purchased for a family vacation and the other was told it was for a class project. The participants favored the rounded prices for leisure and luxury, emotional purchase of a vacation and the non rounded prices when they thought it was for a class project. Which is more functional or. Or you're looking for a deal. Again, exactly the same camera. But in this case the frame mattered. That's what this tells us. What is the mindset someone is in when they're going to buy from you? What do you offer and why are they going to use your product? Are you a high end luxury brand or trying to help people see your items as a deal? Those frames all matter more when picking your pricing than those specific numbers themselves. And this gets back to considering the ripples which I talked about last week and on episode eight, which was on change management, to use the frame terminology. Think of this as the customer's frame of reference. Where are they coming from? What matters to them? Use that to choose your price and pick one that helps you feel confident. Because as I have said in the it's not about the Cookie series and episode 13 on on mindset, confidence helps you sell and encourages people to buy. So that's your frame of reference. So picking a price you feel good about and you can say and be confident in is better than what everyone else says you should do. And similarly, understanding that frame of reference from your customer to help you feel confident in the way that you're going to present your pricing will have much more impact than going with a 7 versus a 9 for whatever arbitrary reason. Okay, enough about that. Let's move on to other statistics. You may think your business doesn't use statistics or that your clients don't care about them, but in reality, statistics and numbers are everywhere and they can be very persuasive when presented properly and actually very negatively persuasive when presented wrong. If you look around, you can see numbers in almost every advertisement out there. Four out of five dentists agree or kills. 99.9% of germs, or 95% would recommend to a friend. Or 87% of women saw results in six weeks and 99% saw results in six months. Once you start looking for them, you're gonna see numbers everywhere. Gas mileage on the highway versus in town or versus another car. That percentage of fat versus fat free 100% whole grain freshens breath three times better. Two times the cleaning power. I think you get the idea. So why have you not really noticed the sheer volume of them before? It's because your subconscious brain can easily make a choice when given these number frames. This helps incorporate a few other concepts, like relativity, which was the focus of episode 12. Numbers help your brain value things and make comparisons, which you know from that episode on. Relativity is something your brain really likes to do that helps it to make a decision without flagging your conscious brain. And if you remember that 99% of decisions are made subconsciously, you either make it easy on the brain so it can go with the flow, or you make it hard and shift into the conscious space, which is slow and more likely to get quickly overwhelmed. But like I said, if you're trying to disrupt the market or you're trying to interject into a habitual buying sequence, that could be worth doing. So your first step is to look for numbers in your business. You have them. And many would help people to do business with you, because people like to be part of the group. I've talked briefly about herding in previous episodes and it will have its own episode soon. And it is a big reason why framing in numbers matters. Here's an example. Let's say you're in a new city you've never visited and you want to know where to eat dinner. How do you decide? You could just wing it, hope for the best. But most people would not be happy with that scenario. These days. You probably turn to something like Yelp. Or if you're celiac like me, it's all about Find me gluten Free, which is both a website and an app. So you assume a lot of positive ratings mean something. And in many cases it helps. But what if all those people have different tastes than you? Or what if they are paid by the restaurant to give 5 star reviews? Or maybe they just have really low standards. If you're scrolling through and one restaurant has ten five star reviews and the other only has one, do you assume that one is better than the other? It might not be though. Maybe the second restaurant is brand new. Maybe the one with 10 reviews hasn't had any new reviews in the last month and they just changed owners or head chefs. The point is, you make an assumption based on the numbers you see and it sets your expectation and primes you for the experience, which is the topic of next week's episode. This happens because of our herding mentality. We assume other people know more and better than us and simply take their word for it. Before Yelp, you might have walked down the street to find a new restaurant, and if one was full and had a line and the one next door was empty, which one would you go to? Which would you assume was better? Of course, you know this is based on nothing at all. There could be a party at the busy location and maybe the other one just opened a minute earlier and it's going to have a huge line later on. Statistics like this work because people want to be like everyone else. Not in every way, but. But in many ways we do. You know, I'm all for uniqueness. I get it. We're all our own people. But as a species, we are conditioned to go with the herd. It's very deeply ingrained in who we are. It's about safety. It's about protecting ourselves. I've talked about this before. And again, herding will have its own episode. But trust me, this is why this works. So when should you use each type of number? The answer is of course it depends. And as with so many things I talk about on the podcast, it's a good idea to test for yourself. Try to flip and shift in as many ways as possible to see what sounds best and consider why something sounds better from one frame than another. And hint, hint, there's a free worksheet on the website@the brainybusiness.com 17 to help you with this. Here's an example for you. I was at a Mastermind a few months back. Biz chicks shout out again. And in that group I was talking about this topic, the Power of Numbers. I made an example of a statistic on the spot. I made it up as something to showcase what someone would want to look for in their own numbers. I said something like 87% of our customers renew their contracts or 87% of people would refer us to another friend or family member. Someone followed up with me after the Mastermind to ask about how she set this up in her business. So she did the work. She went and looked and found some of her own numbers and came back and said she she was going to use this statistic of 78% of customers get additional services. And I responded that she should change that to instead be 4 out of 5 customers get additional services. If you're anything like her, you might be wondering why I recommended the percentage for One and the out of for the other. So here's what I told her. 87% is a high percentage. It would round up to 90 easily, which is basically 100. The brain sees it as high. But 78% would only round up to 80, which sounds much lower. And 78% could be attributed to grades in many minds, which is a C and possibly close to failing, depending on your school. It just has negative connotations in the brain. You could also present the number as 8 out of 10, but with any fraction you want to round down to the lowest possible denominator, which leaves you with four out of five, which sounds much better than 78% or even 80%, even though it's exactly the same thing. There are many ways to present information in your business. For example, over half sounds better than 51%. And you don't have to stay within the strict realm of numbers. For example, most sounds better than 60%. And remember, the frame can also be flipped the other way. Consider the opposite side of each statement, because even though the subconscious might gloss over it, it might also dig in and try to figure out what is being said. For example, saying 87% of women saw results means that 13% didn't. And what about sales that are up to 75% off that can draw you in. We want a deal and your brain assumes it's a great sale. I mean, why would they put that out there if it's not? But there could only be one item at 75% off and maybe it's something terrible. Everything else is only 20% off the frame. Set your expectation. As a note, most retailers and businesses do not use predatory practices like I'm referencing here. While playing devil's advocate. And you definitely should not go within the predatory practices. I'm giving these extreme examples to help you to realize how often the human brain makes assumptions based on numbers and how changing them up can make a difference.
- [27:30]
Melina Palmer
So what got your brain buzzing as you learned about unlocking the power of number frames today? For me, I can't get enough of framing. There are always so many more options than you think there are. And then what most people try and the real winning frames are are beyond the obvious. Asking thoughtful questions is a great way to find new reframes. You might say, what if we couldn't share it this way? Or how would Apple talk about this? Or Costco or Walmart? It doesn't really matter. Try them all. Yes, today we focused on numbers, and that is a great place to start. And even when you're talking about numbers. There are words and emotions and stories behind those numbers that can be layered in or ramped up to help everything feel more compelling. Understand who you're talking to, what they're doing now, what you want them to.
- [28:24]
Unknown
Do, what numbers you have, what ones.
- [28:27]
Melina Palmer
You don't, but might be helpful. And then start playing around. What number frames are you going to try? Come share them with me on social media. I can't wait to hear about them. You'll find me as the brainy biz pretty much everywhere and as Melina Palmer on LinkedIn. And be sure to bring your notes from today when you tune into the Next Episode with Mikhail Klintman, where we discuss his new book, Framing and the four key elements he recommends you consider as you reframe texture, temperature, position and size.
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Unknown
What does that all mean?
- [29:02]
Melina Palmer
Tune in to the next episode to find out all about it as we close out the show. Don't forget about those show notes with links to my top related past episodes and books and more. It's all waiting for you in the app you're listening to and at the brainy business.com 484 and just like that, episode 484 on number framing is done. Join me Friday for a brand new episode with Dr. Mikhail Klintman, author of Framing. It's going to be a lot of fun. You don't want to miss it. Until then, thanks again for listening and learning with me. And remember to be thoughtful.
- [29:47]
Unknown
Thank you for listening to the Brainy Business podcast. Molina offers virtual strategy sessions, workshops and other services to help businesses be more brain friendly. For more free resources, visit thebrainybusiness.com sa.