02 Dec Increase sales by optimising your prices
Rational choice theory has traditionally told us that humans are rational creatures making rational choices. This view was changed in Dan Ariely’s book Predictably Irrational (2008). Ariely describes research which proves that humans are highly irrational. He explains that different pricing strategies can affect buyers differently – and that the cheapest item is not always necessarily the most popular.
We can use this information when we price products and services.
- Offering something for “a small £5 fee” sold 20% more compared to when they offered the same item for “a £5 fee”. The adding word small to the text made people think that the fee was indeed small, and they were more likely to buy.
- £1499 sells better than £1,499.00. Prices without zeros and commas are perceived to be cheaper, so present your prices as simply as possible.
- They tested a piece of clothing, priced £35 or £39. To everyone’s surprise, the item sold more when it cost £39. This was also the case when the item was discounted. “Reduced from £70 to £39” sold more than “Reduced from £70 to £35”. Numbers ending in 7 or 9 seem to be the best at converting sales, so you could try considering this in your pricing.
- In a test, the researchers offered chocolates for free. Many people grabbed a chocolate or two, happy to accept a free item. When increasing the price to £0.01, less people came up to buy a chocolate, but the ones who did typically bought multiple chocolates. It seemed that when the chocolates were free, people did not want to take too many, and made sure to leave some for others. This was not the case when people paid for the chocolates; they felt happy to buy exactly as many chocolates as they wanted, without feeling socially obligated to leave any behind.
Behavioural economics is the science that explains how people can be influenced to buy certain items at certain times. It’s highly worth looking into if it’s your intention to increase your sales. We highly recommend Ariely’s book for an interesting and educational read.
Alan Davidson is a Chartered Accountant, director and founder of Pentins Business Advisers, entrepreneur and author of the Amazon best-seller “Achieve Your Business Vision”. With over 25 years of helping businesses succeed, Alan knows how to build a business with real value, while avoiding costly mistakes.