Howard Schultz said, “The challenge of the retail business is the human condition.”

To his credit, Schultz has sold more coffee than I ever will. Maybe it’s a tough business. Maybe there are some real hazards and hang-ups in caffeine retail that I’m not aware of.

In my experience, however, the reality of the human condition is not a challenge to selling; it’s an advantage.

By uncovering the power of the human condition — its psychological disposition — you can gain a marketing advantage that is nearly unfair.

Nowhere is this more powerfully demonstrated than in product pricing. Humans have a fascinating connection with their money. When you understand how to motivate purchase through pricing strategies, you have found the combination to the vault.

All you have to do is open up the vault and take out the cash.

Product Prices and Cognitive Biases

One of my smart friends, Roger Dooley, said this: “We think of ourselves as being rational, a sort of human calculator.”
human calculator

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Of course, his point is that we are not human calculators, and we are definitely not rational.

humans not rational

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There’s this whole thing called “cognitive bias” that literally messes with your mind.

cognitive bias

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The issue of price is solidly within the realm of psychology. Why? Because cognitive biases play a massive role in product pricing.

Mental heuristics shape the entire internal processing of a price’s fairness. Past experience defines the buyer’s present attitude towards pricing, upsells, tiers, add-ons, and checkout.

It’s a mind game.

And that’s where so many people get it dead wrong.

They assume that the whole pricing discussion should be left to be decided by executives with pie charts and PowerPoints.

Do you want to know what I think of that?

facepalm

It’s time to wrest pricing from the possessive claws of sales management, and apply the dark arts of conversion psychology. While boardroom discussions are fine and all, pricing is an arena in which psychology reigns supreme.

meeting control

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So, let’s turn up the volume on psychology, show the hand and unleash these nine killer pricing tricks that can potentially turn your struggling conversion rates into a cataract of cash.

1. Use Fitts’ law.

Fitts’ Law says that the closer and bigger a button, the easier it is for people to click on it.

Big button. Easy click.

Done.

Okay, it’s actually a bit more complicated than that.

Fitt’s law

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To be more precise, Fitts’ law is a description of customary human psychomotor functionality.

“Psychomotor” has to do with human mental activity with motor (muscular) effects. Although we work in the realm of e-commerce, we have to keep in mind that people are actually doing things with their muscles as they visit our websites. They move their eyes, they move their hands, they click trackpads and tap screens.

People can’t click the “buy now” button without psychomotor functionality. Fitt’s law gives us a model for that psychomotor activity.

The model is this: “The closer and larger the target, the faster it is to click on that target.” (source)

So for example, LibreOffice uses a big, fat, green CTA. It’s close. It’s big. It’s Fitts’ Law.

LibreOffice cta

Here are the pricing applications of this law.

  • For product pages, make the “buy” button large and accessible
  • Put the biggest and closest button on your preferred pricing tier.

Notice how Amazon.com uses Fitts’ law in their product-page arrangement.

First, the eye looks at the product image, then scans the information, then sees the design-differentiated “Add to Cart” button. The psychomotor response to the right-to-left saccade is to move the cursor and click the button.

Check out my messy diagram:

amazon Add to Cart button

See how it works?

Fitts’ law is trajectory-based. In other words, you must be aware of the user’s mental and eye motion as they navigate the page, and place the CTA where their cursor is most likely to be.

UnderArmour’s conversion path is genius. Although not possible to diagram pictorially, they place the “Add to Cart” CTA so that it is positioned very close to where the cursor is located based on the previous page’s click position.

Their product page itself follows a Fittsesque (made up the word; don’t mock) model of saccades and psychomotor result.

underarmour add to cart button price page

As a final example, take a look at Treehouse. Their signup page has two options. The Pro Plan (more expensive) is big. According to Fitts’ Law, it’s more likely to be clicked. Treehouse wins.

Treehouse price product page

2. Put the most expensive one first.

One often-overlooked mental conversion trick is to place the most expensive item where the user sees it first.

When you put your most expensive item first in the user’s eye path, you are doing two smart things.

  • You are increasing the likelihood that they will choose it.
  • You are anchoring the high price in their mind. Any lower prices will be automatically compared with the first price that they saw, creating the illusion of a discount.

Customers are comparison shoppers. They are comparing your product prices with your product prices. Since you get to control this comparison, make it smart.

Here’s how The Persuasion Revolution puts it:

The way it works in pricing is to rearrange your products in such a way that the most expensive offering appears first. This is similar to the concept of restaurants using an anchor dish in the menu, which is only meant to prime the buyer’s mind into expecting more large ticket items on the menu. When the rest of the items are lower (ideally much lower) than the primer, they seem like a better choice and therefore prompt buyers into looking at it as an irresistible offer.

I was not able to find any good examples of this. There is a trend in e-commerce to order pricing tiers from left to right in increasing cost order.

Here is the lone example that I found. BarkBox features a monthly plan, and puts the most expensive (and shortest one) first:

Bark box sing up page

3. Make the dollar signs little.

According to CBS, “prices marked with dollar signs have been proven to reduce consumer spending.”

Wait a second. Reduce consumer spending?

Reduce consumer spending

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That’s exactly what you don’t want to do. You don’t want to reduce consumer spending. So what should you do?

Make the dollar signs go away.

A group of really smart researchers at Cornell put this theory to the test. They tested customers at a restaurant, to see which group of customers spent more.

One group had menus that featured the pricing in numbers only (no dollar signs). Another group had menus that featured the pricing along with the customary dollar sign ($).

Which group spent more?

The group with the menus that lacked the dollar sign.

They spent considerably more.

The psychological explanation is quite simple. People have a visceral reaction to the dollar sign. If the context is earning money, then the dollar sign has a positive psychological response.

money

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But if the context is expenditure, the dollar sign is negative. Researchers commented, “The dollar sign and the word ‘dollar’ reminded folks they were about to spend money.”

By removing that dollar stuff, you can minimize the cognitive friction associated with spending.
The problem is, you can’t just whack off dollar signs without immersing yourself in an imbroglio of consumer confusion and frustration.

So what should you do now? Make the dollar signs less obvious.

Here’s how Xero does it. Notice those little bitty dollar signs.

xero price page

Here’s another one. This is Squarespace.

Sqaurspace price page

And, wow, these are tiny:

square space tiny pricing options

4. Prestige pricing

One great technique is known as “prestige pricing.”

Prestige pricing is the simple act of making a price high for the simple purpose of making it more appealing to customers who are willing to spend more for the sake of vanity.

The technique itself is simple. You have two similar products. You place them side-by-side. One is moderately priced. The other is astronomically priced. Which one are customers going to buy?

An article at Price Intelligently explains the concept in honest terms using Nike as an example:

So how could I shell out so much cash for premium sneakers? After all, they didn’t even fit my humongous feet (size 13 wide, it’s a curse). My only explanation is that I valued the Nike brand more than the actual functionality or quality of the product, and it didn’t matter how expensive the shoes were. In fact I’m not sure I would have been quite as interested if the price was lower.

The psychological theory behind prestige pricing is that a customer is focused, not on the price, but on the image and/or value of the product. A higher price intuitively signals the mind’s decision-making portion that there must be a higher value since the price is higher.

Prestige pricing is used by companies like Nike, Rolex, Bentley, BMW and other luxury-level brands.

Sure, they sell great products. But is the greatness of the products equivalent with the actual function and value? Not really. It’s the status, the prestige, the feel of the purchase.

Apple sells stuff that is expensive. This iPhone 6 has the bells and whistles — and brand cachet — that bring it to a $949 price tag.

iphone 6 price page

This Samsung, by contrast, costs less than half that amount.

samsung galaxy s4 price page

The features are roughly equivalent. The Galaxy may actually have a few more features. But a customer is more sensitive to brand and perceived value than price.

5. Use the anchoring effect.

The anchoring effect happens when people make a decision based on the first information that they encounter.

This technique is so common that it’s easy to miss. You’re in Kroger’s. The Doritos are on sale. “WAS $4.99. NOW ONLY 3.99!”

doritos product

Your mind is anchored by the $4.99, so you think that $3.99 is a killer price.

Anchoring effect, most capably postulated by its brilliant popularizer Daniel Kahneman, is a ubiquitous pricing technique.

Here’s how you can use it. The first number that a customer sees is the number by which they judge all other numbers that they see. So, show your highest number first, to give the perception of a lower price throughout. (This is similar to “Put the most expensive one first,” explained above.)

Here’s how one SaaS presents their prices:

SaaS price page prices

That $99 number is the anchor. Everything else listed to the right looks like a killer deal.

This is a powerful technique. I’ve explained it in detail in another article. I recommend that you read it if you want to become a millionaire someday soon.

6. Foot-in-the-door technique.

The foot-in-the-door technique is a compliance tactic. You want to get the customer to agree to your large request, such as a major purchase. To get them to do that, you first have to get them to agree to something small.

First get a small “yes.” Then get a bigger “yes.”

This is how it goes:

  1. Sign up for my newsletter. (Little yes.)
  2. Buy my online course. (Big yes.)

Or …

  1. Give me your email address. (Little yes.)
  2. Buy my ebook. (Big yes.)

There’s a lot more on this topic that I explain here.

foot in the door explained

7. Door in the face technique

The psychological opposite of the foot-in-the-door technique is the door-in-the-face technique. Instead of asking for a small yes, you ask for a “big no.”

  1. Will you buy this $19,089 product? Big no.
  2. Okay, then will you buy this $19 product? Yes.

Cialdini et al., tested this theory by asking subjects for a big favor, followed by a smaller favor. Respondents who were primed with the big favor were far more likely to respond affirmatively than were subjects who were asked only for the small favor.

The priming — that door-in-the-face — ideally increased the likelihood of a “yes” on the second go.

8. Make every choice easy.

Every choice is an effort that drains a little bit of mental power every time.

The more decisions we make as the day goes on, the less ability we have to make good ones.

Take the well-known case of an Israeli court. Researchers found that prisoners who appeared before the court early in the morning received parole 70% of the time. But prisoners who appeared at the end of the day got parole only 10% of the time.

Why? Because the judges had made so many decisions that by the time 5 o’clock rolled around, they were getting tired. They weren’t being lazy. They were just decisioned out.

lazy

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Decision fatigue is real, and it makes an impact on every area of life. President Obama has a limited amount of decision-making ability by which he must guide the nation’s policies. To save his decision-making power, he always wears the same suit. Why? So he won’t have to waste precious decision power on the decision between dark gray or dark blue (unless he wears a tan one).

Brain power is a resource. Your goal in the conversion funnel is to reduce the amount of decision-making by your customers. The less you tax their mental resource, the more likely they are to use that brain power for punching in their credit card info at the end.

Audible has a great strategy. Just two choices.

audible price page option

MixPanel has an awful strategy. Too many choices.

mix panel bad price page

And Karma is even better. One choice. One.

Karma price page

9. Tell them which one to buy.

All too often, we’re scared of telling people what to do.

In reality, most people want to be told what to do.

people wna tot be told what to do

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And you’re the one to tell them. If they are in a conversion-ready position, then you need to coax them along to make the best decision.

Have you ever seen this happen in a restaurant?

Guest: “Hmm. I don’t know. What do you recommend?”

Waiter, thinking about her tip: “Oh, I really like the strip steak paired with the Chateau Margaux 2009.” (Price: $190)

Guest: “Oh, that sounds good. I’ll get that. Medium rare, please.”

Just tell them what to do, and they’ll do it.

not bossy

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Persuasion is good, but sometimes directives work better.

You can, of course, be subtle. The “most popular” tag above the middle price is one such example of a subtle directive.

subtle directive

Xero does the same thing.

xero use of subtle directive

A similar nudge comes by differentiated design, as in the case of ZenDesk’s vivid green middle choice.

zendesk nudge in price page

Conclusion

Pricing is about smart. It’s about strategy. It’s about psychology.

When it’s time to hammer out pricing, place the discussion of profit margins and pie charts off to the side, just for a minute.

Instead, think about the tips, tricks, hacks and psychological insights that can take a pricing page from bland to brilliant. Just one of these tricks can make you that much more profitable.