The Scientific Pricing Strategy: Psychological Pricing
Have you ever wondered how a 99 Cents Only store stays in business? What about the exorbitant prices Nike charges for its products? Have you ever been lured to buy more than you intended because a BOGO offer seemed too good to pass up? If you answered yes to any of the above, then it’s time to learn about the psychology of pricing and how it impacts your cannabis customers’ decision making.
For decades, researchers have questioned why people perceive certain prices as bargains. In virtually every retail environment, you’ll find items priced at $.99, $9.99, and $999. Retailers use “nines” for good reason – serious science shows that those numbers have a positive psychological impact on consumers.
Charm Pricing Makes Your Brain Happy
Honestly, there’s only a one cent difference between $10 and $9.99, but that difference appears to trigger something in the brain that perceives $9.99 as far less than $10. If you decide to try this in your store, be sure the leftmost digit on the price tag changes (i.e. from $20 to $19.99). Lowering a $10.70 sticker to $10.69 will have no mental impact on consumers. But if you mark something $29.99 instead of $30, then you’ll probably see results.
Beware of Promoting Charm Pricing
Research suggests that customers are more likely to purchase items with charm pricing when they’re not marketed as being on sale. Apparently, our brains switch off that discerning value switch whenever we’re told that something is a deal. So, if you want to get the most out of this approach, use it cautiously and not on every item.
On the pricing flipside, certain items that should cause sticker shock simply don’t. For instance, you’ll never see a Rolex on sale … or for $9999. Why? Because luxury brands command higher prices.
When Prestige Pricing Makes Sense
Occasionally, you’ll have products that are hard to come by and of extremely good quality. When this is the case, your store’s bottom line will benefit from higher pricing.
Know Your Competition Before Pricing
Most people gladly pay more for quality items … but do your local homework first to avoid sending your customers to your competitor’s shop. Prestige pricing only works when the “hard to find” or “high caliber” aspects of a product are authentic. You can’t smoke the competition if your prices are out of line.
One long running pricing strategy continues to appeal to both cannabis retailers and their customers: the “buy one, get one free” promotion. These can tempt even the thriftiest consumers to open their wallets without reservation.
BOGOs Boost Sales
It’s tough to pass up a good deal. And a “buy one, get one free” offer is no exception. Psychologically, our brains don’t do the math. We rarely hear that internal voice saying, “If you buy two, you’ll get them both for 50 percent off.” Nope. We just hear the word “free” and run with it. This strategy can work well if you’re meticulous about locating BOGO items next to higher priced products. Your customers will visually see the difference in prices and will likely add the BOGO to their cart.
The Downside to Psychological Pricing
As with everything in life, moderation remains the key. If you choose to rely heavily on any one pricing strategy, your customers may sense that your items are of lower quality or are overpriced from the start. You need to vary your pricing just like you vary your products. Run one too many sales, and you risk losing out all the way around.
Need More Guidance?
If you’re interested in learning about other pricing strategies and how to further set yourself apart from the competition, download “How to Price Your Products: A Guide for Marijuana Retailers.”