Product Pricing and Price Relativity : Explained

Which one would you choose?

A) $120 per night without breakfast
B) $135 per night with breakfast
C) $200 per night with breakfast for the royal bedroom villa

You likely chose C. And there’s a reason for it.

Let’s talk about Price Relativity (with 6 examples):

Before we get into it, et me ask you a question…

👉 Which of the orange circles on the image below is bigger?

The truth?

Both circles are exactly the same size 😲

This is called the Ebbinghaus illusion:

The *perceived* size of the orange dot is dependent on what it’s compared to

In other words, our brains process images not exactly as they are—but in comparison to what else we see

Analyzing prices works the same way…

Buyers don’t instinctively know what is a “good” or “bad” price to pay

We need comparisions to determine the value

Changing the comparison set changes the value image of a product

The same price can be tweaked so it *appears* smaller

This is known as Price Relativity

Buyers need contrast to understand the value of your product

It’s up to you to give consumers a meaningful comparison set to examine the value of your offer accurately

Alright, so how can we apply this right now to sell more?

👉 Create a “Decoy” Offer

Introducing a more expensive offer can make your other products seem like a better value.

For example, a coffee company could introduce a jumbo-sized coffee as a decoy to make their regular coffee appear cheaper.

👉 Change Your Competitive Set

Seedlip carefully positioned itself as “a non-alcoholic drinks brand” rather than as “a soft drink”

Why?

$34.99 for a bottle of soda seems overpriced
But $34.99 for a “non-alcoholic spirit” in a premium bottle seems fair

Another example is how Nespresso compares itself to buying coffee at a regular coffee shops—not brewing coffee at home

A regular coffee at Starbucks costs $2.95

If you compare it to a Nespresso pod that costs around 35 cents a piece, the winner is clear

👉 Highlight the Cost of Not Using Your Product

You can also alter the comparison set by putting a spotlight on the costs of not using your product or service

In the ad below, Durex compares itself to the cost of having a baby

That makes their product look like a bargain

Dove has also tested this approach

This ad highlights how not using their product will leave a harsher feeling on your skin

In comparison, their body wash is “gentler”

If you want to justify your prices, you can:

👉 Create a “Decoy” Offer
👉 Change Your Competitive Set
👉 Highlight the Cost of Not Using Your Product

By altering the price *perception* you can heighten your product’s value in the eyes of buyers

That’s a wrap!

I hope this inspired you to think more deeply about your own pricing

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