Raphael Thys
Why you should be charging more and not less
Cheap prices attract cheap customers.
They bought your product, not because of its value but mainly because it is cheap. They are also super hard to be satisfied. Their brain is hardwired to feel more ‘buying pain’ or ‘buying remorse’ than other types of customers. This pain causes them to be more demanding.
They are the ones who are going to nickel and dime you to death and/or ask for a refund. And they would leave you as soon they find out about a cheaper alternative. So they are also not loyal.
- Your product price: < $100Dissatisfied Customers: “Stop scamming people. This is a scam. Give me my money back or I will leave -ve reviews….you [bleep]…[bleep]“
- Your product price: > $100 and < $3000Dissatisfied Customers: “I want a refund. This product is ……..after 10,000 words……Please process my refund.“
- Your product price: > $3,000Dissatisfied Customers: “It’s all right. But it is not exactly what I was looking for“.
All of this happens because often the customers of low priced items feel more ‘buying pain’ and ‘buying remorse’ than other types of customers.
There is a strong negative correlation between product price and refund rate. Higher the product price, lower the refund rate. Conversely, the lower the product price, the higher the refund rate.
There is also a strong positive correlation between product price and your customers’ satisfaction. Higher the product price, the higher the customers’ satisfaction. Conversely, the lower the product price, the lower the customers’ satisfaction.
So if you want to reduce your refund rate, improve customer satisfaction, and deal with high-quality customers, then charge more.
Which is easier and more profitable to sell: 1 ebook for $20 or 20 ebooks for $1 each?
Most people would say 20 ebooks for $1.
To sell 1 ebook for $20, you would need a 1% e-commerce conversion rate, which is realistically possible to achieve.
To sell 20 ebooks for $1, you would need a 20% e-commerce conversion rate, which is unlikely to happen. Most likely, at most, you would get an 8 – 10% conversion rate. But even with a 10% conversion rate, you would make only $10 in sales.
So to achieve your target sales of $20, you would either need to buy more traffic or lower your prices.
If you lower your prices further, your transaction volume may go up, but then your average order value will go down, and you could end up making even less money. If you buy more traffic, then that would increase your CPA. So, in any case, the math is against you.
So, in the end, you would most likely be less profitable by generating $20 from 20 ebooks sales than making $20 from 1 ebook sales.
When you operate on a thin profit margin, you consistently need a high volume of orders to remain profitable. Even a tiny decline in orders can very quickly erase your profits and result in a net loss. That makes selling low priced items much more difficult and challenging.
Don’t train your customers to NEVER buy your product at the full price
The following two mistakes are training your customers to never buy your product at the full price…
Mistake #1: Offering discounts every second or third week
When your customers see discounts all the time they subconsciously assume that your product is really not worth the full price.
Mistake #2: Offering massive discounts
Anything above 50% and your chances of selling your product at full price, later on, is very slim.
So if you are giving a 90% discount then that’s what your product is really worth. Once your audience sees such a massive discount, they are unlikely to buy your product at the full price later on. It just won’t happen.
A classic example is Udemy. Their courses are almost always on massive 80 to 90% discounts. They have trained their customers over the years that if you want to buy a course from them then wait for a massive 90% discount. Why pay $100 when you can wait for a discount and get the same course for $10?
How can you sell your product at any price you want?
The price is relative. No product is cheap or expensive by itself. It is cheap or expensive only when compared with other similar products.
If you could remove the point of reference (i.e. price reference), your customers would not be able to raise any objection on price and would more likely accept any price you want.
You eliminate both competition and customers’ objections by being totally different.
If you try to be better, your customers will put you in the same category as your competitors & then try to low-ball you, raise objections like ‘your price is too high’, ‘this sounds good but I need to do some research…’
Whenever I create a new product I don’t ‘try’ to be different. I make sure that I am totally different.
For example, I did not publish just another book on Maths & Stats. There are gazillion books on this subject. I published a book on maths and stats in web analytics and conversion optimization. There is no other book on this subject.
Similarly, I did not write just another book on Google Analytics. There are gazillion books on GA out there. Why do people want to buy just one more book on GA?
I wrote a book on Attribution Modelling in Google Analytics. Again there is no other book on this subject out there. So there is no comparison. I have zero competition. Now I can sell it for any price.
Following is the screenshot of how amazon resellers are selling my book for different prices:
Since price is relative and there is no point of reference, there is zero objection to price & people buy the book for whatever price I want or my re-sellers want.
Can you compete on price alone?
In a world full of low price items, better products, and better deals it is very hard to compete. You can always find someone selling your product/service at a lower price.
You can always find someone providing a better deal, a better offer or a better discount. So you can’t compete on price alone. You can’t compete on product features or offers alone. Build a great product and the customers will automatically come. This isn’t going to happen.
You need to make a strong emotional bond with your customers so that they think of you during the purchase decision. You want your customers to buy emotionally and not rationally.
Think of why people buy Apple products even when they are overpriced. It is not because of its features. It is because of the strong emotional bond and sense of self-worth, Apple has been able to create through its creative and effective advertising over the years.
Do you want to set up Google Analytics 4 (GA4) fast and correctly? Yes I want the ebook
Introduction to pricing tactics
Pricing tactics are all about ‘making’ your prices seem “lower”.
The tactics that I am going to share with you are based on numerous studies on consumers’ psychology. They are not my personal findings. Nor do I make any claim they would work equally well for any business and in any type of industry. What will actually work for you depends on your product type, market, and industry.
Consider these tactics as pricing experiments and not the rules set in stone.
Following are the pricing tactics which I am going to explain in great detail:
- $999 is much smaller than $1000.
- A price in small font size makes the price low.
- If your price is in 3 digits or higher then don’t use decimal point or commas.
- Use price anchoring to make your selling price look like a great bargain.
- For high priced product/service show the product/value first before you reveal the price
- Use a decoy option to sell the desired version of your product
- Follow the rule of 100
#1 $999 is much smaller than $1000
A human brain processes a number so quickly that we determine the size of the number before we finish reading it.
So what people actually see between $999 and $1000 is not a difference of $1 but the following:
- Three-digit vs four-digit number. A three-digit number is way smaller/cheaper than a four-digit number.
- 9 is smaller/cheaper than 10
Consider another example.
$20 vs $19
What people actually see between $20 and $19 is not a difference of $1 but that 1 is smaller/cheaper than 2. So in this case, people only compare the first left digit of each number rather than the numbers as a whole.
Because of this cognitive bias, $999 seems much cheaper than $1000 and $19 seems much cheaper than $20.
Consider another example.
$20 vs $18
What people actually see between $20 and $18 is not a difference of $2 but that 1 is smaller/cheaper than 2. So in this case, people only compare the first left digit of each number rather than the numbers as a whole.
What that means whether you use $20 vs $19 or $20 vs $18 or $20 vs $17 it won’t make much difference price-wise in the mind of your customers.
#2 A price in small font size makes the price low
Font sizes are used to increase or decrease the visual magnitude of a price.
For a human brain, big size means more. So if you want to maximize the size of your discount, display it in big font size:
Conversely, if you want to make a large price look small then use a small font size:
#3 If your price is in 3 digits or higher then don’t use decimal point or commas
When you add a decimal point and/or comma, you increase the phonetic length of your price which makes your price seem bigger.
$2,499.56 – Two thousand four hundred and ninety-nine and fifty-six cents.
$2499.56 – Twenty four ninety-nine and fifty-six cents.
$2499 – Twenty four ninety-nine
Similarly, $449.58 looks way bigger than $450 because the physical length of the price of $449.58 is bigger than $450.
As we start talking about the price in big numbers, we get rid of decimal points to make the price look smaller.
For example, if you look at house prices on a property website, they all are mentioned without decimal points so as not to make the prices look even bigger than they already are:
#4 Use price anchoring to make your selling price look like a great bargain
Price anchoring refers to the practice of establishing a price point that customers can refer to when making a purchase decision.
Your customer heavily relies on the first piece of information offered when making purchase decisions. So the first price being mentioned will have an effect on the perception of all future prices.
So if you first show a $10,000 product to a customer and then a $998 product then the $998 product would seem dirt cheap. But if you first show a $99 product to a customer and then a $998 product then the $998 product would seem super expensive.
So if you want to sell your $998 product then put it right next to a $10,000 product.
Similarly, if you want to make the discounted price look like a great bargain then show it next to the original price. First show the original price and then the discounted price.
In the screenshot above, customers are first shown the original price of $295 and then shown the discounted price of $155.09. Here, the $295 is the price anchor for the $155.09 discounted price.
Note the clever use of font size here. The discounted price has a bigger font size (than the original price) so the discount appears much bigger than it is.
How a car salesperson use price anchoring
If you go to a car showroom, the salesperson will ask for your budget and will then likely show you the car models which are at the very top of your budget.
Here the salesperson is deliberately anchoring the perception of the price at the high end. So then later any car models you see in your mid-range of your budget seem so much cheaper. If the car salesman starts by showing you the cheapest cars first then any car you see after that would seem much more expensive.
For the same reason, if the price of your product/service is negotiable then start high. Then any price negotiated after that would seem much lower.
If you are comparing your price with others then pick up one or two competitors who have a much higher price than you and then state how much they are charging before revealing your own price.
These are some real-life examples of using price anchoring to make your selling price look like a great bargain.
#5 For high priced product/service show the product/value first before you reveal the price
If you sell high priced products (like jewellery), you want your customers to make their purchase decision based on the product quality and not price. So first show them the product and then the product price.
If you show the price first and then the product then your customers are likely to make their purchase decision based on price which is not favorable for closing sales.
Similarly, if you sell services, you want your customers to make their purchase decision based on the value you promised to provide (i.e. your offer). So first show them your offer and then disclose your price/fees.
If you disclose the price first and then the offer then your customers are likely to make their purchase decision based on price which is not favorable for closing sales.
#6 Use a decoy to sell the desired version of your product
If you are offering multiple versions/plans of your products (quite common in case of SAAS products), your customers are naturally going to compare them to each other.
Put the plan which you want to sell the most in the middle.
Create your first plan in such a way that it offers visibly less value as the middle plan but cost almost just as much as the middle plan. Here you are using your first plan as a price anchor which will make your middle plan a better value for money.
Create your third plan in such a way that it offers visibly more value as the middle plan but cost significantly more than the middle plan. Here you are using your third plan as a price anchor which will make your middle plan a lot cheaper.
That’s how you can increase your chances of selling your middle plan the most.
#7 Follow the rule of 100
Jonah Berger in his best selling book “Contagious: Why Things Catch On” suggested the rule of 100 which states that:
1) If your product price is less than $100 then give a percentage discount in order to maximize the perceived size of your discount.
2) If your product price is more than $100 then give an absolute discount in order to maximize the perceived size of your discount.
So if you are selling a $50 product then a better-looking deal is 20% off then $10 off. Similarly, if you are selling a $500 product then a better-looking deal is $100 off then 20% off.
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About the Author
Himanshu Sharma
- Founder, OptimizeSmart.com
- Over 15 years of experience in digital analytics and marketing
- Author of four best-selling books on digital analytics and conversion optimization
- Nominated for Digital Analytics Association Awards for Excellence
- Runs one of the most popular blogs in the world on digital analytics
- Consultant to countless small and big businesses over the decade