How to develop your pricing (Part 2)
April 15, 2021
In this episode, we talk about two psychological strategies for pricing a founder can use to sell more.
In the previous episode, we talked about how to derive your price using the three different pricing strategies, cost-plus pricing, competition-based pricing, and value-based pricing. And in today's episode, we're actually going to be talking about the psychology of pricing. So we'll talk about some psychological tactics that you can use to actually sell more of whatever you're trying to sell.
And the two strategies that we're going to talk about today is the odd-even pricing strategy and the decoy pricing strategy. And these are psychological tactics for you to be able to sell more of your product or your service. So for odd-even pricing, you actually already know what this is. You see it everywhere for the odd portion. You see when prices end with a nine or a seven, they will end with the odd number and what they are trying to signify is that this is something that's on sale or that's something on discount and you are about to get a deal.
And JCPenney actually did an experiment on this a long time ago, decades ago, maybe 100 years ago. Where they learned that when you have odd pricing, people actually buy more because they feel like they're getting a deal, there's more of an urgency to buy. And this increases sales because people think that they're getting a discount.
On the other hand, on the other side of the spectrum of the odd-even pricing, you have even pricing. So when you end a price using even numbers, let's say, you know, $3,500 for $4,000, then this usually signifies, I don't know why I'm having trouble with that word. This usually signifies that this is a luxury item. There's no discounts and it has a different product perception when you're using this type of pricing. So this is what odd-even pricing is. Use odd pricing to signify a discount and use even pricing to signify a luxury item and note to self, learn how to pronounce signify well, and then.
Okay, so now we're gonna cover decoy pricing, decoy pricing. This is when you are trying to use a set of different prices for you to be able to influence the choice that someone makes when they're choosing among these prices. So I'll give you an example. Let's say that you come up with three different prices. One is an inexpensive price, one is the goldilocks median medium price, and one is a very high price.
In this situation what you're doing is you you are exploiting the bias where people want to avoid some of these extremes. So they don't want the cheapest product and they don't want to pay a lot either. So they will compromise and they will just pick the middle option. So this is when you're using decoy pricing to be able to influence the choice that someone makes so they can pick the middle option because they want to stay away from the two extremes.
And then there's this other way of using decoy pricing where you make one option look as attractive as possible. And the Economist has a great example of how they did this with their pricing. They had three different pricing options for their newspapers. The print version was $150 a year. Then the digital version was $50 a year. But the digital plus print version was also $150 a year. So 150 for the first bundle, $50 for the 2nd and 100 or I'm sorry not not even a bundle. $150 for the print option, $50 for the digital option, and $150 the same price as the print option for the digital bundle.
What they're trying to force people to do is instead of just picking the digital, they are forcing people or influencing people to pick the bundle option where is paying $150 costs, but they feel like they're getting the digital version for free. And at the same time what the Economists is actually doing as well is they have a way for some of their low-cost customers to come in as well.
So these people, they're not interested in $150 version or they're not interested in getting a deal, you know because If you have a print version and then the bundle is giving the digital version for free, that's like $50 of value that you just created at least the perception, right? And they're influencing their choice to pick this bundle and that's essentially using the attraction effect. They're making one choice look more attractive than the other choices and they're influencing um your choice using this decoy pricing effect.
One more thing that I will cover and this is from the book again, Never Split the Difference by Chris Voss. This is probably the third time that I've mentioned it on this podcast. It's such a good book. Chris Voss mentions that when you use odd numbers and you use very specific numbers in a negotiation then that signals to the other person that this is like a well-thought-out amount and it's very difficult to argue again. So for example, if we were negotiating the sale of a bike and you offered me, you know, $300 for the bike and I said, all right, well $300 is probably fair, but I'm going to sell it for $328.13 that that that price is so specific that it makes the other person think that you have a very solid reason for coming up with this price and it becomes much more difficult to argue again.
So if you're in a negotiation-type atmosphere and you're trying to figure out what kind of price to make up, then you would use odd numbers with decimal points and make it as specific as possible so you can get the price that you want. I hope this helps. This was the final series of the pricing strategy. If you missed the first episode, go ahead, check that out, and boom, bam. I'm out.
Continue your journey with me on my other channels:
And the two strategies that we're going to talk about today is the odd-even pricing strategy and the decoy pricing strategy. And these are psychological tactics for you to be able to sell more of your product or your service. So for odd-even pricing, you actually already know what this is. You see it everywhere for the odd portion. You see when prices end with a nine or a seven, they will end with the odd number and what they are trying to signify is that this is something that's on sale or that's something on discount and you are about to get a deal.
And JCPenney actually did an experiment on this a long time ago, decades ago, maybe 100 years ago. Where they learned that when you have odd pricing, people actually buy more because they feel like they're getting a deal, there's more of an urgency to buy. And this increases sales because people think that they're getting a discount.
On the other hand, on the other side of the spectrum of the odd-even pricing, you have even pricing. So when you end a price using even numbers, let's say, you know, $3,500 for $4,000, then this usually signifies, I don't know why I'm having trouble with that word. This usually signifies that this is a luxury item. There's no discounts and it has a different product perception when you're using this type of pricing. So this is what odd-even pricing is. Use odd pricing to signify a discount and use even pricing to signify a luxury item and note to self, learn how to pronounce signify well, and then.
Okay, so now we're gonna cover decoy pricing, decoy pricing. This is when you are trying to use a set of different prices for you to be able to influence the choice that someone makes when they're choosing among these prices. So I'll give you an example. Let's say that you come up with three different prices. One is an inexpensive price, one is the goldilocks median medium price, and one is a very high price.
In this situation what you're doing is you you are exploiting the bias where people want to avoid some of these extremes. So they don't want the cheapest product and they don't want to pay a lot either. So they will compromise and they will just pick the middle option. So this is when you're using decoy pricing to be able to influence the choice that someone makes so they can pick the middle option because they want to stay away from the two extremes.
And then there's this other way of using decoy pricing where you make one option look as attractive as possible. And the Economist has a great example of how they did this with their pricing. They had three different pricing options for their newspapers. The print version was $150 a year. Then the digital version was $50 a year. But the digital plus print version was also $150 a year. So 150 for the first bundle, $50 for the 2nd and 100 or I'm sorry not not even a bundle. $150 for the print option, $50 for the digital option, and $150 the same price as the print option for the digital bundle.
What they're trying to force people to do is instead of just picking the digital, they are forcing people or influencing people to pick the bundle option where is paying $150 costs, but they feel like they're getting the digital version for free. And at the same time what the Economists is actually doing as well is they have a way for some of their low-cost customers to come in as well.
So these people, they're not interested in $150 version or they're not interested in getting a deal, you know because If you have a print version and then the bundle is giving the digital version for free, that's like $50 of value that you just created at least the perception, right? And they're influencing their choice to pick this bundle and that's essentially using the attraction effect. They're making one choice look more attractive than the other choices and they're influencing um your choice using this decoy pricing effect.
One more thing that I will cover and this is from the book again, Never Split the Difference by Chris Voss. This is probably the third time that I've mentioned it on this podcast. It's such a good book. Chris Voss mentions that when you use odd numbers and you use very specific numbers in a negotiation then that signals to the other person that this is like a well-thought-out amount and it's very difficult to argue again. So for example, if we were negotiating the sale of a bike and you offered me, you know, $300 for the bike and I said, all right, well $300 is probably fair, but I'm going to sell it for $328.13 that that that price is so specific that it makes the other person think that you have a very solid reason for coming up with this price and it becomes much more difficult to argue again.
So if you're in a negotiation-type atmosphere and you're trying to figure out what kind of price to make up, then you would use odd numbers with decimal points and make it as specific as possible so you can get the price that you want. I hope this helps. This was the final series of the pricing strategy. If you missed the first episode, go ahead, check that out, and boom, bam. I'm out.
Continue your journey with me on my other channels:
Follow Me
Instagram: https://robin.ws/instagram
Facebook: https://robin.ws/fb-page
YouTube: https://robin.ws/youtube
Visionaries Group: https://robin.ws/group
Clubhouse: @rbn - https://robin.ws/clubhouse
Facebook: https://robin.ws/fb-page
YouTube: https://robin.ws/youtube
Visionaries Group: https://robin.ws/group
Clubhouse: @rbn - https://robin.ws/clubhouse
Book: https://mvmbook.com
Book a Call: