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Resourceful Designer: Strategies for running a graphic design business

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Resourceful Designer: Strategies for running a graphic design business
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Now displaying: August, 2021
Aug 30, 2021

I’m happy to announce that this week is, in fact, the final part of my Psychology of Pricing series, where I share research-proven tactics to make the most out of the prices you display. If you haven’t listened to the previous parts in this series, I suggest you go back and do so before continuing with this one. I'll still be here once you’re done.

These pricing tactics are great to use in your design business. But the real gem here is they can make you look like a pricing guru to your clients. Imagine improving their conversion rate simply by manipulating the way you display their prices. They’ll be throwing money at you.

As in the previous episodes. All of these tactics I’m sharing come from Nick Kolenda. Specifically, an article on his website nickkolenda.com titled appropriately enough The Psychology of Pricing.

The Psychology Of Pricing - Part 6

In the previous five parts of this series, I shared various ways to manipulate how a price is displayed to improve sale conversions. In this last part of the series, I’m going to share how to use discounts properly.

According to Nick, if not used properly, discounts can actually harm your business. In fact, some people suggest you should never use discounts. That may be a bit extreme. Discounts can prove useful if you know how to use them properly.

But how can offering a discount backfire?

For one, if you offer discounts too frequently, customers will become more price-conscious and wait for the next discount.

Offering discounts can also lower the reference price of a product. I’ve talked about reference prices in previous parts of this series and how they create the bar by which consumers judge other prices. Offering a discount can lower the reference price, causing people to purchase less in the future when the price seems too high.

So reducing the frequency and depth of discounts helps. But there are a few other tactics you can put to use that will help you as well.

Tactic 46: Follow the “Rule of 100.”

In a previous episode, I shared how people can perceive different magnitudes for the same price, depending on the context.

For example, changing the words that appear next to a price from “High Performance” to “Low Maintenance” can reduce the magnitude of the price, making it appear smaller.

Discounts are no different. When offering a discount, you want to maximize the perceived size of the discount so that people feel like they are getting a better deal.

Consider a pair of pants selling for $50. Which discount seems like a better deal: 20% off or $10 off? If you do the math, you’ll see that the discounts are the same. But at first glance, 20% off has the advantage by seemingly being larger than $10 off.

That’s where the “Rule of 100” comes in. If the price you are discounting is under $100, you should always offer the discount as a percentage. Saving 10% off a $20 item sounds much better than saving $2 off a $20 item. Don’t you agree?

However, as soon as the price you are discounting goes above $100, you should switch to an absolute price discount instead of a percentage. So for a $250 item, offering $25 off creates a higher perceived magnitude than offering 10% off.

Tactic 47: Mention the Increase From the Discounted Price.

This tactic also relies on magnitude. When a price is reduced, the emphasis is placed on the decrease—Now, 20% Off. 

However, a way to once again increase the perceived magnitude of the discount is by reversing the way you announce it. Instead of saying “Now 20% Off,” try something like “Was 25% higher.” It will make it more persuasive because it shows a higher numeral.

Tactic 48: Provide a Reason for the Discount.

To maximize the effectiveness of a discount, explain why you are offering it.

For example, stores may offer a discount because of inventory surplus. Or maybe it’s to clear out outdated stock. Clothing retailers do this all the time. When the new season’s fashions arrive, the previous season’s inventory goes on sale.

Or perhaps you can say you are passing on a discount you received from the supplier. Wal-Mart does this all the time with their Rollback pricing. It conveys the message that the cost savings they are receiving are being passed on to the customer.

If you offer print brokering as one of your design services, you may be able to increase orders by passing on any discount your printer offers you.

By providing a reason for the discount, you reinforce that this is a temporary or provisional thing. This will make it less likely for people to latch onto the discounted price as a reference price. And make it more likely to pounce on the discount before it’s gone.

Tactic 49: Offer Discounts in Round Numbers.

I don’t even know why this one is on the list. If you recall, specific prices, such as $21.87, seem smaller than rounded prices. Keeping that in mind, you should follow the opposite approach for discounts by using round numbers since they appear larger.

Using round numbers as discounts also makes it easier for customers to calculate the discount.

As I said, I don’t know why this one is on the list. I don’t think I’ve ever seen someone offer a non-rounded discount. Have you ever seen a store advertise something like “Save $8.67"? No, it’s either save $8 or $9.

I can say about this tactic that you should try to ensure that discounts are easy to compute. You don’t want to confuse people by offering a 23% discount on a price of $37.89. If they need to take out their calculator to figure out how much they are saving, you are missing the point.

Tactic 50: Give Two Discounts in Ascending Order

This is useful for those occasions when more than one discount is applied. Say, for example, a store offering 20% off all purchases, including already discounted items.

A 1979 study showed that offering two combined discounts is often preferred to a single lump sum discount. Saving 20% off an already discounted item by 10% seems like a better deal than if the item was marked at 30% off.

Whenever possible, arrange these discounts in ascending order. So 10% off, then 30% off. a 2019 study showed that this creates an ascending momentum, making the total discount seem larger.

Tactic 51: Offer Discounts Towards The End Of The Month.

Remember that Pain of Paying thing? Well, as your budget gets smaller, paying for things becomes more painful. You’re more likely to buy a product and be more satisfied with your purchase when you have more money in your budget.

Offering discounts towards the end of the month, as monthly budgets are nearing exhaustion, is more effective because people seek ways to save money.

Bonus Tip: If you have clients who offer free trials, you may suggest they do so at the beginning of the month. Because people have a full budget at the beginning of the month, the offer of a free trial will seem more appealing to them.

Of course, this assumes the consumer uses a monthly budget. You should always consider the target customer and plan your promotions accordingly.

Tactic 52: Arrange Discounts in Tiered Amounts.

Suppose you or your client launch a promotion where customers save $50 when they spend $200. In this scenario, people need to spend $200 – which might be difficult for some people to imagine.

To make this discount more enticing, you need to strengthen the mental imagery of spending $200. How? By offering tiered discounts. Such as...

  • $50 off when you spend $200
  • $25 off when you spend $150
  • $10 off when you spend $50
  • $5 off when you spend $30

A customer might struggle to imagine spending the full $200 to get the biggest discount. However, spending $30 to get $5 off is easy to imagine.

And this is the brilliance of this tactic. Once a client can imagine spending $30, it becomes much easier to imagine spending $50. Then it becomes easier to imagine spending $150 and finally $200.

You provide a sequence of images that transform that highest threshold into a feasible reality by offering tiers.

This is the same reason the three-tiered pricing system works so well. When clients compare the first price in your three tiers to the second, they realize how much more value the second tier is, even if it’s higher than they originally wanted to spend. And once they are entertaining that second tier, the third one doesn’t seem like a big stretch, and they may go for it.

This tactic might also be used to sell bigger retainer agreements. For example, if you normally charge $100/hour for your design services, you could sell retainer agreements such as this.

  • $70/hour if they buy 20 hours per month. Total $1400
  • $80/hour if they buy 10 hours per month. Total $800
  • $95/hour if they buy 5 hours per month. Total $475

Tactic 53: End Discounts Gradually.

Traditionally, marketers use two types of pricing strategies: Hi-Lo Pricing, such as putting a $99 product on sale for $79 for a week and then putting the price back to $99 once the sale is over. Alternatively, some use EDLP or the Everyday Low Pricing method. They take a $99 product and list it permanently at $89.

A 2010 study found benefits in a new strategy: Steadily decreasing discounts (SDD for short).

Instead of dropping a price and then putting it back. This SDD strategy suggests you drop a price and gradually increase it until you’re back at the original price.

So a $99 product might be discounted to $79 for one week, then $89 for an additional week before returning the price to its original price of $99 on the third week.

The researchers found positive outcomes on multiple metrics. This new SDD strategy led to.

  • Higher revenue
  • Higher willingness to pay
  • Greater likelihood of visiting a store.

During a 30-week trial, the researchers alternated between the three strategies and found that the SDD method produced the highest overall profit margin.

With the SDD method, consumers learned that they had to get to the store early if they wanted the best deal. However, if they could not make it on time, there was still a chance for them to save money before the price returned to full.

Tactic 54: Don’t Discount Premium Products.

Remember at the beginning of this episode when I said that discounts could be harmful. This is especially true when you discount premium (AKA expensive) products.

It’s harmful because people may choose to hold off on purchasing until there’s a new discount when the discount ends. Or worse, they may choose to shop at a competitor.

When a discount is retracted on a premium product, demand shifts towards lower-priced products, however, when a discount is retracted on lower-priced products, the demand remains the same.

This boils down to that if you are competing on price, it’s ok to give discounts. But if you’re competing on quality, you should avoid discounts that emphasize price and focus on the attributes and quality of the product.

Have you used any of the tactics I've shared in this series?

Let me know by leaving a comment for this episode.

Aug 23, 2021

This is week five of my Psychology of Pricing series. Where I share research-proven strategies to help the prices you display convert into sales. Some of these pricing tactics work great with your design business, and many of them are perfect for helping your clients get more sales.

So if you haven’t read or listened to the previous parts in this series, I suggest you do so before continuing with this one.

The tactics I’m sharing here are taken from a very in-depth article called The Psychology of Pricing by Nick Kolenda. You can find it on his website. Let’s get on with the list.

Tactic 35: Place Low Numerals After Right-Facing Digits.

As a designer, you know how to create flow in a design. For example, If a person is looking to the right, you want to put their photo on the left of a layout. If they’re facing the left, you want them on the right of the layout. This creates flow in the direction you want people to focus on.

There are many ways to create flow in a layout besides which direction a person is facing. One of the ways you can do it is with numbers.

A 2007 study determined that certain digits face particular directions.

  • 2,3,4,7,9 face the left.
  • 1,8,0 face centre.
  • 5,6 face right.

Rightward digits 5 & 6 push attention towards the right. When used in a price, they push attention towards the digits that follow them. Since customers tend to round numbers up or down, you’ll want to place a lower number next to a right-facing digit causing customers to round down the price.

Conversely, leftward digits, 2,3,4,7 & 9 push the attention towards the left. This means that customers may ignore a large number placed to the right of them.

Tactic 36: Insert Alliteration into Prices.

Alliteration is the repetition of similar initial sounds within a group of words. Such as Karl craves coconut cookies with a repetitive hard "C" sound.

There’s something about alliteration that feels good. It feels right. And that feeling can be misattributed towards another context. A 2016 study found that customers were more likely to buy products when alliteration was used.

For example, “Two T-Shirts for $20.” The repetitive “T” sounds make the purchase feel right.

Tactic 37: Use Round Prices in the Right Context.

Rounded prices, those that don't display cents, should be used for emotional purchases. Non-rounded prices, those that display cents, should be used for rational purchases.

There are three contexts when you should consider using round prices.

1) Emotional Purchase.

Because round prices “feel right,” they are good for emotional purchases over rational purchases.

A 2015 study found that customers prefer buying something such as a bottle of champagne for a rounded price such as $40. Whereas when buying something such as a calculator, they would prefer a non-rounded price of $39.72.

2) Convenience Purchases.

Round prices that “feel right” also trigger an “easy” sensation. Making a transaction seem easy and a good choice.

A 2016 study found that using round prices on point-of-sale items at a checkout counter increased sales.

3) Social Benefits.

Customers prefer round prices for social products. Since round numbers are easily divisible, people confuse numerical connectivity for social connectivity. For example, charging $457.99 for a four-day conference may seem expensive to someone because they see it as a high price for one social benefit.

However, charging $400 for a four-day conference makes it easy for people to think of it as $100 per day, which may sound more reasonable to them.

Tactic 38: Distinguish the Most Expensive Option.

This tactic works great with the three-tiered pricing method when quoting design projects.

In a previous part of this series, I said you should sort prices from high to low. But there are ways around that.

As designers, you know that design can have a hierarchy. A good designer knows how to lead a viewer's eye from one design section to another in a predefined path. So instead of putting the highest price first, you can achieve the same effect by adding visual distinction to the most expensive option.

You see this all the time on websites with pricing pages where one price is highlighted as the “best option.” By making something stand out, you set it up to be viewed first, creating a reference price in the viewer's mind. And if that first price they see is the highest priced option. The lower prices will seem much more appealing to them.

Tactic 39: Attribute Discounts to Emotional Products.

Face it. We like buying emotional products. I mean, nobody needs a cupcake, but that doesn’t stop you from wanting one. The problem with emotional purchases is you often feel guilty after you’ve spent the money.

A 2010 study showed that attributing a discounted price to the emotional product reduces the guilt associated with the purchase.

For example, a restaurant may sell salads and cupcakes individually for $3 each. But they have a special offer where you can get a salad and cupcake together for only $4. Saving $1 off each item is a great deal. However, they can make the deal seem even more appealing if they word it as buy the two together and save $2 off the cupcake price. Associating the discount with the emotional product, in this case, the cupcake reduces the guilty feeling of buying it.

Tactic 40: Encourage Customers to Budget Early.

Budgeting is a good thing, right? Well, not always. In fact, budgeting sometimes increases spending. Why is this? Budgeting separates you from your money. It’s put away for a specific purchase, and the farther removed it gets, the less pain you feel spending it.

A 2021 study showed that students spent more money on a class ring when they budgeted early for it.

When a client tells you they don’t have the money right now for a website redesign, you could suggest they start budgeting for it now so they can afford it when the time comes. Who knows, you may end up with a bigger project this way.

Tactic 41: Make Sales Prices Look Different From Original Prices.

A 2005 study showed that adding a visual distinction to a sales price, such as colour, point size and even the font used, increases sales. It’s called contrast fluency. It’s a trick they often use in infomercials. When an infomercial shows a person struggling with their problem, the colours are usually dull and muted. Then things clear and brighten up when they show the person using the product they’re selling.

With contrast fluency, your brain misattributes visual distinctions to abstract distinctions: Hmmm, this sales price feels different. Which must mean it’s a good deal.

Tactic 42: Add Space Between Discounted Prices.

A 2009 study showed that placing more space between an original price and the discounted price creates cognitive confusion, causing people to interpret the visual distance for numerical distance.

The further apart numbers are visually, the further apart they appear to be numerically. Add space between the original and sale price so that the numerical gap seems larger.

Tactic 43: Place Sales Prices Below Original Prices.

A 2013 study found that customers perceive a larger discount when the sale price is positioned below the original price. This is because it’s easier to subtract two numbers when the larger number is first and the smaller number second.

If you don't have enough room to put the sales price below the original price, you can place the sales price to the right of the original price for the same effect.

Tactic 44: Reduce Every Digit in the Discounted Price.

Unlike words, people read numbers in a digit-by-digit manner. A 2008 study showed that reducing every digit in a sales price increases sales. Suppose the original price is $85; you’ll want each digit to be reduced by at least one. So the sales price might be $74.

This tactic works great with larger numbers. A product that sold for $9799 might be reduced to $8650.

Tactic 45: Offer Discounts With Low Right Digits.

When the left digit in both your original and sale price is the same, using a low right digit will make the discount seem larger.

For example, if you take two different sales.

  • Item 1: Original price $19–Sale price $18.
  • Item 2: Original price $23–Sale price $22.

Even though both items are on sale for $1 off, item 2 seems to offer a larger discount. This is based on numerical cognition. We compare numbers in relative terms. $10 off a $50 product is more appealing than $10 off a $500 product, even though the money you save is the same.

This same mental process occurs when you compare small numbers with large numbers. A 2007 study found that because the number 3 is 50% greater than the number 2. It’s perceived as a greater gap than the difference between 7 and 8, which is only a %14 difference. Therefore, dropping a number from 3 to 2 seems like a much better deal than dropping from 8 to 7.

The same 2007 study showed that even when an actual larger discount was applied to prices with large right digits, people perceived the discount to be less than when a smaller discount was applied to prices with small right digits.

It’s amazing how the mind works.

If you find that hard to comprehend, try looking at it this way. And this is me saying this, not Nick. The way I see it. Numbers between 6-9get rounded up, and numbers between 1-4 get rounded down. Therefore using a low number as your right digit will lower the perceived price.

  • $17 will be rounded up to $20
  • $13 will be rounded down to $10.
Aug 16, 2021

This is week four of my psychology of pricing series. Where I share research-proven strategies to influence people to part with their hard-earned money, some of these pricing tactics work great with your design business, and many of them are perfect for helping your clients get more sales.

If you haven’t listened to part 1, part 2 or part 3 of this series, I suggest you do so before continuing with this one. Let’s continue with the series.

As previously mentioned, I took the tactics I’m sharing here from an article by Nick Kolenda on his website nickkolenda.com on the psychology of pricing. Nick has links to many of the studies I mention in these episodes.

Let’s get on with the list.

Tactic 29: Create a Payment Medium.

If you’ll recall the last episode, I talked about the Pain of Paying. That feeling we get when we have to part with our hard-earned money. Tactic 29 offers a great way to reduce that pain by creating a payment medium between the money spent and the purchased product.

What is a payment medium? Casino chips are a great example. When gambling at a casino, it's much easier to place a $10 or $20 chip on the table than it would be if you had to put a ten or twenty dollar bill down. Casino chips act as a buffer between your wallet and the act of betting, which reduces the Pain of Paying.

Another way this works, and possibly a way for you to incorporate this into your design business, is with advanced payments.

If you charge clients by the hour, Instead of offering a monthly retainer agreement, you may instead offer a discount if a client pays for a pool of hours upfront, to be used at a later date.

For example, if your regular rate is $100 per hour, twenty work hours should cost $2000. However, you could offer clients twenty hours of work to be used later for $1900. Your client would get 20 hours of your time banked for future use at a discounted price. The next time they have a design project, it won’t cost them anything because your time is already paid for. This creates a payment medium reducing the pain of paying.

Should the client have a design idea they want to explore, it will be much easier for them to justify spending hours they’ve already paid for than it would be for them to justify spending the money on their idea even though it works out to the same thing in the end.

Another thing to consider is a refundable deposit. Someone starting a venture that requires people to open an account to make purchases may require them to make a $50 refundable deposit when opening their account. This $50 can be used for future purchases or returned should the purchaser decide to close their account.

Since the money required to open the account is refundable, there will be less resistance to depositing it. More importantly, the deposit now acts as a payment medium. People will be more willing to spend it on a purchase since it doesn’t feel like money coming out of their pocket.

Tactic 30: Avoid Language Related to Money.

This tactic works great when combined with tactic 29 above. Instead of referring to deposited money as money, you may want to refer to it as something else, such as credits.

For example: Instead of clients buying 20 hours of your services. You have them buy 20 design credits, where each credit is worth up to 1 hour of design time. Then, when a client asks for a quote on a new design project, you can say it will cost them X credits.

A 2004 study showed that using credits creates an off-balance conversion between the money and the value. This conversion creates a payment medium that is more effective as it’s more difficult for the customer to convert the values.

A client with 20 design credits is likely to be more willing to spend 3 credits on a new project than spend $300 on it. Even though the two are essentially the value.

Tactic 31: Emphasize the Inherent Costs of Your Product.

People don't just care about the perceived magnitude of a price, for example, whether it’s high or low. They also care about the perceived fairness of a price.

Even if you price something low, people could still perceive it to be unfair. The opposite is also true. People could perceive a high price to be fair. It all depends on your pricing method. Cost-Based Pricing or Market-Based Pricing.

Cost-Based Pricing: Prices based on cost factors such as the cost of the materials.

Market-Based Pricing: Prices based on supply and demand or the competition.

Most people view cost-based pricing to be fairer than market-based pricing. And you can increase the perceived fairness of a price by emphasizing the inherent cost of the product.

Since consumers don’t know the actual cost and markup of an item, making the relevant cost and quality information transparent helps them make their purchase decision.

How does this work?

It’s quite easy. Emphasize the product's “top-of-the-line” materials or any other cost-based input.

Instead of advertising a new beverage as Delicious, say something like this new beverage uses naturally sourced organic ingredients. Including this information triggers a more empathetic perception of the price, causing people to imagine it's worth more. This will translate into more people willing to buy it.

Tactic 32: Add Slight Price Differences to Similar Products.

Whenever you have multiple options for a single product, you create a Paradox of Choice.

When presented with multiple options, people feel less likely to choose an option. That’s because once they choose an option, they lose the benefits offered by the other options. This loss aversion causes them to hesitate or postpone their decision. This feeling increases as more options become available.

In a 2012 study, two groups of participants were asked if they wanted to purchase a pack of gum. Each group had two options.

Group 1: Two different packs of gum priced at $0.63 each.

Group 2: One pack of gum priced at $0.62, and a different pack of gum priced at $0.64.

Surprisingly only 46% of people in group 1 chose to purchase a pack of gum. Compared to 77% from group 2. Why did this happen?

It’s kind of weird. When the two packs of gum shared the same price, people perceived them to be less similar. However, adding the small price difference increased the perceived similarity of the two packs.

This happens because when the two packs of gum are priced the same, people can’t distinguish between the two based on price. As a result, they look for other differentiating characteristics making the two products less similar. But when the prices were slightly different, people felt less need to compare the characteristics between the two packs of gum because they could differentiate them based on price.

Since the people in group two focused less on the differences between the two packs of gum, both packs maintained a higher degree of similarity, making it easier for them to choose a pack to purchase.

This tactic is used a lot on Amazon. Items that are available in different colours are priced differently depending on the colour option chosen.

Tactic 33: Use More Frequent (Yet Smaller) Price Increases.

Out of all the tactics I’ve shared with you, this is the one that I find mostly relates to designers.

The idea behind this tactic is to control price perception when it comes to price increases through what is called JND (Just Noticeable Differences).

Just Noticeable Differences: The minimum amount of change that triggers a detection. In other words, a difference that is just noticeable.

Increasing your hourly rate from $50/hr to $55/hr will be less noticeable than if you increased it from $50/hr to $80/hr.

Obviously, people take more notice of price increases when they are larger.

Unfortunately, most businesses, including designers, are guilty of avoiding price increases until it’s necessary. The problem with this is once you reach the point when it's necessary to increase your prices, chances are a tiny amount won’t help much, and you’ll need to increase it noticeably.

Many designers I know still charge the same rate as they did five or more years ago. As the price of everything increases with inflation, they are still making the same amount of money. When they finally decide to raise their rates, they’ll need to increase them significantly to catch up with inflation.

This tactic states that you should increase your rates or prices more frequently but in smaller amounts.

My suggestion is to increase your rates every January. Your clients might not even notice a small increase. And those who do won’t be too concerned with a small increase as they would if you increased your rates significantly.

Tactic 34: Downsize a Feature Besides Price.

The concept of Just Noticeable Difference can be used in other ways as well. It's used all the time in the food industry. Instead of raising the price of something, they reduce the size instead.

For example: Instead of raising the price on a 500g bag of chips, the chip company will instead use the same size bag at the same price but reduce the contents to 450g. This saves them money, and most customers won’t notice they’re getting fewer chips in the bag.

A variation of this tactic can be used when negotiating prices with clients. If a client thinks your price is too high. Offer to reduce it by removing a feature from the project. And make sure the feature you remove is worth more than the amount you reduce the price by.

More to come.

Next week I’ll conclude this series with the final tactics in the psychology of pricing.

Aug 9, 2021

This is week three of my psychology of pricing series. Where I share research-proven strategies to influence people to part with their hard-earned money. Some of these pricing tactics work great with your design business, and many of them are perfect for helping your clients get more sales.

If you haven’t listened to part 1 and part 2, I suggest you do so before continuing with this one. Let’s continue with the series.

The Psychology Of Pricing - Part 3

As I mentioned in the previous parts of this series, these tactics were taken from a very in-depth article by Nick Kolenda on the psychology of pricing. Have a look if you want to read through it yourself.

Since you’re here right now, I’ll presume you want me to continue summarizing each pricing tactic. So let’s get on with the list.

Tactic 19: Raise the Price of Your Previous Product.

This tactic applies whenever you or your client introduces a new, more expensive version of a product. Although under certain circumstances, it may also work with the services you offer.

If you’re introducing a new, more expensive version of a product, what do you do with the old version that’s left? Many people would lower the old one to sell the remaining stock as soon as possible. But a 2010 study suggests raising the price of the old product might be a better idea.

If you lower the old product's price, you’ll be reinforcing the lower reference price, which makes the new product seem more expensive, making people question if it’s really worth it.

Let’s say the old product originally sold for $100, and the new product is priced at $130. If you drop the price of the old product to a clearance price of $80, people are going to wonder if it’s really worth spending $50 more for the new product.

However, if you raise the old product's price, you also raise people’s reference or anchor price, which enhances their perceived value of the new product.

So instead of dropping the original product's price from $100 to $80, you raise it to $110. Now, people who compare the old and new versions will favour the higher-priced new version that is only $20 more than the old one. And those looking for a deal will be happy to save $20 by purchasing the old version.

Tactic 20: Sort Prices From High to Low.

A study conducted in 2012 showed that, on average, customers chose a more expensive option when products were listed in descending price order from highest to lowest.

This study was conducted in a bar over the course of 8 weeks. The researchers regularly alternated the sequence of the beer prices. Sometimes the beers were listed from the lowest priced beer at $4 down to the highest-priced beer at $10. Other times they reversed the list putting the $10 beer at the top.

The researchers discovered that, on average, the bar generated more money in beer sales when the higher prices were listed first.

Why does this work?

Once again, it comes down to the ever-important anchor price. Whenever someone looks at a list of prices, the first few prices create their anchor price. If the initial prices are low, it creates a low anchor price which creates an aversion to spending money on the higher-priced items lower on the list. If someone wanted to splurge a bit, they might opt for a $5 or $6 beer instead of the base $4 beer, but they probably won't be interested in the highest-priced beers at the bottom of the list.

However, if you reverse the order by placing the highest prices at the top to act as the anchor price, each lower price on the list seems like a better deal. Instead of spending $10 on a beer, someone might decide to save a bit of money and opt for a $7 or $6 beer instead. They feel good about saving money but still spent more than in the previous example.

As a species, we have an aversion to losses. When we see a list of ascending prices, meaning from low to high. We subconsciously see each price as we descend the list as a loss. Our motivation to minimize that loss causes us to chose a lower-priced product from the top of the list.

But when we see a list of descending prices, meaning from high to low, we see each item as we go down the list as a loss in quality. And since we don’t want to lose quality, we are motivated to purchase the higher quality, and hence more expensive product.

So if you're putting together an eCommerce site for a client, you may want to put the higher-priced items first in the hopes of increasing the average revenue from each sale.

This might also work with the Three-Tiered Pricing System I’m so fond of. I show my three price options from lowest to highest. It might be worth reversing it and showing the most expensive option first. You never know.

Tactic 21: Position Prices to the Right of Large Quantities

This tactic applies to products sold in bundles. A study conducted in 2012 shows that listing prices to the right of large quantities convert better.

70 items for $29

is better than

$29 for 70 items

However, the study showed that two conditions must be met for this tactic to work.

Condition 1: The unit price calculation must be difficult.

Meaning it shouldn’t be easy to figure out the individual unit price. The tactic works well with "70 items for $29" because it requires a somewhat difficult calculation to determine how much each item costs.

However, "10 items for $10" is too easy to figure out for this tactic to be effective.

Condition 2: The item quantity must be larger than the price.

Following this condition, "70 items for $29" works, but "3 items for $29" doesn't.

This brings us back to anchor prices again. "70 items for $29" works because, as Tactic 18 states, exposing people to any high number creates an anchor that makes the lower price seem more favourable. So $29 seems more favourable when placed to the right of "70 items."

Tactic 22: Add Visual Contrast to Sale Prices.

When you compare a price to a higher price, people are less likely to shop around for a comparable price. This is the same trick that works with the three-tiered pricing strategy. By showing three prices, you reduce your client's chances of comparing you to another designer since they already have various prices to compare together.

Tactic 22 takes another step and optimizes that comparison by visually distinguishing one price from a reference price.

As shown in a 2005 study, changing the colour of a sale price triggers a fluency effect. Customers will misattribute any visual distinction to a greater numerical distinction.

By listing the original price in black and the sale price in colour, you create a greater numerical distinction making the sale price seem more favourable.

Combine this with Tactic 3: Display prices in small font sizes for a double whammy. So not only should you change the colour but also make the sale price smaller to bring home the sale value.

Tactic 23: Offer a Decoy Option.

We’ve discussed using your own products as reference prices to prevent clients from looking elsewhere for comparison prices. Tactic 23 says you should consider adding a “decoy option.”

Back in 2008, Economist magazine did something that many people thought strange. They offered three subscription options.

  • Web Only: $59
  • Print Only: $125
  • Web and Print: $125

What? Print Only for $125 and Web and Print together also for $125? That had to be a mistake. Why would anyone chose "Print Only" when they could get "Web and Print" for the same price?

That was the point.

Further investigation revealed that without the "Print Only" option, people couldn’t accurately compare the other two subscription options. How much should a "Web and Print" subscription be? Who knows? Most people had no idea and therefore chose the "Web Only" option. In fact, 68% of people subscribed to the "Web Only" option.

But when Economist introduced the “Print Only” option, it helped people compare the other options.

Because "Print Only" was the same price but a worse version of the “Web and Print” option, people could now easily recognize the value of the "Web and Print" subscription.

With the "Print Only" option available, subscription purchases suddenly shifted, with 85% of people buying the "Web and Print" option. Economist magazine generated 43% more revenue simply by offering a Decoy Option.

By offering a similar, yet worse, version of a more expensive product, you influence the comparison process making the more expensive product more appealing.

How could you use this tactic for your design business?

When submitting a proposal, you may decide to offer a logo package for one price, a website for another price and a combined logo and web package for a very similar price as the website alone option. It might be worth testing out.

Motivating people to buy.

So far, we’ve been talking about ways to make prices more appealing. These next tactics are not about making the price look better but more about giving people a little nudge and motivating them to buy.

The idea here is to reduce the “Pain of Paying.” That feeling you get when you have to part ways with your hard-earned money. This “Pain of Paying” comes in two factors.

One: The pain we feel when our money leaves our hands.

Two: The pain we feel when we pay after we consume.

Uber, the ride-sharing service, does a great job of countering these.

With a normal taxi, you see the price meter go up and up with each kilometre you ride which causes stress. Plus, you’re forced to pay once you reach your destination heightening the Pain of Paying.

Uber, on the other hand, is almost pain-free. You pay for your ride in advance, and their app is connected to your credit card, so you barely notice the money leaving your hands.

Offering credit card payments for your design business and charging upfront are both ways of reducing the Pain of Paying and motivating people to buy from you.

Tactic 24: Remove the Currency Symbol.

A 2009 study showed that the Pain of Paying could be triggered pretty easily. Just seeing a dollar sign (or Euro or Yen or whatever currency symbol) reminds people of that pain and could cause them to spend less. Removing the currency symbol can help reduce that pain for them.

However, don’t start leaving the currency symbol off without considering the clarity of your price. We often need the currency symbol to show that a number is, in fact, a price.

Only use this tactic where people expect a price to appear. Such as on restaurant menus.

Tactic 25: Charge Customers Before They Consume.

Whenever you can, charge people before they use your service or product. It’s a benefit to everyone involved in the transaction.

By charging first, you know you’ve already been compensated for the work you do, so you won’t be worrying about getting paid. And chances are your client will be happier with your product.

A 1998 study shows that people are happier with a product or service when they prepay for it. This allows them to focus on the benefits they’re receiving, which numbs the Pain of Paying.

If they’ve already experienced the benefits before paying, such as a taxi ride, spending the money becomes much more painful.

This tactic works great for designers who offer retainers. Make sure you charge your retainer clients at the beginning of the month for the services they will receive. Not at the end of the month for services already rendered.

Tactic 26: Attribute Bundled Discounts to Hedonic Products.

To be honest, I don’t understand this tactic. Plus, I had no idea what the word "Hedonic" meant. So I looked it up.

Hedonic is Something relating to or considered in terms of pleasant (or unpleasant) sensations.

In other words, attribute bundled discounts to pleasant (or perhaps unpleasant) products.

Even knowing the definition, I still don’t fully understand how this tactic works, so I’m not going to try and explain it. If you’re curious, you can read the full description of Tactic 26 in Nick's article.

Tactic 27: Don’t bundle Expensive and Inexpensive Products.

The tactic is self-explanatory. Avoid bundling expensive and inexpensive products because the inexpensive products reduce the perceived value of the expensive products.

A 2012 study asked people to chose between a home gym and a 1-year gym membership. The results were an even split, with 51% choosing the home gym.

But when the researchers bundled the home gym with a fitness DVD, only 35% of people chose the bundle, the rest opting for the 1-year gym membership. The inexpensive fitness DVD reduced the perceived value of the home gym.

Tactic 28: Shift the Focus Toward Time-Related Aspects.

Try to avoid references to money when describing a product. Instead, focus on time: A much greater benefit.

An experiment conducted in 2009 had a lemonade stand where the researchers alternated three different signs advertising the product.

  • Sign One focused on TIME: “Spend a little time and enjoy C & D’s lemonade.”
  • Sign Two focused on MONEY: “Spend a little money and enjoy C & D’s lemonade.
  • Sign Three was NEUTRAL: “Enjoy C & D’s lemonade.”

Shoppers were told they could pay whatever they wanted between $1 to $3 for a glass of lemonade.

The results were unanimous. Not only did the “TIME” sign attract twice as many people to the stand, but those people paid more for their glass of lemonade than the other patrons.

Whenever you write sales copy, emphasize the enjoyable time people will have with your product or service over the money they may save.

The added benefit is that not only will focusing on time make your offer more appealing, but it will also lessen the Pain of Paying.

More to come.

Next week I’ll conclude this series with the final tactics in the psychology of pricing.

Aug 2, 2021

Last week I shared the first nine psychology of pricing tactics from Nick Kolenda's article. This week I continue the series with more great pricing tactics.

Tactic 10: Position Low Prices Toward the Left

According to a 2002 study, when designing a layout, you should position prices on the left if you want them to appear smaller. Here’s the reasoning.

Research shows that people associate directional cues with certain concepts. Up is usually associated with good, whereas down is usually associated with bad. You give a thumbs up to things you like and a thumbs down to things you don’t. In the Christian faith, good people go up to heaven, and bad people go down to hell.

This notion of up being good and down being bad triggers a spatial association. A 2004 study found that people recognized positive words faster when those words are positioned at the top of a layout. They recognize negative words faster when positioned near the bottom of a layout.

This same principle applies to numbers, including prices.

When people conceptualize numbers, they imagine a horizontal like with numbers going up from left to right. The smaller numbers on the left, the larger numbers on the right.

Since people associate smaller numbers as belonging on the left, positioning prices on the left side of a layout can trigger someone to associate it with a smaller value. The opposite works with larger numbers. If you want a number to appear large, position it on the right of a layout.

For example: for a message saying, “Receive a $20 credit for every person you refer.” you’ll want to place the $20 towards the right of the layout so that those seeing it will associate it with a large number making the offer more appealing.

The whole point of this tactic is to change the perception of a fixed price.  If you want $20 to seem like a great low price, position it accordingly. Whereas if you want $20 to seem like a nice high reward, position it accordingly.

Because of these directional cues associated with spatial concepts, the optimal position for your prices is the bottom left of a layout if you want it to appear as a low price. And the upper right of a layout if you want the price to appear higher.

Tactic 11: Expose Customers to Two Multiples of Your Price

My first time reading this tactic, I thought, “c’mon, this can’t be true.” but the more I think about it, the more it makes sense.

A 2011 study showed that customers exposed to two multiples of a price reacted more favourably to the price. Let me explain this.

Nick’s article shows four ads from Pizza Hut, a popular pizza chain you may be familiar with.

All four ads offered a deal costing $24.

  • The first ad is for 3 Medium pizzas with unlimited toppings.
  • The second ad is for 4 small pizzas with unlimited toppings.
  • The third ad is for 3 medium pizzas with up to 8 toppings each.
  • And the fourth ad is for 4 small pizzas with up to 6 toppings each.

The study conducted showed that customers were more favourable to ads 3 and 4. The two ads that limited the toppings. Then they were to the first two ads that offered unlimited toppings even though the first two ads were an economically better deal.

Why is that? It’s because ads 3 and 4 incorporated multiples of the price.

  • 4 small pizzas with up to 6 toppings each for $24. 4 x 6 = 24
  • 3 medium pizzas with up to 8 toppings each for $24. 3 x 8 = 24

I know it sounds crazy, but psychology can explain it.

As children, we were drilled with simple math problems where an association develops between operands. For example, if I say 2 x 6, you immediately think 12. You don’t actually have to do any math. It’s been ingrained into your brain. You just instinctively know that 2 x 6 is 12.

Because of associations like these, your brain processes them more fluently than if we actually had to figure out the sum or product.

Back to the Pizza Hut ads,

Because ads 3 and 4 contained multiples of the $24 (4 x 6 and 3 x 8, respectively), customers could process the $24 more easily. The price feels right to them.

This tactic can be used with small and large prices.

  • A product could be on sale for $15. Next to the price, you could indicate a 3-Day Sale for $5 off (3 x 5 = 15).
  • Someone could offer 4 weekly 30-minute coaching calls for $120 (4 x 30 = 120).
  • A webinar might sell a training course for $500, and as a reward for signing up before the end of the webinar, you’ll get 5 bonus eBooks (a value of $100) (5 x 100 = $500)

Tactic 12: Use the Right Amount of “Roundedness

Instead of using a non-rounded price, such as $97.76, use the rounded price of $98.

A study done in 2015 found that round prices are processed fluently, whereas non-rounded prices are processed disfluently.

This tactic seems to contradict tactic 9 that I shared with you last week. Tactic 9 said to use precise numbers instead of rounded numbers because people assume rounded prices are artificially higher as if you plucked them from thin air. However, there is a time when round numbers are preferred. And that’s when emotion plays a part.

It turns out that rounded prices because they are fluently processed, work better for emotional purchases. The opposite is true for non-rounded prices, causing people to use more mental resources to process the numbers. These are good for rational purchases.

So if you’re trying to appeal to someone’s emotions, such as donating to a charity or supporting a fundraiser, remove the cents and round to the nearest dollar. However, if you want someone to make a rational decision, such as buying life insurance, include the cents in the price.

Tactic 13: Tailor Prices Toward Names and Birthdays.

This tactic is a bit weird, but there is a lot of scientific research to support it. However, I’m not quite sure how you would put it to use.

A 2014 study found that customers prefer prices that contain the same letters in their name or birthday. For example, someone named Frank is more agreeable to a product priced at fifty-five dollars because fifty and five both start with F, the same first letter as his name.

This principle is called implicit egotism. It causes us to subconsciously gravitate towards things that resemble ourselves, including our names and the numbers on our birthdays.

I can’t argue with the birthday thing. My birthday is on the 26th, and I know that I notice the number 26 whenever I see it.

So maybe the next time you submit a quote to a client, adjust the price to suit their name? $55 for someone named Frank, $66 for someone named Sam.

Tactic 14: Show Prices at the Optimal Time

Unlike the previous tactic, this one makes a lot of sense. It asks what you should display first, your product or your price?

A 2015 study found that the order in which a product and price are displayed influences the buyer's criteria when making their decision.

When a product is displayed first and the price next, buyers base their purchase decision on the quality of the product.

When the price is displayed before the product, buyers base their purchase decision on the product's value.

Put the Product before the price, and people ask themselves, “Do I like this product?”

But put the price before the product, and these same people ask themselves, “Is this product worth it?”

So how do you put this into practice? The same study determined that if you consider what you sell as a luxury product or service, you want people to base their decision on the product or service quality. Therefore you show the product before the price. A good example of this is a jewellery store. A jewellery store wants customers to focus on the product before they see the price. Hopefully swaying their purchase decision.

The opposite is true for utilitarian or economic products, such as flash drives or batteries. You want to display the price first so that customers see the economic value of the purchase.

Tactic 15: Display Red Prices to Men

This is another tactic I’m not 100% sure of. Probably because it makes men, of which I’m one, seem simple-minded. (Ladies, stop nodding your heads)

A 2013 study found that men are more likely to buy something when the price is displayed in red. This study noticed that men process ads less in-depth and use price colour as a visual heuristic to judge the perceived savings offered.

Meaning, men are less likely to compare the product's other attributes when presented with a red price. They diminish the importance of the photos and listed features and focus on the red price.

Studies have proven that the colour red increases arousal, so maybe that explains it.

Tactic 16: Start Negotiating With a High Precise Number.

In my opinion, this tactic applies more to products than it does to services, but I suppose you could get it to work. The trick is to use a higher anchor price to drive up the selling price.

You’ll see this tactic often used with higher-priced items such as cars and furniture. It’s often referred to as the MSRP or Manufacturers Suggested Retail Price.

When you buy a new car, the sticker on the vehicle will often display two prices: the price the manufacturer suggests and the price the dealer is selling the car for. I can guarantee you that the dealer price is always lower than the MSRP. That MSRP creates an anchor or established value, making the dealer price seem like a great deal.

I suppose you can use this if you offer packages to your clients. For example, you may offer a package of services for $800, but next to it, mention that it’s a ($1000) value if they were to buy each service individually.

A 2004 study of eBay sales showed that auctions with a higher reserve price – the price that needs to be met for the item to sell. Higher reserve prices create an anchor towards the higher end of the price spectrum, resulting in more people bidding and the seller making more money.

Another study done in 2008 found that using a precise value as the anchor price also produced better results.

When people were asked to estimate the actual price of a plasma TV based on the suggested retail prices of $4,998, $5,000, or $5,012, the researchers found that the average estimated price was much higher for the two prices that were not rounded.

Tactic 17: Expose People to Higher “Incidental” Prices.

I just talked about anchor prices and how setting a high anchor price can make the actual price seem like a good deal. That tactic works great with higher-priced items. But what if you’re using lower prices?

A 2004 study showed that items could sell at a higher price when placed next to higher-priced items.

For example, a clothing store sells belts for $15 each. When the belt rack is placed near a rack of $25 pants, the store sells very few belts. However, when they move the belt rack next to a rack of $80, pants belt sales increase.

If you’re offering a service, it might be a good idea to mention some other higher-priced services you have to make the current selection seem like a great deal.

Tactic 18: Expose People to Any High Number

Continuing on the topic of anchor prices. This same tactic can be used with not only prices but with any number.

A 2003 study did a test with rare wines. They asked participants whether they would purchase a bottle of wine for the dollar amount equal to the last two digits in their social security number.

After receiving a YES or No answer, the researchers asked the participants to state the exact dollar amount they would be willing to pay. Remarkably, they found a direct correlation between the purchaser’s social security number and the price they would pay for the wine.

  • Those with Social security numbers ending in 00-19 were willing to pay $16 for the wine.
  • Those with Social security numbers ending in 20-39 were willing to pay $26 for the wine.
  • Those with Social security numbers ending in 40-59 were willing to pay $29 for the wine.
  • Those with Social security numbers ending in 60-79 were willing to pay $35 for the wine.
  • Those with Social security numbers ending in 80-99 were willing to pay $56 for the wine.

Obviously, you’re not going to ask your customers for their social security numbers to come up with a price. But you can expose them to a high anchor number just the same.

For example, on my podcast branding website where I sell podcast artwork for $295. I could list below the price that I’ve designed artwork for over 400 podcasts. Even though 400 isn’t a price. It still acts as an anchor, which psychologically affects their perception of the $295, making it seem lower.

Check back next week for even more ways to use psychology when displaying prices.

Tip of the week How not to miss anything when updating a project.

Whenever I have to update or make changes to a previous client project, the first thing I do is colour every element of the project MAGENTA. I colour the text, the lines, and for photos, images and graphics I colour or add a magenta frame to them.

Then, as I make the necessary changes or determine that a section doesn't require any changes, I recolour it back to what it should be.

Once I’m done, I can quickly look over the project to see if there are any magenta sections I've missed.

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