Your price points and structures may be impacting purchase decisions more than you might think. If you’re struggling to gain customers and, more importantly, keep them — read this!
Of course: Your level of service, the quality of experience you offer and many other emotion-driven factors come into play...
But pricing has massive psychological impact.
Ignore this critical aspect of business at your peril.
Pricing affects immediate AND longer-term opinions formed around your brand. It changes how customers feel — and ultimately has the power to equal business success or failure.
I’m going to show you some super-easy yet ingenious tactics to price your products and services the right way…
Pricing strategies that encourage maximum retention.
Retention is the (not-so) secret of every thriving brand that ever existed…
“Just a 5% increase in customer retention can boost profits by as much as 125%.” (Source: HubSpot)
That said: Don’t delay in adopting all worthwhile methods to improve your retention rate.
You simply can’t afford to miss out.
Use these 7 clever pricing tweaks ASAP to keep your customers coming back for more!
Tweak #1: Buy Now, Pay Later
This pricing tweak relates to financial consequence.
Namely: It eradicates it! At least for a while…and this is enough for customers to feel like they have made a perfectly justifiable purchase decision.
Remove this friction of money immediately leaving their account and you will likely attract much more ‘buyers’ who stay.
There’s evidence of this tactic everywhere. And these guys seem quite intent on getting the message across…
Did somebody say buy now, pay later?!
From gumdrops to their payment processor initiatives and those of many other top consumer brands — it’s a pricing technique that works wonders in earning the trust of your customers, paving the way to repeat custom.
Think about it: You are effectively relying on customers to pay at a later date (without saying it that way), even though they are actively free to use your product or service right now!
This ‘exchange of trust’ psychology often means great reward in the form of retaining their loyalty.
Tweak #2: Payment Frequency
Which option looks more attractive — to you?
Option #1: $10 per month
or
Option #2: $99 per year (Save $21!)
Here’s a real-world example where it’s quick to select the desired payment plan:
In the context of certain products and services, two primary factors will likely influence your decision between choices.
Frequency of consumption
and
Perceived value of purchase
What does this mean?
Your trust and perception of the brand in question — including the level of service received — will affect your inclination to pay annually.
In addition: The length of time you intend to use the products or service, and how often you plan to use them.
With this in mind, test the above payment frequency tweak (with discounts) and begin to offer your customers the choice of paying in lump sums.
And here’s a bonus tip for you: Feeling adventurous? Try combining ‘Buy Now, Pay Later’ with various payment plans for maximum impact! You can apply these pricing psychology hacks very creatively to products and services of all manners, from subscriptions to physical products. All it requires is an open mind…
There is also a certain technique you should always apply in harmony:=
Tweak #3: Increase Consumption
The possible advantage of annual payment plans?
Customers feel more loyal because they have been with you for so long.
And the possible disadvantage?
Customers don’t use your products or service as much as intended — so when it comes to renewal — the lump sum seems silly to pay.
How do you circumvent this negative response?
Encourage your customers to use your products or service — all the time.
Frequency of health club visits. Annual payment plan. Semiannual payment plan. Timeline. Quarterly payment plan. Monthly payment plan. Source: John Gourville and Dilip Soman, Pricing and the Psychology of Consumption, Harvard Business Review, September 2002,
How?
Always be first in mind:
- Send regular emails, push notifications and texts
- Publish frequent, educational blog content
- Constantly create material to help customers use your product or service in many ways
- Acquire customers’ affinity through storytelling
- Consistently innovate with fresh products and services (+ communicate the news)
- Provide freebies and exclusive offers for devoted customers
- Be insanely active and responsive on Social Media
and - Actually use words like ‘daily’ and ‘regular use’ next to your price tags!
Experiment with pricing options to discover what works for your unique offering and customers. Based on the gym research above, monthly payments dramatically increased consumption…
However, annual payments may work better for your particular industry.
Whatever you find works best — just ensure you always promote a frequent use of your product or service! This is key to retention.
Tweak #4: Price Anchoring
This particular pricing tweak could be considered to be one of the most powerful!
And it’s very easy to implement.
If you’re displaying standalone products, services and their prices without a second thought…you’re missing a trick.
Let’s say you’re shopping for a sparkly diamond ring, without any extras. Which pricing display option looks more attractive — to you?
Option #1:
Sparkly Diamond Ring: $2,999
or
Option #2:
Sparkly Diamond Ring: $2,999
Ultra-Rare Sapphire + Diamond Ring: $11,500
The most expensive (and sometimes deliberately unrealistic) option makes the cheaper price and/or product seem like a bargain buy.
When the $2,999 price tag is displayed alone, it actually gives the impression of being more expensive.
You will likely have seen this technique applied on SaaS websites:
A fascinating study on the topic of price anchoring asked participants to estimate the cost of a residential property.
Instead of visiting the property — participant groups were given leaflets about the house — some indicating surrounding homes with genuine prices, and others with exaggerated price tags.
Guess which group guessed a higher price?
Those who received the inflated prices!
Association of numbers in the same environment influences cognitive bias.
Keep your customers buying again and again with the use of such effective price anchoring (and environmental influence) on all renewal and product pages. Even within emails and printed material!
BONUS TIP #1
Using 3 options is proven to be the sweet spot when serving price anchors.
So: Compare 3 prices, or display 3 products side by side…
BONUS TIP #2
Your anchor doesn’t even need to be a price tag, either!
Studies have found any larger numbers influence buying decisions when placed next to smaller numbers — when the smaller numbers are prices.
i.e. $19 per product
12,567 already sold!
How awesome!
Have you found any tricks?