🤑 3 Pricing Rules You Need To Test
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Today, you’ll learn 3 new pricing tips thanks to Nudge podcast.
Pricing is a crucial part of any successful strategy. Phill Agnew shares insights on how breaking down prices, creating scarcity, and framing discounts can dramatically boost your sales.
Rule #1 - Use a per day or per week price
You can boost the appeal of your price by breaking it down into smaller increments.
Richard Shotton ran tests with customers looking to purchase a car.
Some potential buyers saw the cost outright - so $40,000. Some saw the cost per day over the course of 10 years, so $11 a day.
Those who saw the cost broken down per day were 5 times more likely to rate the price as a good deal and 50% more likely to buy the car.
Phill Agnew
Rule #2 - Scarce resources are more popular
One study in 2011 looked at soup sales at an American grocery store.
Half of the stores had a banner put up to encourage customers to buy soup. It simply read ‘buy soup today’.
The other stores had the same advert but with one twist - an asterisk next to the ad that said ‘limited to 12 cans per customer’.
Now, nobody was buying 12 cans of soup in the first place, so you might think this message was fairly pointless.
That’s not what happened. The limitation made the product feel scarce, increasing sales by 112%.
Capping how much a customer can purchase can increase sales, so consider adding limits to your product availability.
Phill Agnew
Rule #3 - Tangible benefits can beat cash discounts
It's common just to give money off your price, but Uri Genizi suggests there's a better way to run promotions.
He set up a study with prospective car buyers and asked them to compare promotions on different cars.
Some saw a promotion offering $450 off the car's asking price. Others were offered a free $250 gas card to spend on fuel.
Obviously, the $450 off promotion is a better deal. You get an extra $200 of value.
But customers didn't act as if that was a better deal. Uri found that the gas card was two times more effective at encouraging purchases than the $450 off.
Why is this? Well, tangible benefits, even of lesser monetary value, can be more compelling than direct cash discounts because these tangible benefits have some sort of salient value.
A car buyer knows they need fuel. Framing the discount in a way that satisfies this need can make the discount even more alluring than a standard promotion.
Phill Agnew
Why it matters
Effective pricing strategies tap into the deep-rooted psychology of your customers, improving conversion rates and sales.Â
However, many business leaders avoid testing new pricing models due to fear of alienating customers, reducing sales, or damaging brand reputation.
Instead, we should all take a leaf out of Uber’s book. By experimenting with surge pricing, Uber adjusted fares based on demand, significantly increasing their revenue during peak times.
This dynamic pricing model has been instrumental in Uber's growth and profitability.
Testing new pricing models can lead to similar breakthroughs for your business, allowing you to discover the most effective price that maximizes both customer satisfaction and profitability.
Next steps
Here’s how you can safely experiment and gauge the effectiveness of new pricing models:
Start small. Begin with a small segment of your customers or a limited product range to minimize risk.
State your hypothesis. Define what you want to achieve with your pricing experiment - whether it's increased sales, higher average order values, or improved customer retention.
Test new pricing. Run A/B tests to see which promotion works best. For example, test a discounted price against a bundled offer.
Monitor results. Track key metrics such as sales volume, revenue, and customer feedback. Look for significant changes that indicate which pricing model is more effective.
Adjust and repeat. Don’t set it and forget it. Regularly test and adjust your pricing to find the optimal model for your business.
Your thoughts?
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