Psychological Strategies in Pricing

Smart business owners often use psychological sales triggers to influence customers’ purchases.  And these strategies are also used to help cross-sell or upsell products or services.  Psychological triggers can be used to make products seem more or less expensive, create a sense of urgency, or influence the way that customers think about value.  For example, they can use price anchoring.  That is where a higher-priced product is used to set the standard for what a product is worth. This can make a lower-priced product seem like a good deal, even if it is not actually that much cheaper.  Or a limited-time offer creates urgency by offering a product or services only for a short period of time, such as during a sale or promotion. But these are just two of a myriad of psychological strategies used in pricing.  Here are five that are used often and are still effective even though people about them.

Last week, you went to Ikea to buy some inexpensive magazine holders to file the last dozen issues of Harvard Business Review piled on the floor next to your desk.  You walked into the store and quickly worked your way through the expertly-designed rooms showcasing furnishings for different purposes.  Living Rooms.  Dining Rooms.   Bedrooms.   Offices.  One such Office was decorated with a sleek, minimalist white desk that adjusts height so you can work while sitting or standing.  There are white, glass-front book cases, a track light above the desk, a vibrant rug, and a reclining, white leather Executive Chair.  On the bookshelves are books, tasteful decorations and those magazine holders you want.  But now that you’ve seen them in this setting, surrounded by all of the complimentary furnishings, you pause to admire the décor.  The Executive Chair looks so sleek that you think ‘it’s probably not comfortable’.  But it IS comfortable… more than comfortable.  It’s luxurious and provides the perfect amount of lumbar support.  You realize your current desk chair at home is not nearly as comfortable.  You think ‘in this chair, I will be able to work late without straining my back.’  You decide you need one of those chairs.  You grab a tag, a couple of those magazine holders and head for register. 

Focus on the Problem, Not the Solution

The old adage “Necessity is the mother of invention” — around for thousands of years — describes the notion that people are more likely to come up with new ideas when trying to address a need or solve a problem.  While the saying is thought to have originated in ancient Greece, it probably predates that because it points to man’s ingenuity in the face of adversity.  It reminds us that people are often at their most creative when faced with a challenge.  When forced to ‘think outside the box’, we are more likely to come up with new and innovative solutions.

In business, innovation is the ultimate game changer.  Real innovation (not just tiny tweaks or insignificant modifications) can overcome a multitude of company failings and disadvantages, including not being first-to-market.  In fact, an ingenious way to improve a product or service can make being a second-mover, third-mover or even tenth-mover in the market irrelevant.  Whether first or last and regardless of company size, innovation allows a business to:

First is Not Always Best

There is tremendous pressure when an individual has a new idea or a company has an innovative product and wants to be the first to market.  The rush to launch is intense.  But is that always a good thing?  Some would say “yes” and others “no.”  Rather than argue one side or the other, let’s consider some real-world examples to see the benefits and drawbacks of being first-mover vs. second-mover. 

First case in point:  Netflix. In 1997, Netflix was a fledgling online startup offering mail-order DVD rental through their online store and had $2 Million in seed capital.  Today, it is a $150 Billion Dollar entertainment creation and streaming company.  Netflix co-founder Marc Randolph — who came up with the idea of a mail-order DVD rentals (back when DVDs were brand new and before streaming was even a possibility) — wanted to offer customers a way to rent videos without the whopping late fees charged by brick-and-mortar stores.  The 800-lb gorilla in the video-rental space was Blockbuster, which had built its entire business model on charging customers huge late fees which angered much of its customer base.  And all video-rental brick-and-mortar stores had a finite number of VHS videos in inventory on any given day.  Netflix saw a way to lure customers away by offering every film or program on DVD for sale or rent with zero late fees.  Customers could view the titles (with a short description) online, order it and receive it by mail a couple of days later.  Once viewed, they could put it in the return envelope and mail it back.  This was a new concept.  But, with new online startups popping up daily, there was great urgency to get to market first and fast. 

Social Listening is the process of monitoring and analyzing online conversations about a brand, product, service, or industry. It can be used to identify opportunities, threats, and trends, and to gauge public sentiment. Social Listening can be done manually or with the help of social media monitoring tools.

If your company has never done Social Listening, it’s not too late to start.  Case in point. In 2015, J.C. Penney had a major sales slump after the company made a number of changes to its marketing and merchandising strategy. The company was not listening to its customers and did not realize that they were unhappy with the changes.  J.C. Penney was forced to reverse course and make changes to its strategy. 

According to an ancient Chinese proverb, “A good reputation is more valuable than diamonds.”  But how do you know what your company’s reputation really is? What do people say about your business out in the world?  It starts with Social Listening.  Social Listening is the process of monitoring online conversations about your brand, competitors, and industry. It involves tracking mentions of your brand on social media, forums, blogs, and other online channels.

Time is like water cupped in hands… it seeps away in drips and droplets.  In no time, it is gone and even the wetness evaporates.  Still, it is easier for a person to make water than to make time.  Water is, after all, made of two hydrogen atoms attached to an oxygen atom.  That is basic chemistry.  And there are plenty of hydrogen and oxygen atoms.  However, smashing those atoms together is dangerous. 

Is your team struggling to keep up with daily tasks?  Are projects falling through the cracks?  Has managing the To Do List become just another cumbersome task on the To Do List??   If any of this is true for you, then it’s time for a tech solution.  Enter task management software.  There are a myriad of excellent options available.  But that’s a problem in itself.  The myriad of choices makes it hard to determine the best one for a person, team or organization’s specific needs.  No busy person needs to add that task to their already-long-list of tasks.  This article is a quick way to jumpstart the evaluation process.  These apps focus on managing tasks, not time.

Holiday or vacation is over.  It’s time to get back to work.  But focus is hard to come by.  Intrusions abound.  Work hours, which always had some casual interruptions, are now fraught with disruptions.  Open office spaces invite coworkers to break your concentration unapologetically.  Photocopiers churn and paper trays are slammed shut.  Printers grind.  Loud phone conversations distract.  You want to ignore it all but you also don’t want to be rude.  And Work-from-Home has its own disturbances.  Package deliveries.  Lawncare workers mowing and edging.  Dogs barking.  Household chores visible from your work space.  This doesn’t even account for the myriad of legitimate work interruptions from emails, instant messaging, and text messages.  And then there are the meetings… the endless meetings.