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  • Daman Soni

10 Ideas on how Pricing Strategies can Improve Growth

Pricing is a strategic tool that can be used by the marketing team to drive growth.

Pricing Strategies

Getting pricing right is critical for long term success of a company. How much you can charge a customer is contingent on the target audience, the value delivered, costs, positioning, the market environment and competition. Pricing strategy is used by businesses to drive sales of its products or services. Getting the pricing strategy right is tough and is contextual. Here we will explore how we can use pricing models and strategies help drive conversions and sales.

1. Price Anchoring

If a user doesn’t feel that the product or service gives them value for money he’ll look for alternatives or simply won’t convert. Using a price anchor can help to overcome this by making the price appear less expensive. Simply, what’s the best way to sell a $1000 monitor? Price the adjacent monitor at $3000.

The anchoring cognitive bias kicks in here. Anchoring refers to the human tendency to rely too heavily on the first piece of information offered when making decisions. Price anchoring can influence how your product’s price and value will be evaluated. When comparing different price options, people will be influenced by the first price they see or read. Engaging users with large numbers is proven to increase the perceived value of your product. You can do this with a now-defunct high-cost offer, an entirely unrelated number, or by sorting your offers in descending price order.

The $597 bundle looks reasonable in comparison

Sometimes you don’t even need to use the price to anchor. Showing the user a large number also helps in anchoring. Hotjar's users will be anchored by the large number (20,000) at the top, even though it isn't a price.

2. Freemium Pricing

Freemium is a pretty common strategy used by SaaS players. The companies give a version of their product free of cost to users. Paid plans give the users much more functionality and involved users move to a paid version after a period of time when seeing the benefits of the additional functionality. Some SaaS companies open up the full functionality of their product to users but for a limited period of time which gives the user enough time to experience the product and figure if it is valuable.

That was the simple stuff, so how does one leverage Freemium plan to drive growth?

Make sure that you have an outreach plan along with freemium pricing. Target bloggers who write about products in your category. Let them know how your product is better than the competition they've written about, and how much their readers will love it. Even though they may not end up using your product they will still write about the product value and features in details.

Companies like Hootsuite and Mailchimp have over 10 million mentions each for their freemium offering.

Secondly, drive word of mouth by nudging your free plan users to share a tweet an invite link with their friends. In return extend their freemium plan for a few more days.

Zapier has leveraged freemium pricing well to drive growth. Zapier connects your apps to automate tasks (also one of my favourite automation tools). Zapier's freemium plan allows users to start off with five zaps (automations) that can run up to 100 tasks/month for free. Their free plan gets people in the door to try out a few zaps. It is quite addictive once users figure out how to automate mundane processes Upgrading to more zaps is only a matter of time.

The reason why I like Zapier’s freemium model is that the starter plan is very attractively priced and becomes a no brainer for cost-benefit analysis. Users share the zaps that they have created in the community forum which gives other (and new) users ideas on how Zapier can be used. This builds the flywheel to get more users.

3. Price Reframing

Reframe your price into its daily equivalence. This influences people to perceive a lower overall price. Keep the regular price the in focus but simply mention the daily equivalence. That low number will anchor people toward the lower end of the price spectrum. Other ways of doing this is to compare the price to some everyday task like a cup of tea.

Insurance companies user price reframing very often.

$8 a day translates to $2920 per year. Which is an easier decision to make?

4. Pricing ending in 9 ( a.k.a Bata Price)

Known as "charm prices. Prices with the number 9 are one of the oldest pricing methods in the book. Prices ending in 9 were so effective companies were able to outsell even lower prices for the exact same product. In the controlled experiment done by Schindler and Kibarian, it was proved that pricing ending 9 pricing can give as much as an 8% increase in sales without changing any other but just a digit in the pricing.

Consumers often tend to base their purchases on their emotional state. For example, when someone buys a product that is hedonic but does not need it, he feels guilt. Prices ending with a 9 are considered to be a good “deal”, which reduces the feeling of guilt. Prices are not just numbers in our brains, but a whole subsystem of cognitive schemes and emotions.

5. Selling Time over Money

Consumers tend to recall more positive memories of a product when they are asked to remember time spent with the product over the money they saved. Get the user to recall the good times he had when he purchased a product. This will help nudge the user closer to clicking the purchase button. Purchases like concert tickets benefit more from the “time spent” messaging.

6. Dynamic Pricing Strategy

Dynamic pricing is a flexible pricing strategy where prices fluctuate based on market and customer demand. This includes multiple methods:

  • Segmented pricing: Different user segments see different prices for the same product.

  • Peak pricing: The pricing is based on the demand in the market. When the demand is high in the market and the inventory of competitor is low, the retailers set a high price. Airlines and hotel use this often

  • Time-based pricing: This is based on the age of the product or how long it has been in the market. By reducing the price of older products, an increase in its sales can be realized.

Companies use dynamic pricing by applying algorithms that consider competitor pricing, demand, and other factors. These algorithms allow companies to shift prices to match what the customer is willing to pay at the exact moment they’re ready to make a purchase.

Disney’s theme parks use dynamic pricing to impact the customer experience, applying high prices on peak days and discounts off-peak. All customers have a better customer experience with shorter queues, better value for their stay and more time spent spending more money.

Dynamic Pricing can be used as a lever to control supply and demand. This is common in the consumer power industry where dynamic pricing is used to dampen demand at peak times, on toll roads to manage peak traffic volumes, and at Uber which uses surge pricing to match demand with supply.

7. High-Low Pricing

High-Low pricing involves setting a high (reference) price for a product/service then lowering it during a sale/promotional period before once again increasing the price. Here, the reference price serves to reflect the product’s value and reputation before it is discounted. This strategy works by pushing a sense of urgency onto customers to purchase the product during the sales period. High-low pricing is used extensively by major retailers and speciality companies such as Adidas and Nike. They set prices high but then periodically offer consumers lower prices through sales, promotions or coupons. High low pricing first establishes the value of the product through higher pricing. By then lowering the price it drives higher traffic thereby increasing sales.

There’s a risk with this strategy if not done right. If the product is consistently available at a discount, the discounted price will no longer be perceived as a bargain, but an everyday low price (EDLP)

8. Bundling

Bundle pricing is a pricing strategy in which a company combines several products and then sells them at a single price instead of charging separate prices for each of them. Bundling allows companies to sell their lesser-known or unpopular products with popular ones. It will attract different kinds of buyers: buyers looking for deals, buyers looking for convenience or buyers looking for advice on items that complement each other. Some consumers will be spending more than they initially wanted when they see an offer they like.

Companies like Netflix reinvented the bundling game by converting it to subscription revenue. If Netflix had tried to sell movies and episodes at unit prices, the usage would have never been so high. Bundles encourage product sampling and exploration which in turn leads to greater product engagement and consequently loyalty. Additionally, bundling reduces the “pain of paying” for consumers. Because pricing is opaque, they’re less able to identify the “right” price and, therefore, less anxious about paying the “wrong” one.

9. Offer payments in instalments

Many users prefer an option to pay for products in smaller increments rather than one lump sum. Not only does this anchor the user on the smaller price it also brings affordability to the purchase. Partner with a zero EMI provider if needed. No cost EMIs enables a user to buy an expensive or popular product which currently is beyond his current budget. It will enable the user to buy the product by getting a discount on the interest to be paid. With a zero EMI option, the buyer will lean towards big purchase on your site more easily. Impulse purchase on eCommerce sites is quite common. No cost EMIs can remove the friction due to affordability.

10. Reduce the pain

Go Small

The brain has a universal conceptualization of size. Thus, there’s a blurred overlap between visual size and numerical size. In a layout, position larger elements around your price. This will make the price look smaller (yeah, it works). The reverse works for discounts. Another way of emphasising small is just writing “small” before the price. (yeah, this works too)

Be precise with large prices

Buyers will pay more money when prices are specific. Psychologically this is due to the small effect again. Users use specific numbers when discussion smaller numbers (think 1,2,34,25). Due to that association, precise numbers trigger an association with small values — thus influencing the user's perception.

Rule of 100

On a Rs 50 purchase. What sounds like a better deal: 20% off vs. Rs10 off?

Both discounts are the same monetary value. However, one discount has an advantage. Give % discounts when the price is below Rs 100 and absolute discounts when the price is > Rs 100. Using the “Rule of 100” could turn a lot of “maybe” visitors into paying customers. Why? People hate doing math. When you make the math easy, you make it easy for people to make a purchase without having to cut into your profit margins.

There are many more pricing strategies that are used by companies. The pricing strategy should align with the company’s goals. This doesn’t mean just mean selling the most units. It could be about growing market share, defining the company’s brand (premium offering or a price leader), or keeping competitors at bay.

The aim here was to explore how pricing can be used to nudge the user closer to conversion and drive sales. Pricing is a strategic tool that can be used by the marketing team to drive growth.


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