9 Scientific Studies Reveal Pricing Tactics to Instantly Increase Revenue (in Just 1 Day)

Pricing is a growth lever many businesses overlook. Businesses usually just look at their competitors' prices & then come up with their own. That's not very scientific!

Author

shaurya jain
February 19, 2024

Intro

You gonna like this one a lot guys!

In my opinion, newbie marketers focus on generating traffic & leads.

Advanced marketers focus on the copy as well, as it increases the conversion rate.

But only expert marketers focus on optimizing the pricing of their products and services. It might be surprising to you but Pricing increases the conversion rates as well!

And the best part is you can optimize your pricing within just 1 day

So lets see 9 scientific studies which show how to optimize your pricing strategy:

Use Flat rates

Insight

  • Offer flat-rate prices that include most or all the options customers may want (e.g. $99 for 10K emails sent as opposed to 1 cent for each email sent ).

  • Charge more for your flat-rate plans compared to pay-per-use (e.g. hourly rates), or expect higher demand if you don’t. You can keep pay-per-use for entry-level customers that want a low-commitment trial run.

  • For example, a fixed price of $10,000 is often more attractive than paying $90 an hour for an expected 100 hours (= $9,000).

Underlying reasons

  • People are not good at estimating their usage and usually overestimate their usage

  • People hate being uncertain about what they will end up paying. Actually people hate being uncertain in general.

  • The taximeter effect: People dont like the cost gradually increase.

  • Flat rate pricing is easier for the brain to comprehend.

  • Flat rate pricing reduce the feeling of possible fraud (a software development company working on an hourly basis taking more hours than required to complete the project)

Research Paper

Keep Price components simple

Insight

  • When you have to price components separately (e.g. for additional km of a rental car, additional users of a SaaS), keep prices simpler than those of your competitors.

  • Use rounded prices (e.g. $5, not $4.61), similar price endings for different components, and make options easily comparable. People will be willing to pay more.

  • For example, as a telecom provider, charge $0.10 per minute and $0.10 per extra GB of data, instead of $0.07 per minute, $0.09 per extra GB, and a $6/month service charge.

Underlying reasons

  • When prices are complex, people usually decide it’s not worth the mental effort to calculate the actual price, and just assume you are more expensive than simpler options.

  • If they do decide to calculate it, they find it unfair that you made them put in such effort. It’s even worse if they suspect you made it difficult on purpose.

Research paper

Show prices to Men in this color

Insight

  • All the politically correct and staunch feminists or men’s rights activists here, you may wanna skip this one because it might trigger you. No matter how much you would like to believe but men and women act differently

  • alright here is the insight: If at least some of your customers are men, write your prices in red to make them seem better value.

    For example, in one experiment, men evaluated red prices as 66% cheaper.

    The red price doesn’t have an effect on women so you might wanna make the default color of prices red to take advantage of the effect on men.

Underlying reasons

  • Men, in particular, are attracted to red because it's associated with testosterone and dominance,

    and attracts attention. For example, referees are biased towards teams that wear red, and men are more interested in asking a woman out if she’s wearing red. (i.e: the red dress effect)

Research Paper

Amount off vs Percentage off: which one to use?

Insight

  • When discounting a full price that’s higher than 100 (in any currency), use an amount off (e.g. $30 off).

  • For prices below 100, use a percentage off (e.g. 40% off). Why? Mathematically, the number used in the discount looks bigger.

    Bigger discount numbers instinctively seem better.

    For example, 20% off $400 is $80, and 80 is a much bigger number than 20.

Underlying reasons

  • again the reason is intuitive. The bigger the number present, the better does the mind perceive it to be.

Research Paper

Amount off versus percentage off—when does it matter? Journal of Business Research (August 2015).

Price in now X vs Price was Y: which one to use?

Insight

  • Use the already discounted price, not the original price to calculate the discount amount.

    For example, if discounting by $2 a full price of $10, you would normally say ‘now 20% lower’

    ($2/$10 = 20% lower). Instead, use the already discounted price of $8 ($10 - $2 discount) and say ‘was 25% higher’ ($2/$8 = 25% higher). It’s now a larger %.

  • The effect weakens or disappears when percentages go over 100% (e.g. was 125% higher) because people ignore the ‘100%’ and only count the ‘25%’. For example, a $12 discount on an item that was

    $20 ($12/$8 = 150% difference) is perceived as 50% higher, not 150% higher as it actually is.

Underlying reason

  • This again is pretty intuitive. Showing a bigger number helps you take advantage of the mental heuristic where the brain equates bigger = Better.

Research Paper

Store wide vs product specific discounts

Insight

  • When running a store-wide promotion for all or most products, use a percentage % off discount (e.g. ‘Today everything 15% off’). Sales increased 42.3% in one experiment.

  • If the discount is product or brand-specific, use $ amount off (e.g. $2 off on Duracell Batteries).

  • Some customers may use the discounts to hoard their purchases and wait longer until the next time they buy. If you can, try to send these offers only to segments that will buy new products (e.g. items they wouldn’t usually buy), not just hoard.

Underlying reasons

  • Percentage % off discounts remove limits of taking advantage of the discount, so people enter a “the more I spend, the more I save” mindset and buy more.

  • Amount $ off discounts clearly show how much people will miss out on if they don’t use it (e.g.

    $10). They also don’t need to calculate the savings by themselves (unlike with % discounts).

Research paper

Keep the price ending same for discounted price

Insight

  • When offering a discounted price, keep the price ending consistent with the original price. Eg: If the original price is 99 usd, then keep the discounted price 79 usd instead of 78.5

  • Always show the original price next to the new one so people understand how much they are ‘gaining’ with the offer.

  • Ofcourse this isnt applicable when you are giving a percentage discount.

Underlying reason

Subtractions are easier (e.g. discount is $20 = $36.95 - $16.95), so people are more likely to analyze and consider the benefits of the promotion, and are more likely to buy.

Research Paper

Consistent price endings increase consumers' perceptions of cheapness. Journal of Retailing and Consumer Services (May 2021).

Stay away from Big discount

Insight

  • Don’t discount prices more than 40%, unless there is an exceptional reason (e.g. store shut down clearance).

  • Discounts of 60% or more tend to reduce rather than increase sales, especially if your brand is not

    well known or it’s hard to judge a product’s quality before buying it.

Underlying reasons

  • Big discounts signal low product quality, which puts off most people from buying.

  • The effect is so strong that it can trigger a negative placebo effect. For example, people who drank an energy drink sold at a discounted price solved fewer puzzles because in their mind the energy drink was supposedly not that good

Research Paper

When discounts hurt sales: The case of daily-deal markets. Information Systems research (July 2018).

Limited time offers > Limited Stock offers

Insight

  • To encourage customers to buy now rather than wait (and probably forget), give a time limit for how long the product will be available or on offer.

  • For example, limit the offer to 48 hours, or until a specific time and date (make sure to specify the timezone).

  • Companies often limit the number of products available (e.g. only 1,000 pieces), rather than the time they’re available for.

    This method has been found to have a strong negative impact on people who miss out on the offer. They get angry with you and are likely to switch to a competitor. This is not the case if the offer was time-limited.

Underlying reasons

  • This pushes people to take action at the moment that they’re already most likely to buy.

  • Reminding people they could lose the offer if they wait increases the intensity of emotions (e.g. feelings of hope, fear of missing out), which increases interest.

Research Paper

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