Price points | Psychology for Marketers

Pricing Strategies: How “useless” price points increase sales

Setting up additional price points for your offer is one of the most effective pricing strategy in marketing.

Price is never an absolute value. It is always perceived.
What is $20, for example? To those who earn a lot – it’s nothing. To the unemployed one – a lot. For a car? Nothing! For a chewing gum? A fortune.

The price itself doesn’t have any meaning. Only in comparison to something else does it acquire the meaning and value.

This is the way people perceive prices. We naturally compare them to something else.

Knowing it, you already have at hand a valuable knowledge. Now let’s look at how to use it.
If you know your prospect will compare your price to something else – give them that something else. This way you control how your price will be perceived.

Let’s look at the example:

You own a hotel, and your standard offer is a double room with a small balcony.
You advertise this room. Now whoever comes across your ad, will compare your offer to other offers they have seen – of different hotels.
To control the comparison, you create a second offer – deluxe. This is a much bigger room, with a bigger balcony and a kitchen. Now this room is almost twice as expensive as the standard offer.
You again advertise your standard room, but this time you show both of your offers: standard and deluxe. Now your prospects compare the standard room to the deluxe one – not the competition. And in this comparison, the standard room seems like a great deal!

This practice is very often used for products such as hotel rooms, cars or clothing. Your main offer is standard and that’s what you’re trying to push. You add another offer (deluxe) not to sell it, but to make a standard offer look like a very good deal.

Another example of how to use additional price points comes from The Economist.

At one time, if you wanted to subscribe to the Economist, you would see 3 price options:

1. A web-only subscription for $59
2. A print-only subscription for $125
3. A web + print subscription for $125

Though it’s not sure whether The Economist made a mistake when creating offers, or did that on purpose – it does reveal the effect of adding ‘useless’ price points to the offer.

Look at the 3 offers again. If you choose option 2, you get print-only subscription, whereas in option 3 – web and print. For the same price! Who would go for option 2? Nobody! And nobody would go for option 1 either. This is because in comparison to other 2 offers, the 3rd one seems like the best deal.
By adding one seemingly useless price point (option 2), The Economist boosted the perceived value of option 3.
Why does it happen?
Choosing option 3 in the presence of option 2 allows people to feel smart and canny, because they figured out which option is actually the best.

A great psychologist and economist Dan Ariely describes this example his amazing (and one of my personal favorites) book, Predictably Irrational.
Watch this 2-minute excerpt video of Dan Ariely’s TED talk where he explains his experiment:

What having an additional option (even if it seems useless) really does, is that it makes us feel like we are great decision makers. We turn to seeking value rather that looking for the cheapest options.

How additional “useless” price point affects sales:

Psychology for Marketers - price points

This can have profound implications in long term. The threat with pricing your products or services low is that we turn our customers into bargain seekers. We jeopardise the loyalty they might have had to our brand and turn them into customers who go for the best price rather than best value.
Using price points as shown above allows you to win the heart of your customer back.

Now I’d love to hear from you.
Have you ever observed change in sales based on what price points you were offering? Let us know in the comments section below. If you have any more questions regarding setting additional price points for your pricing strategy, you can also leave your question below and I will get back to you.

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  • Justyna

    Reply Reply May 2, 2013

    Good article ! Thanks Magda!
    There is very similar mechanism used f.e. b.y. coffee chains. By offering three options: S,M or L coffee they are increasing significantly the posbility of purchasing the L option. When there is only S & L, people tend to buy only S. It really works! :-)

  • ashwin

    Reply Reply May 3, 2013

    this is a very interesting article magda, throughly enjoyed the 2nd chart posted @ the bottom of the page..

    One point as a counter though, you might not want to provide too many choices and that is a fine art according to me.. the tendency to create sub-products and sub choices can in this case backfire, so the crux of the article to me is that we should create price point differences but with a small number of choices instead, just my 2 cents on this topic…

    • Magda Kay

      Reply Reply May 3, 2013

      Hi Ashwin!
      You are very right :) This technique will work if we have 1 main offer to sell and we add another one around it. Bu adding too many choices we can cause them not to chose at all. Check out an earlier post that talks exactly about this phenomenon:

    • Aika

      Reply Reply June 1, 2013

      Yes, it grows slowly! Next week I’ll itnlasl two of them and the other two in April. It’s so delayed, should have been put there already in December. They are a bit stressed at the construction site, but I’m not :)

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