The psychology of pricing: Beacuse you're leaving money on the table

[raeh]

I started a newsletter about how founders and makers will price their products.

A quick awareness about pricing.

Increasing revenue by 26.5% with a tiny pricing change.

Dive in straight away; ⤵

Which package would you choose in a pricing as below?​

https://preview.redd.it/pf15b0rqd6y...bp&s=17e8dc235a27bc6df2f5637931f677125be3189d

It’s very likely that you are buying pack 2 too. And about 70-80% of people prefer the 2nd package this pricing.

Buying rate of users will be almost much like this.

Package 1: %15-20

Package 2: %70-80

Package 3: %5-10

Because I carefully designed this pricing hypothesis for people to choose package 2.

We behaviorally tend to choose pack 2 in a pricing design like this. A stupidly advantageous (profitable) deal in this pricing design is package 2.

Only a small minority buys pack 1 and pack 3. (There are reasons for that.)

With scientifically proven theories such as libertian paternalism, nudging, cognitive biases, people’s decisions and behaviors can be influenced.

Just like I influenced your decision for pack 2.

Here’s how decisions are influenced using behavioral psychology in pricing.​

https://preview.redd.it/j2xgidutd6y...bp&s=eac010963389a0a1c0c17997ab384da01877761e

Tip 1:

With its price and pack features, pack 1 is an anchor that makes Pack 2 feel like a profitable deal.

→Cognitive Biases; Anchoring bias, Framing effect

Tip 2:

$59 is another anchor. It makes the package feel more advantageous than usual by offering an incentive.

→Cognitive Biases; Anchoring bias, Incentives

Tip 3:

“Only first 20” creates scarcity. This triggers loss aversion. Procrastination is avoided and creates urgency to buy right away.

→Cognitive Biases; Scarcity urgency, FOMO

Tip 4:

Pack 3 is priced at $99, making the price of pack 2 seem very reasonable (because the features in pack 2 are more than enough)

→Cognitive Biases; Confirmation bias

But, our decisions and behaviors are influenced by cognitive biases.

Therefore, Package 2 feels like a “foolishly advantageous deal.”

If there was classic/linear pricing?​

https://preview.redd.it/zwtwqa7yd6y...bp&s=88d1098125e43e261594d436d3b47ae9aea3b0f7

This is what we see in almost every product and SaaS.

Probably yours too.

Most products make pricing classic/linear. That leaves potential customers free to choose.

For example this.

The package is not 1 anchor. And there isn’t much reason for potential customers to choose pack 2.

Buying rate of users will be almost much like this.

Package 1: %55

Package 2: %35

Package 3: %10

Here’s the impact on revenue:​

https://preview.redd.it/ykkjlwl1e6y...bp&s=6855692aff63788c15687e1c48fca5f0981e3211

Do you see the difference here?

If we take a sample for 100 paid users;

With classic pricing, the MRR would be $3400.

But with behavioral pricing the MRR is $4300.

Tiny a pricing tweak can increase your MRR by 26.5%.

Here's this is leverage.

Because people aren’t rational. People are irrational and emotional. We can’t resist the context, contrast, anchors, and nudges presented to us.

Just like placing a fly image in urinals increases the cleanliness rate by 60%.

Or adding a third option (decoy) next to two pricing changes our decisions just like

Tell me what your biggest pricing problem is. I will read every reply and help to you

If you find it interesting, feel free to contact me for your questions. Because, you’re leaving money on the table.