Pricing Biases and How to Overcome Them
We all have biases. And, business executives have to battle pricing biases when selling to prospects and customers. Here are 2 biases and ways to help combat them.
Our brains can be tricked to anchor to the last number seen. In various studies, college students were asked to think of the last 2 digits of their social security numbers and then asked to price an item. Those with the highest 2-digit numbers priced the items higher than those with the lowest 2-digit numbers. This happens when age or other random numbers are used.
The best way to have anchoring work to your advantage is to introduce the value of your product early. If your product or solution saves your customers $10 million, you could use that number as an anchor and provide a range of prices to deliver the savings. For example, you could say, our clients see $10 million in savings after an investment of $500 thousand to $1 million.
Once we do have a price in mind, we have an expectation that those prices will remain the same now and in the future. Consumer product brands know this bias is so strong that they often will keep prices the same while minimizing the volume in the jar of peanut butter rather than add 10 cents to the price.
Interestingly, this bias might impact the executive suite as well. You may avoid changes to your pricing structure even as your business completely evolves because of an arbitrary coherence to your older pricing structure.
Value-based pricing (where you look at the value you deliver to the customer instead of solely looking at the cost of that product) does a better job at minimizing arbitrary coherence. Knowing that your price will be the standard your customer uses for future pricing, you have to be careful not to set prices significantly low in the hopes that you will be able to increase them later. You might, but it is a harder task.
Overall, while these two biases exist and we’ve mentioned some simple ways to counter them, the process is often more nuanced. If interested, sign up for a free pricing consultation.
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