In 2007, Coulter and Coulter showed two advertisements to two groups of random customers. Each advertised £10 discounts on flights to Turkey. Another listed tickets at £188. Another showed a higher price: £233.
Customers have found that cheap tickets sound like a even worse value. Why? Researchers found that people easily divide small numbers. The difference between 4 and 3 seems more noticeable than 9 and 8. Thus, customers were more likely to buy when prices ended in the lower digits (£244 to £233), compared to those that ended in higher digits (£199 to £188).
The takeaway is very simple. Next time you use a discount, make the sale price less than five. That’s just one piece of pricing advice we’ve discussed on my podcast Nudge, the UK’s number one marketing podcast. Here are four more common sense tips for pricing your products.
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Divide your price.
Check out two budget lunch ads from Huel. One shows the total cost of 21 meals (£78.96). Another reduced price per lunch ($3.76). Researchers have found that breaking down the price per unit works better for customers. Showing a lower price led buyers to see that they were getting a better deal.
Richard Shotton and Michael Aaron Flicker examine such advertisements in their excellent book Hacking the Human Mind.
In the study, 282 consumers were divided into groups. The segment featured Sierra Nevada Pale Ale priced at $18.99 for 12 bottles. The other group was told the price per unit – $1.58 per bottle. Among those who were shown the price per bottle, 28.6% said it was a good or very good price (more than double the 13.7% who saw only the price).
Factoring in the cost per unit made the purchase sound more reasonable and affordable.
Display the value the difference.
Companies that want to market to their audience need to choose the right framework. Take this 2019 exam by David Hardisty at the University of British Columbia. Hardisty tested different pricing packages for New York Times subscriptions.
Group A saw two programs:
- “Digital access” subscription for $9.99/month.
- An “All Access” subscription that includes access to the web, the app, print newspapers, podcasts, and the crossword puzzle for $16.99/month.
Group B saw the same products described differently. The first plan featured a “web + app” subscription for $9.99/month. A second plan, labeled “+ All the Extras,” was available for an additional $7/month.
Same total amount. Different frame. But, Group B chose the premium plan twice as often. Why? Because the extra $7 sounds easier to justify than the $17 total.
Want people to make a premium? Don’t show them the full price. Use a different price structure and just tell them the charge.
Be transparent about your expenses.
I got on LinkedIn by sharing this photo about chicken soup. Another showed a container priced at $7.99. The second ad showed a breakdown of all the ingredients, how much they cost, and the profit margin before the final price. Which brand would be better for sales? The post attracted a lot of attention because the results were surprising.
My post was based on a 2020 study from Harvard designed to test the effects of product cost display. The first experiment took place in a Harvard cafeteria, where researchers tracked actual purchases after students viewed comparisons.
When costs were factored in, soup sales increased by 21%.
The takeaway: Price transparency wins. Customers are more willing to pay if they know what makes the product.
Make the difference visible.
Imagine giving someone the equivalent of $1 and giving them a choice between two packs of gum. Same taste. Same product. Same price.
What’s going on? Impairment of decision.
In another South Korean study, participants in South Korea were given ₩1,000 and asked to choose between two identical packs of gum, each priced at ₩630. Only 46% made a purchase. More than half left.
Then, the researchers made one small change. They adjusted the prices a bit. One pack costs ₩620. Another type is priced at ₩640. Of this, 77% bought. A narrow margin of 20 wins led to a 31-point jump in buying.
Why does that happen?
When two options are similar, people find it difficult to decide. So if you are offering similar choices, find the distinguishing features. Make one cheaper, faster, or more attractive. That small change can make a big difference.
Small nudges can work.
None of the above strategies change the products themselves. Each method simply changed the way the price was presented. Those small shifts in queuing have dramatically changed what people choose. So remember: Small shifts can help products stand out, make deals feel more important, and entice consumers to buy.
Start experimenting and see what works for you.
