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There have been many studies done over the last couple of decades to determine the psychology around prices and how this influences customer behaviour. These theories are not just for large businesses: you also, as a handmade seller, can take advantage of these learnings to really maximise your sales and profits.
Odd Numbers and Magic 9s
The most known theory is that “odd prices” (those that are just a little less than a round number, especially 9s) are perceived as lower than they really are - this is also known as “Charm Pricing”. This is due to the tendency to round numbers to the next lowest monetary unit. An example of this would be a product priced at $11.99 - customers tend to perceive this price as closer to $11 than to $12. This has been shown in some studies to increase sales by up to 25%.
This is the exact opposite of charm pricing: if you want your products to be perceived as higher quality, you should look at rounding your prices to the nearest whole number (i.e. $70) Some restaurants now employ this strategy across their menus to denote that their dishes are expensive and luxurious.
Bracketing and Anchoring
This is a tactic which works well if you can create different versions of your products - the psychology theory being that if you offer 3 options of the same product (i.e. Basic, Regular and Premium) this encourages more sales of the Regular product. In this case, you would be creating basic and premium versions of your product to drive more sales of your regular one. This strategy only works if you can present the 3 options to the customer at the same time: either by clever placement in a market stall setup, or via a webpage that shows all 3 products together in some way.
Examples of bracketing and anchoring could be a series of lavender soaps in which your premium version includes gold flakes and fancy packaging, your target product has a blend of lavender oils and has a lovely purple shade, whereas your basic option is made without colorant and is presented very simply. The theory indicates that your target product will be the most popular - while some customers may plump for the gold flake edition and others may prefer the basic version, most will decide to purchase your target option.
Many sellers assume that the more choices they offer, the more likely customers will be able to find a product that suits them. This leads to handmade sellers offering a huge array of different colorways and patterns for their products. Research however suggests that there becomes a point where there can be too much choice for the customer, and in this situation they are more likely to walk away than to make the purchase. They also often report being less satisfied with their selection if faced with a large choice than if a handful of product options are presented.
If you have control of how your prices are displayed, you should also contemplate these pricing tricks. Removing the dollar sign completely can lead to customers thinking that the price is more cost effective than it actually is. The psychology is that the dollar sign ($) is hugely connected to our own personal idea of how wealthy we are: the mere sight of it can instantly trigger feelings of how little we currently have of it! Of course, this strategy can only work in situations where it is completely clear what currency the price is in: for online sales, due to the possibility of international sales, this pricing trick isn’t recommended.
One of the biggest advantage as a maker is that you can create products that are unique and completely different to your competitors. Unique products are equated with a feeling of rarity and of FOMO (Fear of Missing Out) - both of these can mean that you can be more daring with your prices as customers are likely to be less price sensitive in these situations.
Hope this article gives you some inspiration on how to consider tweaking your product pricing to maximise your profits!