The secret psychology of pricing

Published: Wed, 11/13/24

Updated: Sat, 11/16/24

November 13, 2024

TOGETHER WITH

Good morning, sales world, and welcome back to The Quota, where we look at what every sales influencer is doing and try to do the exact opposite. In this week’s issue, we’ll take a look at the psychology of pricing, share a Sales Fail about personalization gone wrong, and give some advice to a rep whose messy friend is asking for a job referral. So sit back, minimize that CRM tab (just for a few minutes) and enjoy the newsletter!

NUMBER OF THE WEEK

2.1

Salespeople who state their reason for calling have a 2.1x higher success rate.

Source: Gong

SALES ROUNDUP

Here’s what’s happening in the sales world this week:

Sales tech giant Salesforce plans to hire more than 1,000 workers to sell its new generative AI agent product, according to a recent report in Bloomberg. The hiring surge is aimed at capitalizing on “amazing momentum” for the new artificial intelligence product, Chief Executive Marc Benioff said in a message. “Agentforce became available just two weeks ago and we’re already hearing incredible feedback from our customers.” You can read more about it here.
Car titan Nissan plans to lay off thousands of workers as it slashes global production due to weak sales performance. The Japanese car making giant says it will cut 9,000 jobs around the world in a cost saving effort that will see its global production reduced by a fifth. The company also cut its operating profit forecasts for 2024 by 70%. It was the second time this year that the firm has lowered its outlook. “These turnaround measures do not imply that the company is shrinking," said Nissan's chief executive Makoto Uchida. You can read more about it here.

FEATURE

The Psychology of Pricing: How Small Changes Can Drive Big Sales

Pricing is (naturally) the most contentious part of any sales process. The person you're pitching might try every trick in the book to get you to come down on price. But understanding the psychology of how customers perceive and react to different pricing strategies can significantly impact how successful you are in closing deals without needing to get approval from your manager to lower the price.

At its core, psychological pricing isn't about random discounts or arbitrary numbers – it's about understanding how the human mind processes and responds to different price presentations. Research has shown that seemingly minor adjustments in how we present prices can lead to dramatic differences in customer behavior and purchasing decisions.

Let's explore four proven psychological pricing strategies that can give you an ace up your sleeve when presenting the price to prospects.

1. The Magic of Charm Pricing

Have you ever wondered why prices so often end in .99? It's not just tradition — it's science. A fascinating study by MIT and the University of Chicago found that identical products actually sold better at $39 than at $34, despite the higher price point. This "charm pricing" strategy works because customers tend to perceive prices ending in 9 as significantly lower than rounded numbers. This means you might have better success presenting a product at $299 rather than $300.

2. The Strategic Power of Bracketing

When presenting pricing options to prospects, consider the "bracketing" strategy. This approach involves offering three price points: low, medium, and high. The key is to position your preferred option (usually the middle one) as the most rational choice. This works because humans naturally tend to avoid extreme options, gravitating toward middle-ground solutions.

For example, if you're selling software subscriptions, you might present:

Basic Plan: $199/month

Professional Plan: $299/month

Enterprise Plan: $499/month

By strategically pricing the Enterprise Plan significantly higher, you make the Professional Plan appear more attractive and reasonable — even if that's the price point you were aiming for all along. Bonus points if you combine bracketing and charm pricing like in this example.

3. The Decoy Effect

One of the most sophisticated pricing strategies is the "decoy" approach. This involves introducing a strategically priced option that isn't meant to sell but rather to make your target option appear more attractive. Consider a scenario where you're selling two service tiers:

Standard: $1,000

Premium: $2,000

By introducing a middle tier at $1,900 with slightly fewer features than the Premium package, you suddenly make the Premium option look like an exceptional value — after all, it's only $100 more for significantly more benefits.

4. The Power of Simple Language

When presenting prices and deals, remember that simplicity wins. Rather than saying "50% off when you buy two," try "Buy one, get one free." While mathematically identical, the second option is more appealing to customers because it's easier to understand and feels more like a concrete benefit rather than a calculation.

Implementing These Strategies Effectively

As you incorporate these psychological pricing techniques into your sales approach, remember a few key principles:

Transparency is crucial. While these strategies are powerful, they should never feel manipulative. Your goal is to present options in the most appealing way while maintaining trust.
Test and adjust. Different strategies may work better with different customer segments or industries. Pay attention to how your clients respond and adjust accordingly.
Focus on value. Psychological pricing works best when it highlights the genuine value you're offering. Use these strategies to emphasize the benefits of your product or service, not to mask its limitations.

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MEME OF THE WEEK

Source: Instagram -- Sales Humor

QUIZ

Sales trainer Jeffrey Gitomer wrote the Little _____ Book of Selling.

A. Yellow
B. Pink
C. Red
D. Holographic

SALES FAILS

Each week, we bring you the most cringe-worthy sales moments from across the web. To submit your sales fail story for consideration, click here. (Don't worry, you'll remain completely anonymous).

I'm a BDR, so I do a lot of cold outreach. I always try to focus on quality over quantity, so this usually means I'll spend 20-30 minutes per target account to find the right contact, look them up on LinkedIn, Google them for any interviews/quotes, and find their Twitter so that I can try to get a clearer picture in my head about the person and hopefully find a nugget that I can use to personalize the initial cold email. This has worked for me in the past. I've gotten plenty of responses from people impressed with the depth of research I do who book a meeting solely because of that.

Well, a month ago, I was researching a prospect. She had recently come back from maternity leave and had posted about it on LinkedIn with a photo of her newborn. I figured that since she was posting about it on social media, it was fair game and something that might get her talking. I wrote her an email that started with "Congrats on the new addition to your family, I hope [baby's name] isn't keeping you up all night." She had mentioned the baby's name in the LinkedIn post so I thought I'd use it to show her that I had done my research. I fully realize now how creepy this actually was. The woman emailed me back and said "How do you know my baby's name????" I realized she was spooked by the whole thing so I emailed her back, mentioning that I saw it on LinkedIn and apologized if it came off the wrong way. She messaged me back and said "this is incredibly inappropriate, please don't ever contact me again." I'm definitely more careful now when I do prospect research.

Anonymous Location withheld

GRAPH OF THE WEEK

Source: LinkedIn Poll -- November 2024

WORTH A PEEK

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ASK THE QUOTA

Want to submit a question and be featured in our advice column? Click here. (Don't worry, you'll remain completely anonymous).

Dear Quota Team

I've got a pretty great sales gig. I've been here for 3 years now. Pay is good, quota is doable, and my manager gives me lots of autonomy. The company has been growing and we're now expanding the sales team. One of my old college buddies who I'm still close with is in sales and asked if I could recommend him. He's employed in a sales job now but he bounces around a lot. He's a big party guy and he's not the most reliable person. He always cancels plans with me last minute or sometimes just doesn't even show up. He RSVP'd to my baby shower last month but then just never came. No text, nothing. I'm a bit worried about recommending him because I don't want it to reflect negatively on me if it doesn't work out, but he is an old friend and I feel kind of guilty saying no. What should I do?

Hesitant in Maine

Dear Hesitant,

Tell your friend to submit his resume, then be honest with the hiring manager about the negatives and positives that might come with hiring your friend. This will ensure that you’re being a good friend while simultaneously absolving you of responsibility with your company in the event they want to hire your friend and it doesn’t work out. Of course, if you really don’t want him to join the company, you’ll have to find a polite way to let him down. Good luck.

Quiz Answer: C. Sales trainer Jeffrey Gitomer wrote the Little Red Book of Selling (you can read the source article here)

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Today's email was written by Ken Kupchik, Erica Furgiuele, Steve Rado, and Emily Hill.

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