How to use pricing strategies in marketing
In this post, we are going to go over 3 pricing strategies in marketing. These strategies are used to help guide decisions and alter purchase behavior for consumers.
On average, the most popular YouTube videos are 4 minutes and 20 seconds long (according to minimatters.com). However, these four videos below are only 1 minutes and 48 seconds long on average.
Each video will change the way you view the pricing of products and services. Enjoy.
Pricing Strategy #1 – The decoy effect
The easiest way to explain this concept is to have a professor do it for us.
Watch this video (1:53 watch time) from Professor Dan Ariely of Duke University.
What Dr. Ariely is describing is a trend growing in popularity, especially with online pricing tables.
See if you can spot the decoy in the following pricing tables.
Survey Monkey pricing
Would you like to pay $1 more each month for the “Select Plan” that offers less services compared to the “Gold Plan”?
Even if you click that “SAVE with an annual plan” link in option 2, it prices out at $298 for the year. Still a no brainer.
Decoy: The Select Plan
Video Blocks pricing
When you read these quickly, it looks like your options are the following:
$79 – $99 – $198
Then you realize that the first option is monthly, and if you did all three packages for a year, your pricing options look like this:
$948 – $99 – $198
Decoy: The Monthly Plan
Pricing Strategy #2 – Price anchoring
This video is talking about “arbitrary coherence.” That’s because the two digit number from your social is arbitrary, but the students are coherent and now made aware of it.
That two digit number provides an anchor that will frame their thoughts on what something is worth.
When you present an initial price for your product or service, you’re setting an anchor.
You may have already noticed a form of anchoring in this blog post.
At the beginning of the post, I told you how long an average YouTube video is. I then let you know how short the videos are in this post. That way, you can commit the time to watch these videos because, in comparison, the videos aren’t that long.
In reality, time is time.
However, you can think about time differently when given arbitrary data, such as the length of an average YouTube video.
You see examples of price anchoring everywhere. Look up anything on Amazon and you’ll see the pricing strategy follow a very specific order.
List price $xxx.xx
But brands like Amazon are playing in the sandbox when it comes to the wizardry of Ron Popeil.
Pay attention to this 35 second clip very closely.
Seriously, don’t read below this line until you’ve finished watching the 35 second clip above.
You’ll notice the entire 35 seconds is an exercise in price anchoring.
It starts at $400 and just goes down from there. The really clever part is that they get you on a pattern of seeing the price on the right side of the screen and immediately crossing it out. Naturally, the number and the size of the font both decrease with each step.
So when the $170 price shows up at the 21 second mark of the clip, you feel that this might finally be the real price. That’s because the pattern has been broken with the $170 price being shown in the middle of the screen.
“All you spend for this fabulous machine, an over four-hundred dollar value,” are the words being spoken right before the $170 price is crossed out.
We all know that $400 isn’t going to be the final price, but even if it is an arbitrary number, we’re still cognizant of it.
Ron takes us down a path to create a pattern so that when the $170 is on the screen (not crossed out) for those six seconds, we accept that as the price. Then, suddenly the true price is revealed.
Pricing Strategy #3 – Reducing options
In this 2.5 minute video, Professor Sheena Iyengar shows us what can happen when we provide too many choices.
The “Jam Study” is appropriately titled as it shows us what happens when we are provided too many choices. We overload the potential consumer and jam them up from making a decision.
When looking at pricing your own products or services, consider these three pricing strategies as a part of your marketing.
Consider reducing or simplifying your offerings, introduce a price anchor, then identify your ideal sale and create a less desirable (but nearly identical) version of that package.
You could be a few pricing tweaks away from boosting your sales.
If you have thoughts or great examples of making pricing strategies work, leave them in the comments below.