The Psychology Behind Making Sales and Setting Price Points
This article is a reprint of Wise Bread's contribution to OPEN Forum from American Express -- where small business owners can get advice from experts and share tips with each other.
Setting price points and making sales involves a delicate balance between offering value (i.e., what the customer demands) and making profits (i.e., what you need). Here are a few techniques that create value for your customers while keeping your profit margins reasonable. In fact, in some cases you can even get your customer to buy considerably more than they planned to — happily.
Stop "Selling"
Most consumers are on guard as soon as they hear the word "sales" and cringe at the concept of being "sold" something. Day in, day out, we endure sales pitches of all kinds, in all formats. On television, in newspapers and magazines, on billboards, on public transportation, in stores, online — the barrage is constant. In fact, I'll bet that no matter where you are right now, you can't last more than a few minutes without having some sort of advertising thrown at you.
Because of this torrent of sales pitches coming at us, we've become desensitized to it. Most of the time, we don't even see the sales pitches any more, and if we do, we tend to run in the opposite direction as quickly as we can.
Sales gets a bad rap these days.
So how do we sell our customers on the awesome value of our product or service without making them feel like they've been "sold" to?
Let Them Choose
Scenario One: You walk into a movie theater. There are two sizes of popcorn offered: small for $4 and large for $6. Which one do you buy?
The large is probably a little over-the-top since you just had dinner, so you choose small and probably order a drink to go along with it (more on this later).
Scenario Two: You walk into a movie theater. There are three sizes of popcorn offered: small for $4, medium (formerly large in the previous example) for $6, and large for $8. Now which one do you buy?
Nine times out of ten, you'll probably choose the medium size. It doesn't fall to any sort of extreme in terms of size or price. It simply seems the right thing to do.
Yet, in scenario one, you were loathe to gorge yourself on a "large" popcorn — the very same popcorn which seems to be a nice moderate option in scenario two.
What gives?
People want choice, and they don't like to make waves. The easiest thing for most people to do when making a quick choice is to go with the middle option, so make sure there's a middle option available. By offering just two options or sizes, you could be limiting the number — and quality — of sales you make.
Provide Package Deals
Even easier than choosing the middle option is to choose just one option. Movie theaters are notorious for bundling their popcorn, drinks, and treats into one "special" deal, and once you're keen to the package-deal concept, you start to see it everywhere: package vacations (insurance and all), bundled internet and television, utilities, etc.
I was recently on a flight that offered light meals and snacks for a fee. There were a few package deals on the meal card, complimentary items like coffee and a muffin, or chips and soda. I was even tempted by a few of these "deals," until I did the math and discovered that the "meal deal" was not a penny cheaper than buying each item separately — and I realized that I didn't even really want what was on offer to begin with.
Something psychological happens when we see (well-presented) package deals. We see value. Look honey! For just one price, we can have all this. Most people won't take the time and effort to price out each component of the package, or even to question whether they would buy each component separately.
Fast food restaurants have tuned into this concept brilliantly; some stores don't even display individually priced items any more; it's all about the meal deal. There's a reason it sells: It's easy to buy.
Make a Special Offer
Similar to the package deal is the special offer. At a steak house the other night, the server came to the table and introduced himself. When he rattled off the specials, he piqued everybody's interest when he mentioned the lobster tail and steak dinner for what seemed like a reasonable price, especially after he detailed every component of the meal beautifully. The whole table said "I'll have that!"
Knowing that you can add a lobster tail to your steak dinner any time (and out of morbid curiosity), I calculated the original price of the "special offer" we just ordered. Surprise, surprise: It was the same price as it would be any day of the week.
What did the server do? He simply made it easy for us to order the lobster. Any one of us at the table might have felt we were going overboard by ordering the lobster tail if we did so directly from the menu, but when it was presented as a special, it sounded delicious and the price seemed reasonable.
Even after we realized that the steak and lobster wasn't really "on sale," none of us felt particularly duped. The server disclosed the price when he mentioned the special, and we agreed to it when we ordered the dinner (and the lobster was delicious). He even did such a great job of describing the meal that we enjoyed it even more when it arrived than we may otherwise have. He tantalized our taste buds with his special offer sales pitch.
How can you tantalize your customers' taste buds? Make a special offer easily available and attractive, and your customers will up-sell themselves.
Break Your Product Down into Components
Contrary to the package deal, you might be able to make more sales (depending on the product or service you offer) by breaking it down into many different components. Apple employs this concept, as evidenced by all the accessories they make for their products.
You can't just buy an iPhone; you also need some sort of case, screen protectors, and any number of other components that both personalize and functionalize your phone. When contemplating a full sales rack of components that make your phone even cooler, most people buy more than they originally intended.
The customer is happy: They personalized their iPhone with an array of products and accessories. In fact, with this strategy, Apple leaves the door open for more sales, since the customer can later buy even more components at their whim.
Despite a difference in approach, these strategies all follow a few common themes: Give your customer choice, and make it easy for them. Customers in a hurry (and let's face it — who isn't in a hurry these days?) will enjoy selecting a middle option when given at least three choices, and they will gravitate towards a package deal as long as it remotely resembles what they crave.
Meanwhile, customers looking for value will enjoy customizing their products or services with a menu of options or components that empower them, often buying more than they originally intended. We all still love a special deal, especially if it's so well-presented that it can't be refused.
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