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We are diving into what I think is a fascinating topic today – the psychology of pricing! When it comes to psychological pricing, all that really is is a strategy that considers our psychology and our cognitive biases to influence a potential customers perception and purchasing behaviour. Because when it comes to pricing we all have cognitive biases whether we’re aware of them or not so why not tap into that and leverage it for our business.

I want to get into this today and really break it down so that we can have a better understanding of how this can influence the way we structure our packages and products. We’ll cover how our emotions also play a role in purchasing.

Emotion and rationalisation

Okay so first of all, have you ever noticed how no matter what, we can rationalise a purchase. I know I sure can. Us humans tend to make buying decisions emotionally rather than rationally. The thing is, we think that we’re being rational and logical but in reality there are emotions at play beneath the surface that are driving our purchasing behaviour. When we really want something, we’ll use “logic” to rationalise it but the truth is we buy things because of the way we think it will make us FEEL.

This is usually happening at the subconscious level. So the takeaway here is that our emotions can heavily influence what we buy and how much we’re willing to pay for it. With that in mind, it’s worth considering that our pricing AND our brand itself influence how a person feels when they engage with us. Because in case you haven’t heard, pricing IS branding! At least a big part of it anyway.

Now, I said I was going to get into psychological pricing and I am but I just really wanted to introduce the emotional side of it first. So psychological pricing is a pricing strategy and it’s about pricing things in a way that can spark a subconscious response from the buyer.

I will caveat this by saying that using pricing psychology is not about tricking our clients into booking us. There is no trickery involved. The way I see it is that we can use this strategy to present our offerings to them in a way that simply allows them to make a decision, in a way that informs them and helps them to get what they want. We are essentially creating a container for them in which they can make a decision. 

So here are seven really practical ways that we can use this psychological approach in our pricing:

1. Charm pricing

We all know this one, it means pricing our services and products just below a whole number. Think $9.99 instead of $10. This creates the illusion of a lower price because of something called ‘left-digit bias” which is when we are disproportionately influenced by the left most digit of the product price.

Think about sales promotions, cheap stuff often has $0.99 on the end, and I don’t know about you but I do not see my photography services as cheap stuff and I certainly don’t want my potential couples to see my services as cheap either. Charm pricing works well for those who want to give the impression of a deal, but it doesn’t work well for luxury items. And let’s face it, hiring a photographer is a luxury so that’s a really good one to keep in mind.

2. Odd-Even pricing

Odd pricing refers to a price ending in 1, 3, 5, 7 or 9 and even pricing ends in a whole number or tenths, like $20 or $20.50). Odd pricing also tends to convey a deal like charm pricing while luxury brands tend to use even pricing. If you look at pricing for the dollar store and Nike you’ll notice that the dollar store uses a mixture of odd and charm pricing like $5.99 while Nike uses even pricing like $180. When Nike has a sale though, they’ll use charm or odd pricing, like $89.97.

Odd and even pricing can help create the perception of a deal or of luxury. Note I used the word perception. So when considering our own ideal client, are we wanting to attract more luxury clients? Would they be more influenced by the idea of a bargain or the idea of high quality? I think you get the point here.

3. Decoy pricing

By introducing a slightly more expensive alternative, we can make our preferred option appear more attractive. For us photographers this is usually our highest package with allllll the bells and whistles. It’s wonderful when clients book this but in my experience much of the time they’ll likely go for the middle package.

I really don’t love using the term decoy here as to me that implies some kind of manipulation but that’s what it’s known as. Besides, wouldn’t our highest package be our preferred option anyway, it’s not that we’re trying to direct them away from our highest package, we’re just providing options to allow them to make a comparison and a decision that suits them. 

4. Price anchoring

Speaking of a more expensive option this brings me to price anchoring. I love this one, it works really well for us photographers who usually have a tiered pricing model.

Anchoring is when we present the highest option first and there is a great reason for doing this. Let’s say for example that you present 3 packages to a couple, $8K, $6.5K and $5K. The highest package should always appear first, and the least expensive one should appear last. That’s because our brains are comparison machines.

Our brains will always compare things relative to the first information that it’s presented with – this becomes the anchor that all subsequent information is compared to.

So if we did that example in reverse and presented the $5K option first, well RELATIVE to $5K, our brains are going to compute that $6.5K is more expensive. But when $8K is presented first, the second option of $6.5K is then sounding a whole lot more reasonable. So we can help direct couples to our preferred pricing tier and help them make an easy decision by using price anchoring.

There’s a really interesting book about cognitive biases and price anchoring written by Dan Ariely called Predictably Irrational. Great read in regards to pricing and also just in general to understand more about how our minds work and how we make decisions, I’ll link it in the show notes if you want to dive deeper with it.

5. Price appearance

This one goes without saying but all it means is that high quality design and branding can justify higher prices by enhancing the PERCEIVED value of something. Purchasing decisions are driven by the perceived cost.

6. Time constraints

This is when we put some kind of time constraint on our offers to create a sense of urgency and prompt them to make quicker decisions. You’ll often find that when you receive quotes from suppliers when you’re looking to make some kind of purchase that they’ll say their quotes are valid for a week. And we can do the same. When we send our proposal I call it rather than a quote, we can put a time constraint on it too. Which is a very practical thing to do too because we need to manage all our bookings and we need to know if a date is going to be available or not.

7. Innumeracy

Buyers often struggle with complex numerical comparisons. Keeping the options simple can lead to quicker decisions.

I remember once when I was looking for a photographer for myself I was looking at her options and they were presented in a way that was soooo complex. She had a base price and then allllll these different options that I had to look at and choose from, so basically I had to build my own package. But it was like looking at a very long list of ingredients and then trying to decide what meal I wanted to make. I was so overwhelmed and unable to make a decision because of the higher cognitive load and decision fatigue from all the choices presented that I did NOT make a decision. I moved on to my next option which was a different photographer.

Note also that I didn’t go back to that photographer and ask her to help me understand her pricing. I didn’t ask her to recommend which option I should go for, I simply moved on.

Which goes back to what I said in the beginning. To truly serve our clients and our potential clients before we even get the job we can present the options to them in a way that helps them and makes it as easy as possible for them to get exactly what they want.

Seven tips and tactics to improve your pricing strategy:

1. Use only whole numbers to create the perception of luxury, avoid using 99 on the end
2. Use pricing that ends in an even number or tenths, like $6800
3. Make sure you include a higher package that includes all the bells and whistles
4. Always anchor you pricing by presenting the highest option first
5. Your branding and design can justify higher prices, is it maybe time for a branding review?
6. When you send proposals put an expiry date on them, create that container in which a decision can be made
7. And lastly, keep it super simple with just a few options to make it easy for them to decide. I have found three package options to be a great sweet spot.

I hope you have enjoyed today’s episode and that you will implement at least one of these tips before you send off that next proposal. Start taking ACTION! That’s the key here, listening to the episode is one thing but it’s only going to help your sales process if you take action. So go do it! Thank you so much for listening, I’ll catch you again next week.

Resources Mentioned:

• Predictably Irrational by Dan Ariely – a deep dive into cognitive biases and pricing
• My personal Wealth Dashboard