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.
Following my previous guides, you will know that 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 many 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 gum drops 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 a 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 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.
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. Time line. 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 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!
BONUS TIPS FROM A RESPECTED SAAS CEO
Yam Regev
is the Co-Founder of Zest — a sleek (and free) Chrome extension that helps you promote and find awesome content in just a few clicks.
He is currently in the process of introducing a highly-researched pricing page for his platform. His thoughts:
As Sam demonstrated above — the 3-option subscription plan is the most common breed of pricing page, best used in the SaaS industry.
Let’s see some of the finest, somewhat ‘old-school’ pricing techniques that still hold the WOW factor when it comes to persuasive pricing techniques (courtesy of Convertize):
Choosing a price with fewer syllables:
Why is it so good?
It removes cognitive strain from your visitors’ minds and makes the information easier to digest.
Using a descriptive product name:
Why is it so good?
It simplifies the understanding of your product. Moreover, it’s good for your SEO — which is even cooler!
NOT removing absent features:
Why is it so good?
It’s all about FOMO (fear of missing out). Showing your visitors the features they will not receive with a lower pricing plan will make them more likely to consider higher pricing plans.
Tweak #5: The Power Of 9
Notice the prices in nearly all the screenshot examples in this guide..?
They end in $.99.
It’s definitely not an accident or coincidence. Seriously, just check all the examples again…
When they don’t end in $.99, they mostly end in a round ‘9’ dollar figure!
And here’s the best part: It’s been proven that the number 9 can sell more products even when the price is higher than items that don’t use the number 9 in their prices!
The same item in the linked study above was priced at $34, $39 and $44.
The product listed at $39 sold the most, even though it wasn’t the cheapest.
If that still isn’t enough to convince you, here are some more astounding results from Gumroad:
Change your prices today!
Tweak #6: Time-Limited Deals
Instead of being reactive, why not be proactive when it comes to retention and pricing?
You can do this by communicating time-limited offers.
This example is particularly clever because it also entices customers to continue spending with additional vouchers (offered on purchase).
You can (and should) always go one step further, providing greater discounts to existing customers. They have already bought from you once or more — please reward them better than anybody else!
This is what I consider to be the golden rule of discounting.
It’s a rich form of gratitude…and gratitude pays.
Customers will show their appreciation when you appropriately acknowledge their brand loyalty.
The time-limited pricing tactic also encourages swift action — and the more customers buy, the greater the likelihood of them buying again.
(Awesome Data & Infographic by SumAll)
Tweak #7: Discount Bundles
Bundles are hugely popular in many industries. Think games consoles, broadband packages and car insurance…
By offering multiple products or services together at a lower price, customers perceive this as a higher-value purchase.
When it comes to renewals or upselling, there probably isn’t a more superior method than discount bundling! It’s a huge opportunity to attract existing customers to new offerings, and potentially gain further business from them in future…
If they enjoy the products or services within your initial bundle, they may buy more or renew the items (at full price) later on.
Furthermore: Bundles can feel like a big Christmas present, no matter the time of year! This must have an added impact on emotion and loyalty.
Nintendo sold the most products when a bundle was offered (a console and game packaged together), although there was also an option to buy each standalone piece.
Another example:
Many insurers selling two products as a bundle have witnessed their customer retention rates increase. Specifically — 91% retention rate among those who bundle, compared to 67% among those who don’t.
“Do you even bundle, bro?”
Key takeaway: Bundle discounts immensely increase the value of individual transactions.
This is fantastic pricing psychology to apply for customer retention!
BONUS: Increasing Your Prices (The Right Way)
How do you retain your customers even when you need to raise your prices?
It’s never a simple or enjoyable task — but price increases are inevitable, especially for growing brands.
Here are 3 tips to ensure a smooth transition:
Tip #1: Timing is critical
Are your customers unhappy? Not a great time to drop news of a price hike!
Be 100% confident you are providing an exceptional service before even considering raising your rates or price tags.
It’s also a great idea to let customers know in advance…as much as possible. A price increase in 1 year is much easier to digest than, “We’re doubling our prices as of next week.”
Oh dear!
Tip #2: Add relevant extras
Acceptance is much more likely when you are prepared to offset the ‘bad’ news with even greater perceived value…
Consider providing additional support, products or services that can be used in conjunction with current purchases and even free products that would cost new customers money to obtain.
Remember: It costs up to 7x more to acquire new customers, rather than retaining your current ones!
Tip #3: Communicate Improvements
Further justify your price increase by illustrating how you have enhanced your offering.
Be careful here: Don’t try to exaggerate and never be deceitful.
Your improvements should always be relevant to the customer in hand and beneficial to their specific needs. Fail to do so and you will almost certainly create a rift.
Place yourself in your customers’ shoes at all times.
Your retention rate will speak volumes!
Agent Green
April 18, 2018
Fantastic article, love the facts backed up with figures. It´s a keeper and bookmarked twice to make sure !