By understanding the psychology of your consumers, their thought patterns and behavior, you can actually influence their purchasing decisions. In this week’s article, I will illustrate the remaining 2 out of 4 pricing strategies that you could use to increase sales and profit margins today.
Psychology Pricing Strategy #3: Use Bundles to Offer a “Bargain” to Consumers
Packaged deals are all around us; from the combo meals at McDonald’s to your cell phone plan. Do you know why this pricing strategy is used so often? It’s because consumers love deals! Packages, or bundles, are a great way to offer a “bargain” to your consumers.
If you think that you are above the rest of us deal lovers, take a look at this example:
It’s mid-January and you desperately want to escape Winter and you’re thinking of Punta Cana. Here are your options:
Option 1: Find a hotel on one website and a flight on another.
- 5 night stay in a hotel for $150/night or $750
- Round trip flight: $450
- TOTAL: $1,200
Option 2: Look at sites that bundle the hotel and flight together
- 5-night all inclusive (that means all you can eat and drink) + round trip flight
- TOTAL: $859
Which option looks more appealing? (Option 2!)
As a business owner, bundling also allows your consumers to try something that they normally wouldn’t, with the hope that they would come back for more. From our example, if Option 2 included 2 jet ski coupons and set the price to $1,000 (from $859), consumers who may never have been on jet skis would likely purchase the package for an opportunity to try at a steal.
Do companies actually make money from bundles?
The next time you go to any fast food chain or your local Tim Horton’s, notice the price difference between the individual items and the bundles. It is actually cheaper to buy 1 doughnut then 6 Tim Bits. It is also easier for Tim Horton’s to produce these Tim Bits than a doughnut. Yet, you pick the Tim Bits because you feel that 6 is just more and each are so cheap in comparison to a full-sized doughnut that you are getting a steal.
If you look at McDonald’s, the real “price” of that soda or french fry is the really about $1 each. You are actually penalized if you decide to only get a soda or french fries by paying a much higher price.
If you do decide to bundle, always keep your profit margins in mind.
Psychology Pricing Strategy #4: Increase Prices to Increase Sales
You’ve heard of lowering prices to increase sales, but what about increasing prices?
Social pyschologist, Robert Cialdinai, points out that for subjective products such as luxury goods or art, setting prices high can increase sales. In his book, Influence, he describes the true story of a local jewelry store owner who had been unsuccessfully trying to sell her turquoise jewelry. Setting the jewelry in central location and talking to consumers about it made no difference. Exasperated, the owner decided that she would get rid of those pieces, even at a loss. About to leave for a conference, she left her assistant a note about the jewelry that read, “put everything in this case times ½”. When the owner came back from the conference, she was surprised to see all her turquoise pieces were sold, not at a 50% discount, but at double the price (the assistant misunderstood the message).
This is a classic case to describe an aspect of consumer psychology, judgmental heuristic. Some buyers are not qualified to assess the product or services, in this case jewelry, and will use a mental shortcut to help them make their decisions. In this case, the shortcut is expensive equals good.
That’s all for pricing strategies for now. Happy pricing!