The psychology of pricing: Beacuse you're leaving money on the table
I started a newsletter about how founders and makers will price their products.
A quick awareness about pricing.
Increasing revenue by 26.5% with a tiny pricing change.
Dive in straight away; ⤵
Which package would you choose in a pricing as below?
It’s very likely that you are buying pack 2 too. And about 70-80% of people prefer the 2nd package this pricing.
Buying rate of users will be almost much like this.
Package 1: %15-20
Package 2: %70-80
Package 3: %5-10
Because I carefully designed this pricing hypothesis for people to choose package 2.
We behaviorally tend to choose pack 2 in a pricing design like this. A stupidly advantageous (profitable) deal in this pricing design is package 2.
Only a small minority buys pack 1 and pack 3. (There are reasons for that.)
With scientifically proven theories such as libertian paternalism, nudging, cognitive biases, people’s decisions and behaviors can be influenced.
Just like I influenced your decision for pack 2.
Here’s how decisions are influenced using behavioral psychology in pricing.
Tip 1:
With its price and pack features, pack 1 is an anchor that makes Pack 2 feel like a profitable deal.
→Cognitive Biases; Anchoring bias, Framing effect
Tip 2:
$59 is another anchor. It makes the package feel more advantageous than usual by offering an incentive.
→Cognitive Biases; Anchoring bias, Incentives
Tip 3:
“Only first 20” creates scarcity. This triggers loss aversion. Procrastination is avoided and creates urgency to buy right away.
→Cognitive Biases; Scarcity urgency, FOMO
Tip 4:
Pack 3 is priced at $99, making the price of pack 2 seem very reasonable (because the features in pack 2 are more than enough)
→Cognitive Biases; Confirmation bias
But, our decisions and behaviors are influenced by cognitive biases.
Therefore, Package 2 feels like a “foolishly advantageous deal.”
If there was classic/linear pricing?
This is what we see in almost every product and SaaS.
Probably yours too.
Most products make pricing classic/linear. That leaves potential customers free to choose.
For example this.
The package is not 1 anchor. And there isn’t much reason for potential customers to choose pack 2.
Buying rate of users will be almost much like this.
Package 1: %55
Package 2: %35
Package 3: %10
Here’s the impact on revenue
Do you see the difference here?
If we take a sample for 100 paid users;
With classic pricing, the MRR would be $3400.
But with behavioral pricing the MRR is $4300.
Tiny a pricing tweak can increase your MRR by 26.5%.
Here's this is leverage.
Because people aren’t rational. People are irrational and emotional. We can’t resist the context, contrast, anchors, and nudges presented to us.
Just like placing a fly image in urinals increases the cleanliness rate by 60%.
Or adding a third option (decoy) next to two pricing changes our decisions just like
Tell me what your biggest pricing problem is. I will read every reply and help to you
If you find it interesting, feel free to join me and sign up for my newsletter for more. Because, you’re leaving money on the table.
→ Join my newsletter: irrationalpricing.com
