4 Pricing Strategies in Marketing You Should Try

Marketing professionals use all sorts of methods to drive sales, including using prices to manipulate people. They might change the price of something to make it seem like a better deal than it is. This can help increase revenue and get products off the shelves.

You know some of these marketing strategies already. Retail companies have been using price as a marketing tool for many years. They use discounts and coupons to sell billions of dollars in merchandise. This is even though their tactics are somewhat obvious, even to their best customers. After all, how do you turn down a sweater that's twice-discounted to less than 70 percent off the original sticker cost? Discounts are a simple, powerful example of price marketing in action.

There are many pricing strategies that are not so obvious. Businesses use these strategies to sell more products or services, or to get more attention for their brand. In this article, we'll look at four ways you can use price as a marketing tool in your business.

Using the highest price to raise the average order value

When a restaurant wants to increase the average order value for wine or appetizers, they raise the price of their most expensive item. This is a common phenomenon that was explained by Hermann Simon in his book, Confessions of the Pricing Man:

• When buyers don't have any specific requirements (e.g., they want a high quality product but don't care about the price) or know neither the price range nor the special requirements of a product category, they will usually choose a product that is in the middle of the price range. What does this mean for sellers? Quite simply, it means that you can use your prices to steer customers towards certain levels and away from others.... After looking at the wine list, most guests order a wine with a price in the middle of the list. Only a few guests opt for either the most expensive or least expensive wine. The middle has a magical allure.

When you set a high price, the price for the middle option also goes up. This is something that marketers use to get people to spend more money.

Offering tiered pricing like this also ensures that you never lose any money. I have done this before in my copywriting business. By offering multiple options in my statement of work, from low-cost to mid-tier to premium, my proposal no longer poses a "yes" or "no" question. Instead of accepting or declining the offer, clients simply choose the value and cost that works best for them.

Disruptive pricing to attract free media attention

Jeff Bezos famously said, "Your margin is my opportunity." This means that if you have a product that is more expensive than mine, I can offer it at a lower price and still make a profit. This happens all the time in business. When one company offers a product at a lower price than their competitors, they often get positive media coverage.

Charles Schwab, the founder of Charles Schwab Corporation, experienced this in the 1970s when he was starting his new company. In those days, investing was expensive. Low fees were not commonly available like they are today. One day Schwab met the famous syndicated finance columnist Dan Dorfman at the Four Seasons in New York City. Schwab gave Dorfman a rate card for investing through his company.

Dorfman was immediately interested in Charles Schwab Corporation when he found out about the company's low rates. He called Merrill Lynch to compare rates, and the difference was so big that Dorfman wrote about it in a column that was published in hundreds of newspapers across the United States. Schwab said that this one article was worth more to his business than a year's worth of advertising.

Some recent examples of businesses that used disruptive pricing to get attention are Tesla in the electric cars space and Warby Parker in the glasses industry. These companies were able to get media coverage by bucking traditional pricing strategies and attracting customers with lower prices.

Shipping as a (pretend) loss leader

In 2005, Amazon introduced Prime, an annual subscription service that would offer customers unlimited free two-day shipping. At the time, Amazon charged customers $9.48 for two-day shipping. For frequent Amazon customers, this offer was a no-brainer.

But we all know how this story ends: Amazon was the real winner here. Today, revenue from Prime subscriptions alone reaches into the billions. Vox reports:

• Amazon single-handedly changed how easy it is to shop online. This made people more likely to buy things online that they wouldn't have before, like last-minute gifts and items near the end of a pack of diapers.

Amazon used two-day shipping as a way to get people to buy more things. They lost money on the shipping, but it helped them make more money in the long run. Other smaller ecommerce companies do this too in order to increase how much people spend on each order.

Low dollar, high cents pricing

There are a lot of ways to market your product or service. One way is to play with people's perceptions, using psychology to make them more likely to buy. Sometimes making a small change in how you price something can have a big impact on sales.

For example, consider pricing something at 99 cents instead of a dollar.

• As Hermann Simon writes: People perceive the digits in a price with decreasing intensity as they read from left to right. The first digit in a price has the strongest influence on perception; that is, a price of $9.99 comes across as $9 plus something rather than $10. Neuropsychologists have confirmed that the further to the right a digit is, the less influence it has on price perception.

Some businesses use their prices to create a certain image or brand. Other businesses use prices to get people to spend more money. It doesn't matter which way you do it, but you should at least think about price when creating your marketing strategy. You also need to think about how you structure your costs. This may be one of the most important decisions you make this year for your business. Or, like Amazon, it could be one of the best decisions your business has ever made.

‍