2 Pricing Hacks Every Small Business Can Use To Increase Revenue

The two pricing hacks every small business can use to increase revenue

What if I told you minimally tweaking your pricing and/or location of your items could increase revenue almost immediately?

That might seem a bit out there, but I’m going to show you how to leverage people’s tendencies and subconscious reactions to make more money. That’s the goal right?

Now, this might seem like devious mind tricks – however, it really isn’t. We’re just going to use the information we know about ourselves to guide decision making. So let’s get started.

Pricing Hack 1) Use Price Anchoring to sell higher ticket items

When we shop, we’re constantly looking for context in the prices that we’re seeing. If you’ve ever walked out of a restaurant feeling like you paid too much for too little, then you understand the effects context can have. Because you’ve eaten a similar meal elsewhere and either paid less or gotten more food, your context radar is going off. The same thing goes for when people buy products or services.

Now Anchoring occurs when you disrupt the context that people have built up over time in relation to yours or similar products and replace it with new information. Humans have a bias towards being given an initial piece of information and then making a decision based on that piece instead of previous contexts.

How to use Price Anchoring at your small business

So, let’s pretend you own a watch & jewelry store. You deal mainly in luxury watches. You currently have your nicest watches at the back of your store together because they have a similar price range and the display case is a bit nicer back there. Your less expensive watches (even than what’s pictured below) are towards the front. Your sales are probably made up of primarily those, let’s say between $500-$1000. You’re struggling to move those mid-range luxury watches that are towards the back of the store and besides the customers who demand the best regardless of cost, the really expensive watches in the back hardly move at all.

So, on its own, this watch still probably seems expensive to most clients walking in, even if they can afford it. The Context for a non-major name brand tell us what watches SHOULD cost – regardless of features in our mind. When they walk into your store and see the less expensive ones on their way to this watch, it seems even more expensive.

Price Anchoring For Small Business

 

So, if you’re wanting to sell this watch more often – utilize price anchoring.  Which, would look something like the picture below in the display case.

Price Anchoring For Small Business | Facebook Marketing

You’re going to take your expensive product and place it next to the product you really want to move more of as well as placing your more expensive items first. This has two benefits because of anchoring:

  1. One is that the Context for pricing has now been adjusted to reflect the pricing you have for your particular model and watch line of goods. The Berlioz Edition is at $12,559 but the Mozart Edition is almost $10,000 LESS with almost the SAME features! That’s a steal.
  2. Your very cheapest watches in the back will sell even better because you’ve established a new context for them. You’ve also made them feel like you’re an authority on watches because you carry such nice and expensive items, that these, while cheaper must be better. Even if they walked in only wanting to spend $50, they’re more like to walk out having spent 2x than simply because they feel like they’re getting so much VALUE.

The great thing about Anchoring is that  a pretty robust study shows that it works on EVERYONE, even people who know about it as a concept. We’re just so hard-wired to look for context.

 

Pricing Hack 2) Avoid Pricing Similarity

Price Similarity, Jonathan Kitchens, Small Business Pricing

The rise of the megastores like Walmart and Costco who seem to have EVERYTHING under a single roof has made us all seem to think that we really want more options. If you know someone who complains about not having places to eat yet seem to always eat at the SAME places – it’s probably because they’re overwhelmed by the options they have, and the options on a new, unfamiliar menu. More options tend to demotivate people from taking action – even if they can’t say why exactly.

Researchers at Yale discovered that if two objects are pricing the same or almost identical to where the perception is that they are virtually priced the same, they will sell less often than if the prices are different – even if only marginally different to be perceived as different. This can have a great affect on your business and overall revenue because the tendancy is to be competitive and make the prices seem comparable to each other so that people can buy whatever they wish of a certain item at a price. Avoid this.

In one experiment, researchers gave users a choice of buying a pack of gum or keeping the money. When given a choice between two packs of gum, only 46% made a purchase when both were priced at 63 cents. Conversely, when the packs of gum were differently priced—at 62 cents and 64 cents—more than 77% of consumers chose to buy a pack. That’s quite an increase over the first group.

This tells us that differences in prices drive action. The “why” behind it is a bit more murky. We’ll have to leave it to the researchers to eventually figure out why differences in prices next to each other is such a driver to action.

 

Putting together Price Anchoring and Price Dis-Similarity in one grocery store example.

Price Anchoring in Grocery Store with Cans

Bargain brands use this to its full potential in grocery stores. This is why they place the $.99 off brand of peas next to the $1.29 can. The reasoning isn’t  to show their lower prices,as much as to use the name brands as anchoring and the built off of that by avoiding price similarity. Their goal is to induce action to buy something. The store wins either way. if you choose to buy the name brand – they’re happy they’ve gotten you to take an action besides just walking away saying “I don’t need peas” and they’ve made more money. If you buy their brand, they’re still happy you’ve taken an action, and they still made some money.

No matter what product or services you sell, think about how you can use Anchoring and Pricing Similarity (or Dis-Similarity) in your own business that can increase your revenues pretty significantly in a short amount of time. Try it and let me know how it works for you!

 

Thanks for reading! Make sure you follow as we’re going to be uploading a ton of great content you’ll want to know. Let’s take the mystery out of making more money in our businesses together!

jonkitch

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